Partnership Law: The modern law of firms, limited partnerships and LLPs 9781526508423, 9781526508454, 9781526508447

Table of contents :
Preface
Table of Statutes
Table of Statutory Instruments
Table of Cases
Chapter 1 Partnership in general
1 The nature of partnership
2 The history of partnership
A The origins
B The statutes of 1865, 1890 and 1907
C Later development
3 Foreign firms and companies
A Foreign companies and apparent companies
B Scottish and Irish partnerships
C Isle of Man and Channel Islands
D The nature of foreign partnerships
E Recognition by the courts of England and Wales
F Procedure against foreign firms
Chapter 2 Whether there is a partnership and whether a person is a partner
1 Express agreement, complete or incomplete
A Agreement that there is or is not a partnership
B The issue as to the existence of the partnership
C Sham partnerships
D Partnership options
E Proposals and preparation for business
F Draft agreements acted upon or not acted upon
G Deeds and written and oral agreements
H Continuation, and whether there is a new partnership
I Salaried partners
2 The existence of the partnership without express agreement
A The implication of partnership generally
B Carrying on a business in common with a view of profit
3 Sharing of profits and property as evidence of partnership
A Sharing net profits
B Where sharing profits does not create a partnership
C Sharing gross profits
D Sharing losses
E Employees and agents
F Lenders
G Legatees
H Sharing property
4 Joint ventures
A Partnership contrasted with other joint ventures
B Rights and liabilities of joint venturers: relational contracts
5 Other entities akin to partnerships
A Agents
B Barristers’ chambers
C Commercial agents
D Civil partnerships
E Clubs and societies
F Companies limited and unlimited, LLPs and other corporate entities
G Constructive trust: Pallant v Morgan
H Employment
I European Economic Interest Groups
J Family partnerships
K Franchises
L Friendly societies
M Landlords and tenants
N Mutual benefit associations
O Marriage, civil partnership, boyfriends and girlfriends
P Mining companies in the stannaries
Q Public-private partnerships
R Quasi-partnerships
S Share farmers
T Sharia law
Chapter 3 Capacity
1 Those entities and persons that have capacity to be partners
A Those with capacity to be partners
B Those who may lack capacity to be partners
2 Minors
A The minority of a partner
B Affirmation of the partnership
C Judgment and execution
3 Mental incapacity: dementia, madness and drunkenness
A The partner mentally incapable when commencing partnership
B Patients of the Court of Protection
C Loss of mental capacity during the course of the partnership
4 Disqualification, bankruptcy and insolvency
A Disqualification under the Company Directors Disqualification Act 1986
B A partner’s bankruptcy
C Solicitors’ practising certificates
Chapter 4 Illegality
1 Firms that are illegal
A Common law illegality
B Statutory illegality
C Fraud and other tort, champerty, corruption, immorality and gambling
D Foreign relations
E Anti-competitive practice: English and European law
F Unqualified and disqualified professionals
G Former restriction on firms of more than 20 members
H Financial regulation
2 The effect of illegality
A The effect generally
B The relations of outsiders with an illegal firm
C Illegality causes immediate dissolution
D Enforcement of rights between partners
E The illegality abandoned
Chapter 5 Holding out
1 Liability of one who is held out to be a partner
2 What amounts to a sufficient representation
A His own representation about himself
B A shadow partner
C Another’s representation knowingly suffered by him
3 To whom he is liable
4 For what he is liable
5 The retired, bankrupt or dead partner
6 Passing-off: a person falsely representing himself to be a member of the firm
7 Liabilities between the firm and the person held out
Chapter 6 Sub-partnerships and group partnerships
1 Sub-partnerships
A Sub-partnerships generally
B A partnership of a partnership share
C Another firm being itself a partner
D A sub-group within a larger entity
E Implied terms of the sub-partnership
2 Group, parallel and corporate partnerships
A Group partnerships
B Parallel partnerships
C Corporate partnerships
Chapter 7 The partnership agreement
1 The partnership agreement
A The minimum agreement
B The duration and continuation of the partnership
C Construction of the partnership agreement
D Penalties, forfeitures and unfair and onerous conditions
2 Variation of the partnership agreement
A Express and implied variation between existing members
B A new partner joining the firm
C Partnership options
D Mergers
Chapter 8 Partnership assets and liabilities
1 Partnership property
A Introduction
B Categories of partnership property
C Partnership property contrasted with other property
2 The property of individual partners contrasted with that of the firm
A Proprietary and non-proprietary rights
B Rules for ascertaining whether property belongs to one or more partners or to the firm
3 Transfers of property between the firm and its members
A Agreements between the firm and its members
B Creditors
C Land: the requirement of writing
D An agreement will not be inferred without evidence
4 Partnership land, leases and tenancies
A Partnership land generally
B The nature and vesting of partnership land
C Partnership leases, tenancies and reversions
D Agricultural land
E Partnership mortgages and charges
5 Goodwill and the firm name
A Goodwill
B The firm name
C Companies Act 2006, Part 41
6 Confidential and privileged information and intellectual property
A Confidential information belonging to the firm
B Confidential information belonging to a client
C Client loyalty
D Privilege
E Copyright, designs and other intellectual property
Chapter 9 Partnership capital and partners’ capital
1 Background
2 The meaning of ‘partnership capital’
3 Partners’ capital
4 Accounting for capital
5 Current accounts
6 Variation, and blending partners’ capital and current accounts
7 Interest on capital accounts
8 Contributions of capital
9 The ownership and repayment of partnership capital
Chapter 10 The partnership share
1 The nature and size of a partnership share
A An interest in the net assets
B Presumption of equality
C Survivorship
D A share may be assigned or charged
E The value of the share
F The partner’s lien
2 Mortgagees, assignees, personal representatives, trustees, nominees, legatees and attorneys of a share
A Assignees and chargees generally
B Charging orders and the appointment of a receiver
C Personal representatives of a partner
D The partnership share held upon trust or given by will
E Attorneys and Enduring and Lasting Powers of Attorney
Chapter 11 The duty of good faith
1 The general duty of good faith
A A duty of good faith: honesty and other duties
B A fiduciary duty
C Limits on the duty of good faith
D Analogy with duties of others
E Duration of duty
F Waiver and consent to breach of duty
G Enforcement against third parties of the partner’s duty
2 The duty to give information and keep accounts
A General
B The duty to give information
C The duty to keep full and accurate accounts
D Access to books and other records
3 Profiting from the firm
A Profiting from the firm generally
B Renewing partnership leases
C Reversions on partnership leases
D Outside work and office-holding
E Use by the partner of other partnership property
F Bribes and commissions
4 Competing with the firm
A ‘Consent of the other partners …’
B ‘The same nature … and competing’
C Profits of office
D What is profit?
5 Duties when a partner joins the firm or buys or sells his share
A The duty
B Duties of the purchaser and of the vendor
C Duty to the remaining partners as regards the transaction
D Where no sale materialises
E Duty of continuing partners to estate of a dead partner
Chapter 12 Internal management
1 Management and decision-making within the firm
A Decision-making generally
B Decisions that can only be taken by the partners unanimously
C Decisions that may be taken by a majority
D The right of a single partner to act in the management
E The management committee
F Gardening leave and exclusion from participation
G Salaried partners and employees
2 Accounts, profits and financial management
A Taxation and account keeping
B Remuneration, profits and losses
C A partner’s right to indemnity from the firm
Chapter 13 Discrimination
1 Discrimination generally
2 Equality Act 2010
A Generally
B Protected characteristics
C Prohibited conduct
3 Application to partnerships
A Prospective partners
B Existing partners
C Limited partnerships
D Proposed firm
E Former partners
F LLPs and proposed LLPs
G Employees of partnerships
4 Procedure
A Jurisdiction of the employment tribunal
B Time limits
C Burden of proof
D Remedies
E Exclusion clauses and arbitration clauses
Chapter 14 Internal partnership dispute and its remedies
1 Enforcement of agreements
A Enforcement of agreements to enter into partnership
B Rescission for misrepresentation
2 Repudiation by breach of the partnership agreement
A Repudiation applied to partnerships
B What amounts to repudiation
C The effect of repudiation
D Damages and repudiation
3 The claim for an account
A The right to an account
B The meaning of ‘action for an account’
C Taking the account
D Defences to actions for an account
E How settled accounts may be challenged
4 Breach of contract, negligence and other claims between partners
A Breach of contract
B Breach of fiduciary duty
C Duty of care, negligence and gross negligence
D Fraud and other torts
E Setting transactions aside
5 Contribution between partners
A What claims are actionable between partners
B How claims for compensation or contribution between partners may be enforced
Chapter 15 The enforcement of remedies between partners
1 Jurisdiction and procedure
A Jurisdiction
B Limits on claims for debt or damages where no account is sought
C Necessary parties to a partnership action
D Disclosure and privilege
E Judgments and enforcement
F Interest
G Costs of a partnership action
H Compromise between partners
2 Arbitration and mediation
A Arbitration and mediation agreements
B Mediation or ‘ADR’
C Arbitration applications to the court
D County court
E Stay of parallel court proceedings
F Powers of the arbitrator
G Costs of arbitration
H Arbitration appeals to the court
3 Injunctions between partners
A Specific performance and dissolution
B Injunctions restraining misbehaviour by a partner or the firm
C Mutuality
D Mandatory injunctions to enforce the personal obligations of a partner
E Injunctions where dissolution is an alternative remedy
F Interim injunctions and undertakings
4 A partner’s application for a receiver
A Receivers generally
B Partnership receivers appointed by agreement
C Who may apply to the court for the appointment of a partnership receiver
D Who may be appointed
E The grounds for appointment before dissolution
F The grounds for appointment in a dissolution
G Procedure on appointment
H Remuneration
I Receiver and manager
J Status and powers of receiver or receiver and manager
K Restrictions on creditors
5 Limitation and delay as regards claims between partners
A Limitation generally
B Limitation in claims between continuing partners: no time period
C Limitation in claims between the firm and an outgoing partner or his estate: ordinary time period
D Extension of ordinary time limits
E Laches, waiver, acquiescence and abandonment
Chapter 16 Dissolution, retirement and expulsion without court order
1 Dissolution generally
A The meaning of dissolution, ‘technical dissolution’ and winding up
B Dissolution on illegality, repudiation, frustration or rescission
C Dissolution under the partnership agreement
D Dissolution by subsequent agreement or implication
E Setting aside dissolution agreements
F Publicising dissolution
2 Dissolution by notice
A Express provision for dissolution on notice
B Partnerships at will dissolved on notice
C The nature and effect of a notice
3 Dissolution by death, bankruptcy or charging
A Death
B Bankruptcy
C Dissolution when a partner’s share is charged
4 Retirement and expulsion
A Retirement and expulsion generally
B Retirement
C The right to expel
D Exercise of the right to expel
Chapter 17 Dissolution by court order
1 Dissolution by court order generally
A General
B Procedure
2 Grounds for dissolution: mental and other incapacity
A Dissolution by the court for incapacity generally
B Mental incapacity
C Other incapacity
D The court’s discretion in any case of incapacity
3 Dissolution for misconduct
A Generally
B Dishonesty
C Adultery
D Other misbehaviour
E Triviality and mere distrust
4 Insolvency and loss-making as a ground for dissolution
A Procedure
B The grounds for the application
5 Dissolution when just and equitable
A The wide jurisdiction
B Where the applicant is at fault
C Where there is a breakdown in relations
Chapter 18 The effect of dissolution and retirement
1 Management after dissolution or retirement
A Management
B Profits and losses during winding up
C The effect of dissolution on outsiders
2 The rights of the parties on a retirement
A The effect of dissolution, retirement and pre-emption agreements and options
B The valuation of the share of an outgoing partner
C Goodwill, work-in-progress and non-assignable assets
D The departing partner’s indemnity
3 The rights of the partners on dissolution: winding up
A ‘Application’ of partnership property
B A sale
C Distribution of net assets
D Discharge of liabilities and losses
E Return of premiums
4 Competition with the firm after retirement or dissolution
A The right to compete
B Covenants in restraint of trade generally
C What is ‘reasonable’
Chapter 19 The firm and outsiders
1 The authority of a partner to bind the firm
A The express and implied authority of a partner
B Matters within the business of the firm
2 The liability of the firm for a partner’s wrongs and omissions
A Wrongful acts and omissions generally
B Negligence
C Breach of contract
D Crime
E Fraud
F Misrepresentation
G Constructive trusteeship or accountability in equity
H Other torts and wrongs
I Where the partners in the firm change
J Liability of a successor practice on a professional indemnity claim
3 Breach of trust and misappropriation
A The principles
B Where the partner in default is acting within his authority as a partner
C Where the partner in default is acting outside his authority as a partner
D What the firm may be liable for
E Breach of solicitors’ undertakings
F A trustee-partner’s right to fees
4 Clients’ confidential information and conflicts of interest
Chapter 20 How partners bear the firm’s liabilities
1 Joint and several liability
A Joint and several liability explained
B Whether the liability is joint or several or both
C Releases and judgments
D A partner’s death
2 The beginning and end of a partner’s liability
A The beginning of liability: the incoming partner
B The end of liability: the retired, expelled, bankrupt or dead partner
3 The firm’s notice and knowledge and the client’s confidential information
A The knowledge of a partner
B Exclusion of liability by notice to the outsider
C Employees
Chapter 21 Litigation by and against outsiders
1 Actions by the firm
A The firm’s cause of action
B What partner may authorise and prosecute proceedings?
C Set-off between debts and credits of the firm and the partner
2 Actions against the firm
A When and how a claim against the firm may be brought
B The partners’ defence
3 Procedure
A The scope of rules of court enabling a firm to sue or be sued in the firm name
B Service and acknowledgment of service
C Disclosure of partners’ names
D Disclosure and admissions
E Admissions
4 Judgment and execution against the firm
A Judgment against the firm
B Summary judgment
C Execution on a judgment against the firm generally
D Execution against the assets of the firm
E Execution against a partner without permission
F Execution against partners and non-partners with permission
G The appointment of a receiver
H Charging orders
I Bankruptcy
J Statutory winding up
K ‘Garnishee’ or ‘third party debt’ proceedings
5 Costs
A Costs orders
B The firm as a litigant in person
Chapter 22 Insolvency – winding up and similar procedures
1 Bankruptcy contrasted with statutory winding up
A The Insolvency Act 1986 option of statutory winding up
B Statutory winding up: drafting and terminology
2 Bankruptcy
A Bankruptcy law preserved
B Applications outside the ambit of statutory winding up
C The effect of bankruptcy
3 Creditors’ applications under the Insolvency Act 1986
A Creditors’ applications generally
B Creditors’ winding-up petitions where no concurrent bankruptcy or other insolvency petitions are presented against any members
C Concurrent petitions against firm and members
D Creditors’ applications for an administration order
4 Members’ applications under the Insolvency Act 1986
A Members’ winding up and administration applications
B Members’ applications for an administration order
C Members’ winding-up petitions where no bankruptcy or other insolvency petition is presented against any member
D Members’ winding-up petition where concurrent bankruptcy or other insolvency petitions are presented against all the members
E Article 11: members’ applications for joint bankruptcy without winding up the partnership
F Members’ applications for partnership voluntary arrangements with creditors – ‘PVAs’
5 Applications by others under the Insolvency Act 1986 and Company Directors Disqualification Act 1986
A Applications by the liquidator or other responsible insolvency practitioner
B Financial services partnerships
C Applications by the Secretary of State
D The court of its own motion
6 EU regulation of insolvency proceedings
Chapter 23 The insolvent firm’s debts
1 Priority of debts generally
2 Postponement of the claims of partners and others connected with the insolvent firm
A Partners
B The partner’s spouse
C Lenders, vendors and others with an interest in a profit share
D Which debts are postponed?
3 Set-off
A General
B Joint debts of the firm and separate debts of partners
4 Secured creditors
A General
B The joint estate of the firm and the separate estate of the partner
5 The partner’s lien
A The priority of the partner’s lien
B Registration and protection of liens over land
6 Costs and expenses in insolvency proceedings
A Partner’s bankruptcy or insolvency
B Dissolution and winding up of the firm without statutory winding up
C Statutory winding up of the partnership alone
D Statutory winding up of the partnership and a member or members concurrently, with single trustee for both
7 Relative priority of creditors of the firm and creditors of partners
A General
B Priorities where the Insolvent Partnerships Order 1994 applies
C The rule as to priorities where the Insolvent Partnerships Order 1994 does not apply
8 Adjustment of liabilities between partners
A All partners solvent
B Statutory winding up: the liquidator’s powers
C The partner’s rights against an insolvent partner’s estate
D An insolvent partner’s estate seeking a contribution against a solvent partner
9 An insolvent member of a solvent firm
A A member’s insolvency
B No dissolution
C Dissolution
10 The estate of a dead partner
A General
B Death does not halt bankruptcy proceedings
C Priorities in relation to an insolvent estate
D The position of the personal representatives
Chapter 24 Limited partnerships
1 Limited partnerships generally
A The nature of limited partnerships
B Sham limited partnerships
C ‘Business’ and ‘business in common’
D The limited partner’s financial position
E Venture capital or private equity funds, collective investment schemes and private fund limited partnerships
F Foreign firms and foreign recognition
G Discrimination
2 Management of the business
A Powers of the general partner(s) and the limited partners
B Involvement by limited partners
C Conflict between the limited partners, the general partner and the operator
3 Incoming and outgoing partners and their assignees
A Introduction of partners
B An assignment, charge, nomineeship or trusteeship of a limited partner’s share
C The number of partners and their nature
4 The limited partner’s capital
A Limited partners in an ordinary limited partnership
B Limited partners in a private fund limited partnership
5 Registration and advertisement
A Default in registration
B The details to be registered initially
C The changes to be registered subsequently
D The register
E Advertisement of changes
F The firm name and the Companies Act
6 Regulation of the business
A Financial services
B Collective investment schemes
C Private fund limited partnerships
D Successor partnerships
E Alternative authorisation for legal professionals
7 Dissolution and winding up
A Dissolution without court order
B Dissolution by court order
C Winding up after dissolution
8 Execution and insolvency
A Judgment and execution against a limited partnership
B Bankruptcy and petitions for statutory winding up
C The priority of a limited partner’s claim against his insolvent firm
Chapter 25 Limited liability partnerships
1 The nature and creation of limited liability partnerships
A The nature of limited liability partnerships (‘LLPs’)
B Sham limited liability partnerships
C Registration and incorporation
D Pre-incorporation contracts
E The name of the LLP
F The business and property of the LLP
G Taxation
H Litigation
2 The LLP agreement and the default provisions
A The LLP agreement generally
B What should be dealt with in the LLP agreement?
C Default of specific agreement
D Unfair prejudice to members
E Discrimination
F The member’s right to sue for a wrong done to the LLP
3 Members
A Members generally
B Designated members
C The member’s share: income and capital
D The member’s liability to contribute to the LLP assets
E The liability of the LLP and of the member
F Good faith and the obligations of the LLP and its members between themselves
G Employment of members and ‘workers’
H Commencement and cesser of membership
4 Auditors, accounts, charges and the confirmation statement
A Companies Act obligations
B Audit
C Accounts
D Charges
E The confirmation statement
5 Insolvency, winding up, misfeasance and disqualification
A Insolvency, voluntary arrangements and administration
B Dissolution and winding up
C Investigation and misfeasance
D Recoupment from members
E Disqualification
6 Transfer of assets from partnership to LLP
A Transfers generally
B Existing leases, contracts, liabilities and substitution of defendants
C Executorships
D Trusteeships and other appointments
E CFA agreements
F Clients
G Taxation
Appendix A: Partnership Act 1890
Appendix B: Limited Partnerships Act 1907
Appendix C: Limited Partnerships (Forms) Rules 2009
Appendix D: Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2009
Appendix E: Partnership (Accounts) Regulations 2008
Appendix F: Insolvent Partnerships Order 1994
Appendix G: Limited Liability Partnerships Act 2000
Appendix H: Limited Liability Partnerships Regulations 2001
Appendix I: Law of Partnership Act 1865 (repealed)
Appendix J: British Venture Capital Association statement 26 May 1987
Index

Citation preview

Partnership Law Sixth Edition

To my forebears in the study of law, Blackett-Ord V-C and Bovill CJ, author of the Partnership Act 1865 ‘It is now time for us to pay a decent, a manly reverence to our ancestors, not be superstitiously adhering to what they, in other circumstances, did, but by doing what they, in our circumstances, would have done.’

Macaulay ‘The lyf so short, the craft so long to learne.’

Parlement of Foules

Partnership Law The modern law of firms, limited partnerships and LLPs Sixth Edition

Mark Blackett-Ord MA (Oxon) a Master of the Bench of Lincoln’s Inn Chancellor of the Diocese of Leicester a fellow of the Society of Antiquaries and a member of chambers at 5 Stone Buildings

and

Sarah Haren MA (Oxon), BCL (Oxon) a member of chambers at 5 Stone Buildings

BLOOMSBURY PROFESSIONAL Bloomsbury Publishing Plc 41–43 Boltro Road, Haywards Heath, RH16 1BJ, UK BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc © Bloomsbury Professional Ltd 2020 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives. gov.uk/doc/open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998 2020. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN:

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Preface to the Sixth Edition According to The Politics of Aristotle (as rendered by Rackham in 1932 (Loeb Classical Library, 264; Cambridge MA. Harvard University Press, 1932) (Politics I.1), p 3), ‘Every partnership is formed with a view to some good …’. Equally a book on partnership law should be formed with a view to doing the good of digesting, ordering, elucidating and synthesising the disparate principles that make up this field. The law of partnership is at the intersection of many different legal principles. It is simultaneously a contractual relation between its members and a fiduciary one. A partner is the agent of the firm and one of its principals. Partnerships are creatures of the common law but codified in statute and are of course affected by changes, both statutory (such as the Equality Act 2010) and judicial, that take place in what might be viewed as ‘other’ areas of the law. The task of this text is to set out how those various principles interact. This undertaking is all the more important because the legal relation can be created informally, even unwittingly, and so the law often has to supply the answers which the parties have failed to provide. As the Liontrust Investment Partners LLP litigation shows, this can be true of the LLP, even though statute demands that the parties apply their minds to the nature of their relationship and its terms. The courts, both in this jurisdiction and elsewhere, continue to provide us with much food for thought and to illustrate the importance of a proper understanding of partnership principles. Even whilst we were correcting proofs, the High Court of Australia emphasised the unique nature of the partners’ beneficial interests in partnership property (Commissioner of State Revenue v Rojoda Pty Ltd), reference to which is made in the text. Closer to home we have analysed the introduction of the private fund limited partnership in 2017, which in our view is the biggest single change made to partnership law in recent years. We have grappled with the continued debate in recent case-law about whether a partnership or an LLP may be repudiated (Flanagan v Liontrust Investment Partners LLP) and what nature of business may constitute a partnership (Bhatti v HMRC; Ingenious Games LLP v HMRC; Samarkand Film Partnership LLP v HMRC). In the context of the retirement or buy-out of a former partner, the interpretation of partnership agreements, the identification of partnership assets, and the valuation of such assets remain much-litigated (Liddle v Liddle). We also consider the effect of statutory developments, and the impact of changes such as the introduction of the Insolvency (England and Wales) Rules 2016 on the insolvency of partnerships and LLPs. Our thanks go to everyone who has supported and helped with the current edition. Particular thanks go to the excellent team at Bloomsbury – our editor Peter Smith, Ellie MacKenzie, Sharon Heaton and Andy Hill; to all those who have suggested corrections, improvements and additions to previous editions – especially to David Raphael; and to our families whose patience is undoubtedly a crucial ingredient of this particular collective enterprise. v

Preface to the Sixth Edition

The law stated is our opinion only. Neither we nor the publishers can accept liability for reliance that is placed upon it. The law is intended to be as at 31 March 2020. Mark Blackett-Ord Sarah Haren Not in Lincoln’s Inn April 2020

vi

Contents Page

Preface��������������������������������������������������������������������������������������������������������������������  v Table of Statutes���������������������������������������������������������������������������������������������������  xxi Table of Statutory Instruments�������������������������������������������������������������������������  xxxiii Table of Cases��������������������������������������������������������������������������������������������������  xxxix

Chapter 1   Partnership in general....................................................................... 1 1 THE NATURE OF PARTNERSHIP......................................................... 1 2 THE HISTORY OF PARTNERSHIP........................................................ 2 A The origins.......................................................................................... 3 B The statutes of 1865, 1890 and 1907.................................................. 3 C Later development............................................................................... 6 3 FOREIGN FIRMS AND COMPANIES................................................... 8 A Foreign companies and apparent companies........................................ 8 B Scottish and Irish partnerships............................................................. 8 C Isle of Man and Channel Islands......................................................... 9 D The nature of foreign partnerships...................................................... 9 E Recognition by the courts of England and Wales................................. 10 F Procedure against foreign firms........................................................... 11 Chapter 2   Whether there is a partnership and whether a person is a partner..... 13 1 EXPRESS AGREEMENT, COMPLETE OR INCOMPLETE................... 14 A Agreement that there is or is not a partnership.................................... 14 B The issue as to the existence of the partnership................................... 17 C Sham partnerships............................................................................... 18 D Partnership options............................................................................. 20 E Proposals and preparation for business............................................... 20 F Draft agreements acted upon or not acted upon.................................. 21 G Deeds and written and oral agreements............................................... 22 H Continuation, and whether there is a new partnership........................ 23 I Salaried partners.................................................................................. 24 2 THE EXISTENCE OF THE PARTNERSHIP WITHOUT EXPRESS AGREEMENT......................................................................................... 24 A The implication of partnership generally............................................. 25 B Carrying on a business in common with a view of profit..................... 26 3 SHARING OF PROFITS AND PROPERTY AS EVIDENCE OF PARTNERSHIP....................................................................................... 32 A Sharing net profits............................................................................... 32 B Where sharing profits does not create a partnership............................ 35 C Sharing gross profits............................................................................ 36 D Sharing losses...................................................................................... 37 E Employees and agents.......................................................................... 38 F Lenders................................................................................................ 41 G Legatees............................................................................................... 43 H Sharing property.................................................................................. 43

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Contents 4 JOINT VENTURES................................................................................. 45 A Partnership contrasted with other joint ventures................................. 45 B Rights and liabilities of joint venturers: relational contracts................ 46 5 OTHER ENTITIES AKIN TO PARTNERSHIPS..................................... 48 A Agents................................................................................................. 48 B Barristers’ chambers............................................................................ 49 C Commercial agents.............................................................................. 50 D Civil partnerships................................................................................ 50 E Clubs and societies.............................................................................. 50 F Companies limited and unlimited, LLPs and other corporate entities.. 51 G Constructive trust: Pallant v Morgan................................................... 52 H Employment........................................................................................ 52 I European Economic Interest Groups................................................... 53 J Family partnerships............................................................................. 53 K Franchises............................................................................................ 53 L Friendly societies................................................................................. 54 M Landlords and tenants......................................................................... 54 N Mutual benefit associations................................................................. 54 O Marriage, civil partnership, boyfriends and girlfriends........................ 55 P Mining companies in the stannaries..................................................... 55 Q Public-private partnerships.................................................................. 56 R Quasi-partnerships.............................................................................. 56 S Share farmers...................................................................................... 56 T Sharia law........................................................................................... 56 Chapter 3  Capacity............................................................................................ 57 1 THOSE ENTITIES AND PERSONS THAT HAVE CAPACITY TO BE PARTNERS........................................................................................ 57 A Those with capacity to be partners...................................................... 57 B Those who may lack capacity to be partners....................................... 60 2 MINORS................................................................................................. 62 A The minority of a partner.................................................................... 62 B Affirmation of the partnership............................................................. 63 C Judgment and execution...................................................................... 63 3 MENTAL INCAPACITY: DEMENTIA, MADNESS AND DRUNKENNESS..................................................................................... 64 A The partner mentally incapable when commencing partnership.......... 64 B Patients of the Court of Protection...................................................... 65 C Loss of mental capacity during the course of the partnership.............. 65 4 DISQUALIFICATION, BANKRUPTCY AND INSOLVENCY................ 66 A Disqualification under the Company Directors Disqualification Act 1986.................................................................................................... 66 B A partner’s bankruptcy........................................................................ 67 C Solicitors’ practising certificates........................................................... 67 Chapter 4  Illegality............................................................................................ 69 1 FIRMS THAT ARE ILLEGAL................................................................. 69 A Common law illegality........................................................................ 70 B Statutory illegality............................................................................... 70 C Fraud and other tort, champerty, corruption, immorality and gambling............................................................................................. 72 D Foreign relations.................................................................................. 75 E Anti-competitive practice: English and European law.......................... 76

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Contents F Unqualified and disqualified professionals........................................... 77 G Former restriction on firms of more than 20 members......................... 79 H Financial regulation............................................................................. 80 2 THE EFFECT OF ILLEGALITY.............................................................. 80 A The effect generally.............................................................................. 81 B The relations of outsiders with an illegal firm...................................... 82 C Illegality causes immediate dissolution................................................ 84 D Enforcement of rights between partners.............................................. 85 E The illegality abandoned..................................................................... 88 Chapter 5  Holding out...................................................................................... 91 1 LIABILITY OF ONE WHO IS HELD OUT TO BE A PARTNER........... 91 2 WHAT AMOUNTS TO A SUFFICIENT REPRESENTATION................ 92 A His own representation about himself................................................. 93 B A shadow partner................................................................................ 93 C Another’s representation knowingly suffered by him........................... 93 3 TO WHOM HE IS LIABLE..................................................................... 95 4 FOR WHAT HE IS LIABLE..................................................................... 96 5 THE RETIRED, BANKRUPT OR DEAD PARTNER.............................. 97 6 PASSING-OFF: A PERSON FALSELY REPRESENTING HIMSELF TO BE A MEMBER OF THE FIRM........................................................ 97 7 LIABILITIES BETWEEN THE FIRM AND THE PERSON HELD OUT........................................................................................................ 98 Chapter 6   Sub-partnerships and group partnerships.......................................... 99 1 SUB-PARTNERSHIPS.............................................................................. 99 A Sub-partnerships generally................................................................... 99 B A partnership of a partnership share................................................... 100 C Another firm being itself a partner....................................................... 100 D A sub-group within a larger entity....................................................... 100 E Implied terms of the sub-partnership................................................... 101 2 GROUP, PARALLEL AND CORPORATE PARTNERSHIPS................... 101 A Group partnerships............................................................................. 101 B Parallel partnerships............................................................................ 102 C Corporate partnerships........................................................................ 102 Chapter 7   The partnership agreement............................................................... 103 1 THE PARTNERSHIP AGREEMENT...................................................... 103 A The minimum agreement..................................................................... 103 B The duration and continuation of the partnership............................... 105 C Construction of the partnership agreement.......................................... 109 D Penalties, forfeitures and unfair and onerous conditions...................... 111 2 VARIATION OF THE PARTNERSHIP AGREEMENT........................... 114 A Express and implied variation between existing members.................... 114 B A new partner joining the firm............................................................ 117 C Partnership options............................................................................. 118 D Mergers............................................................................................... 119 Chapter 8   Partnership assets and liabilities........................................................ 121 1 PARTNERSHIP PROPERTY................................................................... 122 A Introduction........................................................................................ 122 B Categories of partnership property...................................................... 124 C Partnership property contrasted with other property........................... 129

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Contents 2 THE PROPERTY OF INDIVIDUAL PARTNERS CONTRASTED WITH THAT OF THE FIRM.................................................................. 130 A Proprietary and non-proprietary rights................................................ 130 B Rules for ascertaining whether property belongs to one or more partners or to the firm......................................................................... 131 3 TRANSFERS OF PROPERTY BETWEEN THE FIRM AND ITS MEMBERS.............................................................................................. 140 A Agreements between the firm and its members.................................... 140 B Creditors............................................................................................. 141 C Land: the requirement of writing......................................................... 141 D An agreement will not be inferred without evidence............................ 143 4 PARTNERSHIP LAND, LEASES AND TENANCIES.............................. 143 A Partnership land generally................................................................... 144 B The nature and vesting of partnership land......................................... 145 C Partnership leases, tenancies and reversions......................................... 148 D Agricultural land................................................................................. 152 E Partnership mortgages and charges...................................................... 153 5 GOODWILL AND THE FIRM NAME................................................... 153 A Goodwill............................................................................................. 153 B The firm name..................................................................................... 157 C Companies Act 2006, Part 41.............................................................. 159 6 CONFIDENTIAL AND PRIVILEGED INFORMATION AND INTELLECTUAL PROPERTY................................................................ 162 A Confidential information belonging to the firm................................... 162 B Confidential information belonging to a client.................................... 165 C Client loyalty....................................................................................... 165 D Privilege............................................................................................... 165 E Copyright, designs and other intellectual property.............................. 166 Chapter 9   Partnership capital and partners’ capital........................................... 167 1 BACKGROUND...................................................................................... 167 2 THE MEANING OF ‘PARTNERSHIP CAPITAL’.................................... 168 3 PARTNERS’ CAPITAL............................................................................ 168 4 ACCOUNTING FOR CAPITAL.............................................................. 170 5 CURRENT ACCOUNTS......................................................................... 170 6 VARIATION, AND BLENDING PARTNERS’ CAPITAL AND CURRENT ACCOUNTS......................................................................... 170 7 INTEREST ON CAPITAL ACCOUNTS.................................................. 171 8 CONTRIBUTIONS OF CAPITAL........................................................... 172 9 THE OWNERSHIP AND REPAYMENT OF PARTNERSHIP CAPITAL.173 Chapter 10   The partnership share..................................................................... 175 1 THE NATURE AND SIZE OF A PARTNERSHIP SHARE...................... 175 A An interest in the net assets................................................................. 176 B Presumption of equality....................................................................... 177 C Survivorship........................................................................................ 178 D A share may be assigned or charged.................................................... 178 E The value of the share......................................................................... 179 F The partner’s lien................................................................................. 180 2 MORTGAGEES, ASSIGNEES, PERSONAL REPRESENTATIVES, TRUSTEES, NOMINEES, LEGATEES AND ATTORNEYS OF A SHARE.................................................................................................... 183 A Assignees and chargees generally......................................................... 183

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Contents B Charging orders and the appointment of a receiver............................. 187 C Personal representatives of a partner................................................... 189 D The partnership share held upon trust or given by will........................ 191 E Attorneys and Enduring and Lasting Powers of Attorney.................... 193 Chapter 11   The duty of good faith.................................................................... 195 1 THE GENERAL DUTY OF GOOD FAITH............................................ 196 A A duty of good faith: honesty and other duties.................................... 196 B A fiduciary duty................................................................................... 198 C Limits on the duty of good faith.......................................................... 199 D Analogy with duties of others.............................................................. 203 E Duration of duty................................................................................. 205 F Waiver and consent to breach of duty................................................. 207 G Enforcement against third parties of the partner’s duty....................... 208 2 THE DUTY TO GIVE INFORMATION AND KEEP ACCOUNTS........ 208 A General................................................................................................ 208 B The duty to give information............................................................... 209 C The duty to keep full and accurate accounts........................................ 211 D Access to books and other records....................................................... 211 3 PROFITING FROM THE FIRM............................................................. 214 A Profiting from the firm generally.......................................................... 214 B Renewing partnership leases................................................................ 216 C Reversions on partnership leases......................................................... 218 D Outside work and office-holding......................................................... 219 E Use by the partner of other partnership property................................. 220 F Bribes and commissions....................................................................... 224 4 COMPETING WITH THE FIRM............................................................ 227 A ‘Consent of the other partners …’....................................................... 227 B ‘The same nature … and competing’................................................... 228 C Profits of office.................................................................................... 229 D What is profit?..................................................................................... 229 5 DUTIES WHEN A PARTNER JOINS THE FIRM OR BUYS OR SELLS HIS SHARE.................................................................................. 230 A The duty.............................................................................................. 230 B Duties of the purchaser and of the vendor........................................... 231 C Duty to the remaining partners as regards the transaction................... 233 D Where no sale materialises................................................................... 233 E Duty of continuing partners to estate of a dead partner....................... 234 Chapter 12  Internal management...................................................................... 235 1 MANAGEMENT AND DECISION-MAKING WITHIN THE FIRM..... 235 A Decision-making generally................................................................... 235 B Decisions that can only be taken by the partners unanimously............ 236 C Decisions that may be taken by a majority.......................................... 238 D The right of a single partner to act in the management........................ 240 E The management committee................................................................ 241 F Gardening leave and exclusion from participation............................... 242 G Salaried partners and employees.......................................................... 243 2 ACCOUNTS, PROFITS AND FINANCIAL MANAGEMENT............... 245 A Taxation and account keeping............................................................. 245 B Remuneration, profits and losses......................................................... 249 C A partner’s right to indemnity from the firm........................................ 256

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Contents Chapter 13  Discrimination................................................................................ 261 1 DISCRIMINATION GENERALLY.......................................................... 261 2 EQUALITY ACT 2010............................................................................ 262 A Generally............................................................................................. 262 B Protected characteristics...................................................................... 263 C Prohibited conduct.............................................................................. 264 3 APPLICATION TO PARTNERSHIPS...................................................... 270 A Prospective partners............................................................................ 270 B Existing partners................................................................................. 271 C Limited partnerships............................................................................ 271 D Proposed firm...................................................................................... 272 E Former partners................................................................................... 272 F LLPs and proposed LLPs..................................................................... 272 G Employees of partnerships................................................................... 272 4 PROCEDURE.......................................................................................... 272 A Jurisdiction of the employment tribunal.............................................. 273 B Time limits.......................................................................................... 273 C Burden of proof................................................................................... 273 D Remedies............................................................................................. 273 E Exclusion clauses and arbitration clauses............................................ 274 Chapter 14   Internal partnership dispute and its remedies.................................. 275 1 ENFORCEMENT OF AGREEMENTS................................................... 275 A Enforcement of agreements to enter into partnership.......................... 276 B Rescission for misrepresentation.......................................................... 278 2 REPUDIATION BY BREACH OF THE PARTNERSHIP AGREEMENT.282 A Repudiation applied to partnerships.................................................... 282 B What amounts to repudiation.............................................................. 285 C The effect of repudiation..................................................................... 286 D Damages and repudiation.................................................................... 287 3 THE CLAIM FOR AN ACCOUNT......................................................... 287 A The right to an account....................................................................... 288 B The meaning of ‘action for an account’............................................... 289 C Taking the account.............................................................................. 293 D Defences to actions for an account...................................................... 296 E How settled accounts may be challenged............................................. 299 4 BREACH OF CONTRACT, NEGLIGENCE AND OTHER CLAIMS BETWEEN PARTNERS........................................................................... 303 A Breach of contract............................................................................... 303 B Breach of fiduciary duty...................................................................... 305 C Duty of care, negligence and gross negligence...................................... 308 D Fraud and other torts.......................................................................... 312 E Setting transactions aside..................................................................... 312 5 CONTRIBUTION BETWEEN PARTNERS............................................. 313 A What claims are actionable between partners...................................... 313 B How claims for compensation or contribution between partners may be enforced.................................................................................. 313 Chapter 15   The enforcement of remedies between partners............................... 319 1 JURISDICTION AND PROCEDURE...................................................... 320 A Jurisdiction.......................................................................................... 320 B Limits on claims for debt or damages where no account is sought....... 323 C Necessary parties to a partnership action............................................ 325

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Contents

2

3

4

5

D Disclosure and privilege....................................................................... 327 E Judgments and enforcement................................................................ 329 F Interest................................................................................................ 330 G Costs of a partnership action............................................................... 332 H Compromise between partners............................................................ 333 ARBITRATION AND MEDIATION....................................................... 333 A Arbitration and mediation agreements................................................ 334 B Mediation or ‘ADR’............................................................................ 336 C Arbitration applications to the court................................................... 337 D County court....................................................................................... 338 E Stay of parallel court proceedings........................................................ 338 F Powers of the arbitrator...................................................................... 339 G Costs of arbitration............................................................................. 340 H Arbitration appeals to the court.......................................................... 340 INJUNCTIONS BETWEEN PARTNERS................................................. 341 A Specific performance and dissolution................................................... 341 B Injunctions restraining misbehaviour by a partner or the firm............. 341 C Mutuality............................................................................................ 343 D Mandatory injunctions to enforce the personal obligations of a partner... 343 E Injunctions where dissolution is an alternative remedy........................ 344 F Interim injunctions and undertakings.................................................. 344 A PARTNER’S APPLICATION FOR A RECEIVER................................ 346 A Receivers generally.............................................................................. 346 B Partnership receivers appointed by agreement..................................... 347 C Who may apply to the court for the appointment of a partnership receiver................................................................................................ 347 D Who may be appointed....................................................................... 348 E The grounds for appointment before dissolution................................. 349 F The grounds for appointment in a dissolution..................................... 349 G Procedure on appointment.................................................................. 351 H Remuneration...................................................................................... 352 I Receiver and manager......................................................................... 353 J Status and powers of receiver or receiver and manager........................ 354 K Restrictions on creditors...................................................................... 355 LIMITATION AND DELAY AS REGARDS CLAIMS BETWEEN PARTNERS.............................................................................................. 355 A Limitation generally............................................................................ 355 B Limitation in claims between continuing partners: no time period....... 356 C Limitation in claims between the firm and an outgoing partner or his estate: ordinary time period........................................................... 356 D Extension of ordinary time limits........................................................ 360 E Laches, waiver, acquiescence and abandonment.................................. 363

Chapter 16   Dissolution, retirement and expulsion without court order............. 369 1 DISSOLUTION GENERALLY................................................................. 369 A The meaning of dissolution, ‘technical dissolution’ and winding up.... 370 B Dissolution on illegality, repudiation, frustration or rescission............ 372 C Dissolution under the partnership agreement...................................... 372 D Dissolution by subsequent agreement or implication........................... 375 E Setting aside dissolution agreements.................................................... 376 F Publicising dissolution......................................................................... 377 2 DISSOLUTION BY NOTICE.................................................................. 378 A Express provision for dissolution on notice......................................... 378

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Contents B Partnerships at will dissolved on notice............................................... 378 C The nature and effect of a notice......................................................... 379 3 DISSOLUTION BY DEATH, BANKRUPTCY OR CHARGING............. 382 A Death.................................................................................................. 382 B Bankruptcy.......................................................................................... 383 C Dissolution when a partner’s share is charged..................................... 384 4 RETIREMENT AND EXPULSION......................................................... 384 A Retirement and expulsion generally..................................................... 385 B Retirement........................................................................................... 385 C The right to expel................................................................................ 387 D Exercise of the right to expel............................................................... 389 Chapter 17   Dissolution by court order.............................................................. 393 1 DISSOLUTION BY COURT ORDER GENERALLY............................... 393 A General................................................................................................ 394 B Procedure............................................................................................ 394 2 GROUNDS FOR DISSOLUTION: MENTAL AND OTHER INCAPACITY.......................................................................................... 397 A Dissolution by the court for incapacity generally................................. 397 B Mental incapacity................................................................................ 398 C Other incapacity.................................................................................. 400 D The court’s discretion in any case of incapacity................................... 401 3 DISSOLUTION FOR MISCONDUCT.................................................... 401 A Generally............................................................................................. 401 B Dishonesty........................................................................................... 403 C Adultery.............................................................................................. 403 D Other misbehaviour............................................................................. 404 E Triviality and mere distrust.................................................................. 405 4 INSOLVENCY AND LOSS-MAKING AS A GROUND FOR DISSOLUTION........................................................................................ 405 A Procedure............................................................................................ 405 B The grounds for the application.......................................................... 406 5 DISSOLUTION WHEN JUST AND EQUITABLE................................... 406 A The wide jurisdiction........................................................................... 407 B Where the applicant is at fault............................................................. 407 C Where there is a breakdown in relations.............................................. 408 Chapter 18   The effect of dissolution and retirement.......................................... 411 1 MANAGEMENT AFTER DISSOLUTION OR RETIREMENT.............. 411 A Management....................................................................................... 412 B Profits and losses during winding up................................................... 417 C The effect of dissolution on outsiders.................................................. 427 2 THE RIGHTS OF THE PARTIES ON A RETIREMENT........................ 434 A The effect of dissolution, retirement and pre-emption agreements and options......................................................................................... 434 B The valuation of the share of an outgoing partner............................... 437 C Goodwill, work-in-progress and non-assignable assets........................ 438 D The departing partner’s indemnity....................................................... 440 3 THE RIGHTS OF THE PARTNERS ON DISSOLUTION: WINDING UP......................................................................................... 442 A ‘Application’ of partnership property.................................................. 442 B A sale.................................................................................................. 444 C Distribution of net assets..................................................................... 450

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Contents D Discharge of liabilities and losses......................................................... 455 E Return of premiums............................................................................ 457 4 COMPETITION WITH THE FIRM AFTER RETIREMENT OR DISSOLUTION........................................................................................ 458 A The right to compete........................................................................... 458 B Covenants in restraint of trade generally............................................. 461 C What is ‘reasonable’............................................................................ 464 Chapter 19  The firm and outsiders.................................................................... 469 1 THE AUTHORITY OF A PARTNER TO BIND THE FIRM.................. 470 A The express and implied authority of a partner................................... 470 B Matters within the business of the firm................................................ 476 2 THE LIABILITY OF THE FIRM FOR A PARTNER’S WRONGS AND OMISSIONS................................................................................... 490 A Wrongful acts and omissions generally................................................ 490 B Negligence........................................................................................... 494 C Breach of contract............................................................................... 494 D Crime.................................................................................................. 495 E Fraud................................................................................................... 496 F Misrepresentation................................................................................ 497 G Constructive trusteeship or accountability in equity............................ 498 H Other torts and wrongs....................................................................... 499 I Where the partners in the firm change................................................. 500 J Liability of a successor practice on a professional indemnity claim...... 501 3 BREACH OF TRUST AND MISAPPROPRIATION................................ 501 A The principles...................................................................................... 501 B Where the partner in default is acting within his authority as a partner.... 503 C Where the partner in default is acting outside his authority as a partner................................................................................................ 505 D What the firm may be liable for........................................................... 509 E Breach of solicitors’ undertakings........................................................ 510 F A trustee-partner’s right to fees............................................................ 511 4 CLIENTS’ CONFIDENTIAL INFORMATION AND CONFLICTS OF INTEREST......................................................................................... 512 Chapter 20  How partners bear the firm’s liabilities............................................ 515 1 JOINT AND SEVERAL LIABILITY........................................................ 515 A Joint and several liability explained..................................................... 515 B Whether the liability is joint or several or both.................................... 516 C Releases and judgments....................................................................... 519 D A partner’s death................................................................................. 521 2 THE BEGINNING AND END OF A PARTNER’S LIABILITY............... 522 A The beginning of liability: the incoming partner.................................. 522 B The end of liability: the retired, expelled, bankrupt or dead partner.... 526 3 THE FIRM’S NOTICE AND KNOWLEDGE AND THE CLIENT’S CONFIDENTIAL INFORMATION........................................................ 535 A The knowledge of a partner................................................................. 535 B Exclusion of liability by notice to the outsider..................................... 539 C Employees........................................................................................... 540 Chapter 21  Litigation by and against outsiders.................................................. 541 1 ACTIONS BY THE FIRM....................................................................... 542 A The firm’s cause of action.................................................................... 542

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Contents B What partner may authorise and prosecute proceedings?.................... 546 C Set-off between debts and credits of the firm and the partner.............. 548 2 ACTIONS AGAINST THE FIRM............................................................ 550 A When and how a claim against the firm may be brought..................... 550 B The partners’ defence.......................................................................... 553 3 PROCEDURE.......................................................................................... 555 A The scope of rules of court enabling a firm to sue or be sued in the firm name............................................................................................ 555 B Service and acknowledgment of service............................................... 558 C Disclosure of partners’ names.............................................................. 562 D Disclosure and admissions................................................................... 563 E Admissions.......................................................................................... 564 4 JUDGMENT AND EXECUTION AGAINST THE FIRM....................... 565 A Judgment against the firm.................................................................... 565 B Summary judgment............................................................................. 566 C Execution on a judgment against the firm generally............................. 566 D Execution against the assets of the firm............................................... 567 E Execution against a partner without permission.................................. 567 F Execution against partners and non-partners with permission............. 568 G The appointment of a receiver............................................................. 569 H Charging orders................................................................................... 570 I Bankruptcy.......................................................................................... 570 J Statutory winding up........................................................................... 570 K ‘Garnishee’ or ‘third party debt’ proceedings....................................... 570 5 COSTS..................................................................................................... 571 A Costs orders........................................................................................ 571 B The firm as a litigant in person............................................................ 571 Chapter 22  Insolvency – winding up and similar procedures............................. 573 1 BANKRUPTCY CONTRASTED WITH STATUTORY WINDING UP... 574 A The Insolvency Act 1986 option of statutory winding up.................... 574 B Statutory winding up: drafting and terminology.................................. 575 2 BANKRUPTCY....................................................................................... 578 A Bankruptcy law preserved................................................................... 578 B Applications outside the ambit of statutory winding up...................... 579 C The effect of bankruptcy...................................................................... 580 3 CREDITORS’ APPLICATIONS UNDER THE INSOLVENCY ACT 1986... 582 A Creditors’ applications generally......................................................... 583 B Creditors’ winding-up petitions where no concurrent bankruptcy or other insolvency petitions are presented against any members........ 588 C Concurrent petitions against firm and members.................................. 589 D Creditors’ applications for an administration order............................. 592 4 MEMBERS’ APPLICATIONS UNDER THE INSOLVENCY ACT 1986.599 A Members’ winding up and administration applications....................... 600 B Members’ applications for an administration order............................. 600 C Members’ winding-up petitions where no bankruptcy or other insolvency petition is presented against any member........................... 601 D Members’ winding-up petition where concurrent bankruptcy or other insolvency petitions are presented against all the members......... 603 E Article 11: members’ applications for joint bankruptcy without winding up the partnership.................................................................. 605 F Members’ applications for partnership voluntary arrangements with creditors – ‘PVAs’........................................................................ 608

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Contents 5 APPLICATIONS BY OTHERS UNDER THE INSOLVENCY ACT 1986 AND COMPANY DIRECTORS DISQUALIFICATION ACT 1986... 610 A Applications by the liquidator or other responsible insolvency practitioner.......................................................................................... 610 B Financial services partnerships............................................................. 612 C Applications by the Secretary of State.................................................. 613 D The court of its own motion................................................................ 616 6 EU REGULATION OF INSOLVENCY PROCEEDINGS........................ 617 Chapter 23  The insolvent firm’s debts............................................................... 621 1 PRIORITY OF DEBTS GENERALLY...................................................... 622 2 POSTPONEMENT OF THE CLAIMS OF PARTNERS AND OTHERS CONNECTED WITH THE INSOLVENT FIRM..................... 622 A Partners............................................................................................... 623 B The partner’s spouse............................................................................ 623 C Lenders, vendors and others with an interest in a profit share............. 624 D Which debts are postponed?................................................................ 627 3 SET-OFF.................................................................................................. 627 A General................................................................................................ 628 B Joint debts of the firm and separate debts of partners.......................... 629 4 SECURED CREDITORS.......................................................................... 630 A General................................................................................................ 630 B The joint estate of the firm and the separate estate of the partner........ 630 5 THE PARTNER’S LIEN.......................................................................... 632 A The priority of the partner’s lien.......................................................... 632 B Registration and protection of liens over land..................................... 633 6 COSTS AND EXPENSES IN INSOLVENCY PROCEEDINGS............... 633 A Partner’s bankruptcy or insolvency...................................................... 633 B Dissolution and winding up of the firm without statutory winding up.633 C Statutory winding up of the partnership alone..................................... 634 D Statutory winding up of the partnership and a member or members concurrently, with single trustee for both............................. 635 7 RELATIVE PRIORITY OF CREDITORS OF THE FIRM AND CREDITORS OF PARTNERS................................................................. 636 A General................................................................................................ 637 B Priorities where the Insolvent Partnerships Order 1994 applies........... 637 C The rule as to priorities where the Insolvent Partnerships Order 1994 does not apply............................................................................ 640 8 ADJUSTMENT OF LIABILITIES BETWEEN PARTNERS...................... 644 A All partners solvent............................................................................. 644 B Statutory winding up: the liquidator’s powers..................................... 645 C The partner’s rights against an insolvent partner’s estate..................... 646 D An insolvent partner’s estate seeking a contribution against a solvent partner.................................................................................... 648 9 AN INSOLVENT MEMBER OF A SOLVENT FIRM.............................. 648 A A member’s insolvency........................................................................ 648 B No dissolution..................................................................................... 649 C Dissolution.......................................................................................... 649 10 THE ESTATE OF A DEAD PARTNER.................................................... 650 A General................................................................................................ 650 B Death does not halt bankruptcy proceedings....................................... 650 C Priorities in relation to an insolvent estate........................................... 651 D The position of the personal representatives........................................ 651

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Contents Chapter 24  Limited partnerships....................................................................... 653 1 LIMITED PARTNERSHIPS GENERALLY.............................................. 654 A The nature of limited partnerships....................................................... 654 B Sham limited partnerships................................................................... 657 C ‘Business’ and ‘business in common’.................................................... 658 D The limited partner’s financial position................................................ 658 E Venture capital or private equity funds, collective investment schemes and private fund limited partnerships.................................... 659 F Foreign firms and foreign recognition.................................................. 660 G Discrimination..................................................................................... 660 2 MANAGEMENT OF THE BUSINESS.................................................... 661 A Powers of the general partner(s) and the limited partners.................... 661 B Involvement by limited partners.......................................................... 662 C Conflict between the limited partners, the general partner and the operator.............................................................................................. 668 3 INCOMING AND OUTGOING PARTNERS AND THEIR ASSIGNEES............................................................................................. 670 A Introduction of partners...................................................................... 670 B An assignment, charge, nomineeship or trusteeship of a limited partner’s share..................................................................................... 671 C The number of partners and their nature............................................. 672 4 THE LIMITED PARTNER’S CAPITAL................................................... 672 A Limited partners in an ordinary limited partnership............................ 673 B Limited partners in a private fund limited partnership......................... 674 5 REGISTRATION AND ADVERTISEMENT........................................... 674 A Default in registration......................................................................... 674 B The details to be registered initially..................................................... 677 C The changes to be registered subsequently........................................... 678 D The register......................................................................................... 680 E Advertisement of changes.................................................................... 680 F The firm name and the Companies Act................................................ 681 6 REGULATION OF THE BUSINESS........................................................ 681 A Financial services................................................................................. 681 B Collective investment schemes............................................................. 682 C Private fund limited partnerships......................................................... 683 D Successor partnerships......................................................................... 684 E Alternative authorisation for legal professionals.................................. 685 7 DISSOLUTION AND WINDING UP...................................................... 685 A Dissolution without court order.......................................................... 685 B Dissolution by court order................................................................... 687 C Winding up after dissolution............................................................... 688 8 EXECUTION AND INSOLVENCY........................................................ 688 A Judgment and execution against a limited partnership......................... 689 B Bankruptcy and petitions for statutory winding up............................. 689 C The priority of a limited partner’s claim against his insolvent firm...... 691 Chapter 25  Limited liability partnerships.......................................................... 693 1 THE NATURE AND CREATION OF LIMITED LIABILITY PARTNERSHIPS...................................................................................... 694 A The nature of limited liability partnerships (‘LLPs’)............................. 694 B Sham limited liability partnerships...................................................... 697 C Registration and incorporation............................................................ 698 D Pre-incorporation contracts................................................................. 700

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Contents E The name of the LLP........................................................................... 701 F The business and property of the LLP................................................. 704 G Taxation.............................................................................................. 706 H Litigation............................................................................................. 707 2 THE LLP AGREEMENT AND THE DEFAULT PROVISIONS............... 708 A The LLP agreement generally.............................................................. 709 B What should be dealt with in the LLP agreement?............................... 709 C Default of specific agreement............................................................... 711 D Unfair prejudice to members............................................................... 715 E Discrimination..................................................................................... 718 F The member’s right to sue for a wrong done to the LLP...................... 719 3 MEMBERS.............................................................................................. 719 A Members generally.............................................................................. 720 B Designated members............................................................................ 722 C The member’s share: income and capital............................................. 724 D The member’s liability to contribute to the LLP assets......................... 726 E The liability of the LLP and of the member......................................... 728 F Good faith and the obligations of the LLP and its members between themselves............................................................................. 735 G Employment of members and ‘workers’.............................................. 738 H Commencement and cesser of membership.......................................... 739 4 AUDITORS, ACCOUNTS, CHARGES AND THE CONFIRMATION STATEMENT............................................................ 744 A Companies Act obligations.................................................................. 744 B Audit................................................................................................... 744 C Accounts............................................................................................. 745 D Charges............................................................................................... 747 E The confirmation statement................................................................. 747 5 INSOLVENCY, WINDING UP, MISFEASANCE AND DISQUALIFICATION............................................................................. 747 A Insolvency, voluntary arrangements and administration...................... 747 B Dissolution and winding up................................................................. 748 C Investigation and misfeasance.............................................................. 750 D Recoupment from members................................................................. 751 E Disqualification................................................................................... 753 6 TRANSFER OF ASSETS FROM PARTNERSHIP TO LLP...................... 756 A Transfers generally.............................................................................. 757 B Existing leases, contracts, liabilities and substitution of defendants..... 757 C Executorships...................................................................................... 758 D Trusteeships and other appointments.................................................. 758 E CFA agreements.................................................................................. 758 F Clients................................................................................................. 759 G Taxation.............................................................................................. 759 Appendix A: Partnership Act 1890....................................................................... 761 Appendix B: Limited Partnerships Act 1907........................................................ 773 Appendix C: Limited Partnerships (Forms) Rules 2009........................................ 785 Appendix D: Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2009..................................... 825

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Contents Appendix E: Partnership (Accounts) Regulations 2008........................................ 833 Appendix F: Insolvent Partnerships Order 1994................................................... 845 Appendix G: Limited Liability Partnerships Act 2000......................................... 1035 Appendix H: Limited Liability Partnerships Regulations 2001............................ 1051 Appendix I: Law of Partnership Act 1865 (repealed)........................................... 1109 Appendix J: British Venture Capital Association statement 26 May 1987........... 1111 Index.................................................................................................................... 1119

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Table of Statutes para Access to Justice Act 1999 s 27, 28......................................... 4.4 Administration of Estates Act 1925 s 33(1)........................................... 10.20 46–49......................................... 8.37 Administration of Justice Act 1985 s 9................................................. 25.20 Agricultural Credits Act 1928...1.1, 8.49, 15.38, 21.45, 22.44 s 5................................................. 8.49 (7)......................................... 8.49, 18.27 7................................................. 18.27 13............................................... 8.49 Agricultural Holdings Act 1986...... 8.48, 24.4 Agricultural Holdings (Notices to Quit) Act 1977........................ 8.48, 11.8 Agricultural Tenancies Act 1995 s 2(1)(a)........................................ 8.48 Arbitration Act 1996.................. 15.25, 15.27, 15.28 s 1(b)............................................. 15.27 6................................................. 15.23 (1)............................................. 15.29 9........................................... 15.26, 15.27 (3)............................................. 15.27 44......................................... 15.25, 15.44 (2)........................................... 15.28 48(5)(a)...................................... 15.28 66......................................... 15.26, 15.28 67............................................... 15.30 68............................................... 15.30 69......................................... 15.22, 15.30 (3)........................................... 15.30 70(2)........................................... 15.30 80(5)........................................... 15.30 91............................................... 15.23 101(2)......................................... 15.26 459............................................. 15.27 Architects Act 1997........................... 8.66 s 20............................................... 25.20 (1)........................................... 4.11 (3)........................................... 8.66 Bank Charter Act 1844..................... 10.3 Banking Act 1979 s 46............................................... 4.12 Bankruptcy Act 1861........................ 23.37 Bankruptcy Act 1914........................ 23.37 s 33(6)........................................... 23.33 40(b)........................................... 23.39 Sch 2 para 19..................................... 23.37

para Bills of Exchange Act 1882............... 1.4 s 23............................................... 19.17 (2)........................................... 18.27 Bovill’s Act see Law of Partnership Act 1865 Chancery Amendment Act 1858 (Lord Cairn’s Act) s 2................................................. 18.68 Charging Orders Act 1979.......... 10.15, 16.32 s 2(2)............................................. 10.15 Civil Jurisdiction and Judgments Act 1982......................................... 1.14 s 1................................................. 15.4 42, 43......................................... 15.4 Sch 1 para 16(2)............................... 1.15, 15.4 Civil Jurisdiction and Judgments Act 1991 s 3................................................. 15.4 Sch 2 para 17..................................... 15.4 Civil Liability (Contribution) Act 1978.................................... 13.1, 14.60, 14.61, 20.11 s 1................................................. 14.60 (4)............................................. 14.60 2................................................. 14.60 3........................................... 20.11, 21.12 4................................................. 20.11 6................................................. 14.60 7(3)............................................. 14.61 Civil Partnership Act 2004................ 2.45 Clergy (Ordination and Miscellaneous Provisions) Measure 1964 s 11............................................... 3.14 Companies Act 1981 s 28............................................... 8.62 Companies Act 1982 s 4................................................. 4.20 Companies Act 1985......................... 4.12 s 36A............................................ 25.17 (4), (6).................................. 25.17 431(2)......................................... 25.94 432(1)......................................... 25.95 (2)......................................... 25.96 434, 436..................................... 25.97 447, 448..................................... 25.96 453A–453C................................ 25.96 Pt XVII (ss 459–461).................... 25.41 s 680, 681..................................... 4.12 689............................................. 4.12 709, 710..................................... 25.8 716........................................... 4.12, 4.20

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Table of Statutes para Companies Act 1985 – contd s 717............................................. 4.12 740............................................. 1.11 Companies Act 1989 s 60(3)........................................... 22.88 Companies Act 2006........... 11.10, 22.1, 25.7, 25.14, 25.16, 25.25, 25.63, 25.84 s 1(1)............................................. 3.2 15(4)........................................... 24.29 39............................................... 3.2 44(2)........................................... 25.17 (5)........................................... 25.17 45............................................... 25.17 51............................................... 25.12 53–57......................................... 25.14 65............................................... 25.14 66......................................... 25.13, 25.14 67, 68......................................... 25.14 69–74......................................... 25.14 75, 76......................................... 25.14 82, 83......................................... 25.16 162............................................. 25.7 174............................................. 25.73 240............................................. 25.50 241–243, 245............................. 25.50 386–410A, 411–413................... 25.86 414............................................. 25.86 (1)......................................... 25.54 423............................................. 25.86 441............................................. 25.86 (1)......................................... 25.54 442............................................. 25.86 (1)......................................... 25.86 443–451..................................... 25.86 475............................................. 25.85 477, 478............................... 25.85, 25.86 469–481..................................... 25.85 485, 495..................................... 25.85 516............................................. 25.85 725............................................. 25.25 Pt 19 (ss 738–754)........................ 25.87 Pt 20 (ss 755–767)........................ 25.41 s 853A, 853B.......................... 25.54, 25.88 853C–853L................................ 25.88 Pt 25 Ch A1 (ss 859A–859Q)....... 25.22 s 994............................. 2.61, 17.24, 25.28, 25.41, 25.42, 25.43 (3)......................................... 25.42 996............................................. 25.44 1000(1)....................................... 25.92 1003........................................... 25.91 1065........................................... 25.8 1068........................................... 25.7 1079(2)....................................... 25.10 1085........................................... 25.8 1096(1)....................................... 25.90 1121–1123................................. 19.50

para Companies Act 2006 – contd s 1139........................................... 25.25 1157(1), (2)................................ 25.74 Pt 41 (ss 1192–1208)....... 8.61, 8.65, 24.37 s 1192........................................... 8.61 (2)(b).................................. 8.61 1193........................................... 8.62 1199........................................... 8.62 (3)....................................... 8.62 1201, 1202................................. 8.63 1203........................................... 8.64 1204........................................... 8.63 1205........................................... 8.65 1206........................................... 8.65 1208................................ 8.60, 8.61, 8.63 1210(1)....................................... 8.11 1216........................................... 8.11 1255(2)....................................... 19.50 Companies Consolidation (Consequential Provisions) Act 1985 s 28............................................... 2.49 Company Directors Disqualification Act 1986.............................. 3.28, 22.82, 22.86, 24.56, 25.48, 25.100, 25.101, 25.104 s 1............................................ 3.28, 22.82, 25.100, 25.105 1A.............................................. 22.82 2–5..................................... 22.83, 25.101 5A.............................................. 22.82 6.......................................... 22.81, 22.82, 22.83, 25.101 (1)..................................... 22.84, 25.102 (a)................................ 22.84, 25.102 (3), (5).............................. 22.84, 25.102 7........................................... 22.81, 22.82 (2)..................................... 22.84, 25.102 (2A).......................................... 22.83 (3)–(5).............................. 22.84, 25.102 8.......................................... 22.81, 22.82, 22.83, 25.101 (1), (2).............................. 22.85, 25.103 9, 10..................................... 22.81, 22.82 11............................................... 25.48 12C......................... 22.84, 22.86, 25.102 13........................................ 22.82, 22.83, 22.87, 25.105 14............................................... 22.82 15............................. 22.81, 22.82, 22.83, 22.87, 25.105 19(c)..................................... 22.81, 22.82 20......................................... 22.81, 22.82 Sch 1........................... 22.81, 22.82, 22.84, 22.86, 25.102 Competition Act 1980....................... 4.9 Competition Act 1998....................... 4.9 s 2................................................. 4.9

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Table of Statutes para Consumer Credit Act 1974............... 4.2, 4.11 s 170(1)......................................... 4.2, 4.11 Consumer Rights Act 2015.......... 7.17, 15.23, 19.47, 25.61 s 2(3)............................................. 7.17 Contracts (Rights of Third Parties) Act 1999............................. 20.25, 25.26 s 8(1)............................................. 15.23 Conveyancing Act 1881.................... 16.30 Co-operative and Community Benefit Societies Act 2014..................... 2.55 s 3(3)............................................. 2.55 Copyright, Designs and Patents Act 1988............................ 8.11, 8.72, 19.33 s 3A.............................................. 8.68 275, 276..................................... 4.11 Corporate Manslaughter and Corporate Homicide Act 2007 s 1................................................. 19.50 Sch 1............................................. 19.50 Corporation Tax Act 2010 s 60............................................... 25.59 1135........................................... 25.18 County Courts Act 1984 s 23(f)......................................... 15.1, 17.2 24............................................... 15.1 (1)........................................... 17.2 38............................................... 15.45 Courts and Legal Services Act 1990.. 4.11 s 3................................................. 15.45 4................................................. 25.70 58........................................... 4.4, 25.110 66(5)......................................... 2.43, 3.13 (6)........................................... 2.43 Criminal Justice Act 1948 s 70(1)........................................... 3.3 Criminal Law Act 1967 s 1................................................. 11.31 Sch 4............................................. 4.4 Data Protection Act 1998.................. 19.75 Data Protection Act 2018 s 6................................................. 19.75 Debtors Act 1869 s 4................................................. 14.24 Dentists Act 1984 s 41............................................... 4.11 Diplomatic Privileges Act 1974 s 2(1)............................................. 3.4 Sch 1 art 1(c)...................................... 3.4 31, 37.................................. 3.4 Disability Discrimination Act 1995... 13.2 Employment Rights Act 1996...... 13.2, 16.39, 18.24, 25.80 s 48, 49................................... 16.39, 25.80 218(2)–(4).................................. 18.24 (5)................................... 18.23, 18.24 230(3)(b).................................... 25.75

para Enduring Powers of Attorney Act 1985......................................... 10.24 Enterprise Act 2002........... 22.2, 22.41, 22.50 s 250............................................. 25.102 251............................................. 23.31 Equality Act 2010................. 13.2, 13.3, 13.8, 13.9, 13.14, 13.16, 13.21, 13.22, 13.26, 15.27, 25.45, 25.48, 25.81 Pt 2 (ss 4–27)................................ 13.2 s 5................................................. 13.3 6................................................. 13.3 (1), (4), (6)................................ 13.4 7, 8............................................. 13.3 9............................................... 13.3, 13.6 (1), (5)...................................... 13.6 10............................................... 13.3 (1), (2).................................... 13.7 11, 12......................................... 13.3 13(1), (2).................................... 13.9 14............................................... 13.2 15(1)–(3).................................... 13.9 (6)(b)...................................... 13.9 17, 18......................................... 13.9 19............................................... 13.10 20............................................... 13.11 (7)........................................... 13.11 21............................................... 13.11 (2)........................................... 13.11 22............................................... 13.11 26............................................... 13.12 (1)(a)...................................... 13.12 27(1)–(3).................................... 13.13 Pt 5 Ch 1 (ss 39–60)...................... 13.2 s 44............................................... 13.2 (1)(a)...................................... 13.15 (2)........................................... 13.16 (3)..................................... 13.15, 13.16 (4), (5).................................... 13.15 (6)........................................... 13.16 (7)........................................... 13.15 (8)....................................... 13.17, 24.9 45................................ 13.2, 13.20, 25.48 46............................................... 13.18 (6)........................................... 13.16 108............................................. 13.19 120............................................. 13.22 123(1)......................................... 13.23 124(2), (4), (5)............................ 13.25 136(2)......................................... 13.24 144............................................. 15.27 (1), (4).................................. 13.26 158............................................. 13.14 159............................................. 13.14 (2)–(5).................................. 13.14 Sch 1 Pt 1 (paras 1–9)......................... 13.4 para 1, 6............................... 13.4

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Table of Statutes para Estate Agents Act 1979 s 3, 7............................................. 4.11 Family Law Reform Act 1969 s 1(1)............................................. 3.22 Finance Act 1998 s 40............................................... 12.27 Sch 6............................................. 12.27 Finance Act 2001.............................. 25.23 s 75........................................... 25.1, 25.23 76............................................... 25.23 Sch 25........................................... 25.23 Finance Act 2003 s 65............................................... 25.112 Finance Act 2006 Sch 15........................................... 12.27 Finance Act 2007 s 26............................................... 24.3 Sch 4............................................. 24.3 Finance Act 2013 s 17, 18......................................... 24.3 Sch 4............................................. 14.3 Sch 5............................................. 24.3 Finance Act 2014 s 74............................................... 12.20 Sch 17........................................... 12.20 Financial Services and Markets Act 2000................................. 4.2, 4.7, 4.11, 4.13, 4.18, 19.61, 24.7, 24.38, 25.20 s 19............................................... 24.38 20(1)........................................... 24.39 22............................................... 24.38 31......................................... 22.78, 24.39 32............................................... 24.41 Pt IVA (ss 55A–55Z4)................... 24.39 s 84............................................... 24.38 138D.......................................... 24.39 Pt XI (ss 165–177)........................ 19.50 s 177............................................. 19.50 235............................................. 24.39 (2)......................................... 24.39 235A.......................................... 24.39 Pt XX (ss 325–333)................. 24.39, 24.42 s 367............................................. 22.78 (3)......................................... 22.79 (za)................................... 22.79 (6), (7).................................. 22.79 412............................................. 4.7 Forfeiture Act 1870 s 6–30........................................... 3.3 Friendly Societies Act 1974............... 2.55 Friendly Societies Act 1992............... 2.55 Gambling Act 2005........................... 4.7, 4.11 s 33(2)........................................... 4.7 258............................................. 4.7 335(1)......................................... 4.7 Gaming Act 1845.............................. 4.7

para Income Tax Act 2007 s 105............................................. 24.3 398............................................. 25.23 399(2), (3).................................. 24.3 (6)......................................... 25.18 Income Tax (Earnings and Pensions) Act 2003 s 49, 52, 61................................... 2.32 Income Tax (Trading and Other Income) Act 2005 s 25A............................................ 12.27 Pt 2 Ch 3A (ss 31A–31F).............. 12.27 Pt 2 Ch 17 (ss 226–240)................ 12.27 s 226–240..................................... 12.27 Pt 5 (ss 574–689).......................... 2.5 s 848....................................... 12.21, 18.33 850(c)......................................... 12.20 850A(1)...................................... 12.31 852(4)(b).................................... 18.33 860............................................. 12.27 863............................................. 25.23 (1)......................................... 25.23 863A–865................................... 25.76 Insolvency Act 1986.............. 8.29, 16.2, 17.1, 17.2, 17.3, 18.21, 20.31, 22.1, 22.2, 22.5, 22.7, 22.10, 22.34, 22.40, 22.50, 22.54, 22.59, 22.66, 22.67, 22.73, 23.3, 23.4, 23.17, 23.22, 23.29, 23.30, 23.41, 24.52, 25.51, 25.54, 25.63, 25.89, 25.90 Pt I (ss 1–7)............................. 22.72, 22.74 s 1................................................. 22.75 (3)(a)–(c)................................... 22.74 (2)............................................. 22.74 5(1)............................................. 22.74 Pt II (ss 8–27).......................... 22.41, 23.23 s 8........................................... 22.41, 22.74 9............................................... 8.50, 17.5 10............................................... 8.50 14(2)(a)...................................... 22.50 (6)........................................... 22.52 18............................................... 25.18 72A–72H.................................... 25.102 Pt IV (73–219)........................ 22.42, 22.59 s 74............................................... 25.61 79(1)....................................... 22.3, 23.29 80–82......................................... 23.29 87............................................... 25.91 99............................................... 25.54 107............................................. 25.89 117....................................... 22.21, 22.57 (1), (2).................................. 22.57 (4)......................................... 22.69 (5), (6)............................ 22.32, 22.61 122............................................. 22.37 122(1)......................................... 22.22

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Table of Statutes para Insolvency Act 1986 – contd s 122(1)(c)..................................... 25.49 (e)..................................... 25.90 123....................................... 22.37, 22.79 124....................................... 22.32, 22.61 (2)......................................... 22.60 (3)(a).................................... 22.33 (4)(a).................................... 22.63 (5)................................... 22.33, 22.63 (6)......................................... 22.33 124A.......................................... 22.88 125A.................................... 22.65, 24.53 (4)................................ 22.35, 22.64 (7)................................ 22.39, 24.54 126............................................. 22.25 127............................................. 22.25 128............................................. 22.25 129............................................. 25.99 131............................................. 22.27 133............................................. 22.26 (2)–(4).................................. 22.26 (5)......................................... 22.34 135–140..................................... 22.34 136............................................. 22.34 139............................................. 22.34 140............................................. 22.34 148............................................. 23.29 150............................................. 23.29 154............................................. 23.29 156............................................. 23.23 160............................................. 23.29 165, 156..................................... 22.27 175............................................. 23.23 175A.......................................... 23.31 (3)...................................... 23.44 (5)(b).................................. 23.30 175C(2)...................................... 23.44 (a).................................. 23.48 (b).................................. 23.49 (4), (5)................................ 23.31 (6), (7)................................ 23.31 (8)................................ 23.26, 23.31 176AZA..................................... 22.42 189............................................. 23.31 (1), (2).................................. 23.31 201............................................. 25.91 205(1)......................................... 25.91 Pt IV Ch X (ss 206–219)............... 25.98 s 207............................................. 8.29 212, 213............................... 25.98, 25.99 214...................................... 17.22, 25.51, 25.98, 25.99 (4)................................... 11.10, 25.73 214A.......................................... 25.99 216............................................. 25.51 Pt V (ss 220–229)............ 3.28, 18.1, 22.19, 22.24, 22.56, 22.59, 23.28

para Insolvency Act 1986 – contd s 220.............................. 1.14, 22.61, 22.79 (1)......................................... 21.48 221............................ 22.20, 22.61, 22.79 (2), (3).................................. 22.20 (4)........................ 22.27, 22.58, 22.62 (5)....................... 22.19, 22.22, 22.25, 22.27, 22.54, 22.88 (6)....................... 22.19, 22.22, 22.27, 22.36, 22.54 (7)....................... 22.22, 22.29, 22.40, 22.58, 22.66, 22.77, 23.31 (c)..................................... 22.24 221A.......................................... 22.56 (1)...................................... 22.77 (2)...................................... 22.56 (4), (5)................................ 22.77 (6)...................................... 23.23 222............................ 22.23, 22.48, 22.61 (2)......................................... 22.23 223............................ 22.30, 22.48, 22.77 224(1)......................................... 22.23 (a), (d).............................. 22.48 (2)........................ 22.23, 22.48, 22.54 226............................................. 23.29 227............................................. 21.48 228............................................. 23.29 Pt VI (ss 230–246B)................. 22.2, 22.42, 22.59, 22.72 s 230A.......................................... 22.34 233............................................. 22.72 234............................................. 22.27 235(1)......................................... 18.27 Pt VII (ss 247–251)...... 22.42, 22.59, 22.72 s 260............................................. 20.11 Pt IX (ss 264–371)....... 22.13, 22.59, 22.67 s 264............................ 22.32, 22.33, 22.61 (1)................................... 22.68, 24.55 (a).................................... 21.5 (3), (4).................................. 22.68 265(1)......................................... 22.69 (a).................................... 22.69 (2)......................................... 22.69 266(1)......................................... 22.68 267(2)(c)..................................... 22.38 268............................................. 22.38 271....................................... 22.35, 22.39 272(1)–(3).................................. 22.68 278............................................. 23.3 281(7)......................................... 20.11 283....................................... 22.10, 22.70 284............................................. 22.70 (6)......................................... 22.70 286............................................. 22.67 292A.......................................... 22.71 293–300..................................... 22.34 303....................................... 22.10, 22.13

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Table of Statutes para Insolvency Act 1986 – contd s 303(2A)–(2C)............................. 22.67 305(1), (2).................................. 22.71 323....................................... 23.10, 23.13 (1)......................................... 23.10 328(2)(b).................................... 23.49 (6)......................................... 24.57 328A, 328B................................ 23.32 328C.......................................... 23.32 (2)(a).................................. 23.48 328D.......................................... 23.32 329............................................. 23.3 328............................................. 23.23 (2)......................................... 23.20 (6)......................................... 23.23 328A(3)...................................... 23.44 328C(2)...................................... 23.44 (a).................................. 23.48 339, 340................................. 8.29, 23.36 360(1)......................................... 3.29 (b).................................... 3.29 (2)......................................... 3.29 (4)......................................... 3.29 Pt X (ss 372–379C)................. 22.59, 22.67 Pt XI (ss 380–385).................. 22.59, 22.67 Pt XII (ss 386–387A)............. 22.42, 22.59, 22.67, 22.72 Pt XIII (ss 386, 387)............... 22.42, 22.59, 22.67, 22.72 s 386............................................. 23.31 Pt XIV (ss 399–410)..... 22.59, 22.67, 25.94 Pt XV (ss 411–422)...... 22.59, 22.67, 22.72 s 411, 413, 414....................... 22.42, 22.72 417............................................. 22.23 419....................................... 22.42, 22.72 420............................................. 22.1 Pt XVI (ss 423–425)..... 22.59, 22.67, 22.72 s 423......................................... 8.29, 11.19 Pt XVII (ss 426–434)... 22.59, 22.67, 22.72 Pt XVII (ss 435–436B). 22.59, 22.67, 22.72 Pt XIX (ss 437–444).... 22.59, 22.67, 22.72 Sch B1.................................... 22.41, 22.42, para 3....................................... 22.48 6....................................... 22.42 9....................................... 22.48 11..................................... 22.48 (a), (b)........................... 22.48 12..................................... 22.42 (2)................................. 22.47 (3)................................. 22.43 14..................................... 22.44 36.................... 22.44, 22.48, 22.49 39..................................... 22.44 42, 43......................... 22.46, 22.49 44............................... 22.44, 22.45 45..................................... 22.47 59............................... 22.49, 22.50 61(a), (b)........................... 22.52

para Insolvency Act 1986 – contd Sch B1 – contd para 69..................................... 22.50 (2)................................. 22.52 70, 71............................... 22.51 90..................................... 22.53 93(1)................................. 22.53 Sch 4....................................... 22.27, 22.42 Sch 6............................................. 23.31 Sch 7............................................. 23.44 Sch 8 para 6....................................... 18.27 Interpretation Act 1978 s 5................................................. 8.61 7................................................. 16.26 Sch 1......................................... 8.61, 25.48 Intestates’ Estates Act 1952............... 8.37 Land Charges Act 1972 s 2, 4............................................. 23.19 Land Registration Act 2002 s 27(2)(f)....................................... 23.19 37............................................... 8.36 Landlord and Tenant Act 1954......... 8.44 Pt II (ss 23–46)................... 2.17, 8.23, 8.44 s 23............................................... 8.44 (2)........................................... 2.17 24............................................... 8.44 41............................................... 8.44 41A............................................ 8.44 (6)........................................ 8.44 Law of Partnership Act 1865 (Bovill’s Act)............... 1.3, 2.32, 23.4, 23.7, 24.3 s 1–4............................................. 1.4 Law of Property Act 1925............... 5.1, 23.19 s 27(2)........................................... 8.36 28(1)........................................... 8.36 34............................................. 8.37, 8.38 35............................................... 8.37 36............................................... 8.38 39(4)........................................... 8.36 40.................................... 8.30, 8.35, 8.37 (1)........................................... 8.35 53(1)........................................... 10.4 (c)....................................... 8.20 81(1)......................................... 20.3, 20.8 (3)........................................... 20.3 101............................................. 21.45 109....................................... 15.38, 21.45 188............................................. 18.51 199............................................. 19.68 (1)(ii)(b)................................ 20.35 205(1)......................................... 23.19 Sch 1 Pt IV......................................... 8.36 Law of Property Act 1969 s 9................................................. 8.44 Law of Property (Miscellaneous Provisions) Act 1989................. 10.4

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Table of Statutes para of Property (Miscellaneous Provisions) Act 1989 – contd s 1................................................. 19.42 2..................................... 8.30, 8.31, 8.35, 8.37, 23.19 (1)............................................. 18.34 Law Reform (Married Women and Tortfeasors) Act 1935 s 6(1)....................................... 20.11, 21.12 Legal Aid, Sentencing and Punishment of Offenders Act 2012............... 15.2 Sch 1 Pt 2 para 13................................. 15.2 Limitation Act 1939 s 19............................................... 15.52 23............................................... 15.58 Limitation Act 1980............ 10.6, 11.2, 15.39, 15.51, 15.61, 19.51, 21.19 s 5, 9............................................. 15.52 10............................................... 14.60 (1), (3), (4).............................. 14.60 21............................................... 21.19 (1)........................................... 15.52 (e)....................................... 15.60 23......................................... 15.52, 15.61 Pt II (ss 28–33A)........................... 15.56 s 28............................................... 15.56 29............................................... 15.56 (5)..................................... 15.57, 15.58 (6)........................................... 15.59 (7)........................................... 15.57 30............................................... 15.56 (1), (2).................................... 15.58 31............................................... 15.56 (5), (6).................................... 15.58 (7)........................................... 15.59 32......................................... 15.56, 15.60 (1)..................................... 15.60, 19.51 (2)........................................... 15.60 36............................................... 15.61 Limited Liability Partnerships Act 2000............................... 1.8, 3.28, 24.1, 25.1, 25.2, 25.5, 25.19, 25.26, 25.41, 25.51, 25.68 s 1................................................. 25.4 (2)......................................... 25.3, 25.23 (3)............................................. 25.4 (4)............................................. 25.60 (5)......................................... 25.4, 25.72 2(1)............................................. 25.18 (a)........................................ 25.49 (2ZA)....................................... 25.7 3(1)............................................. 25.7 (4)............................................. 25.7 4(1), (2)...................................... 25.76

Law

para Limited Liability Partnerships Act 2000 – contd s 4(3)........................... 16.39, 25.77, 25.79, 25.80, 25.81, 25.83 (4)............................................. 25.75 4A........................................ 25.49, 25.60 5(2)............................................. 25.12 6................................................. 25.67 (1)....................................... 25.65, 25.72 (2)............................................. 25.66 (3)............................................. 25.68 (4)....................................... 25.69, 25.70 7................................................. 25.83 (2)............................ 25.58, 25.69, 25.83 (3)............................................. 25.83 8................................................. 25.54 (2)............................................. 25.51 (6)............................................. 25.53 9................................................. 25.54 (1)............................................. 25.9 (3)............................................. 25.53 10................................ 25.1, 25.23, 25.69 12............................................... 25.112 13............................................... 25.23 14........................................ 25.89, 25.90, 25.91, 25.99 15............................................... 25.29 (a)–(c)..................................... 25.29 17(1)........................................... 25.29 18............................................... 25.18 19(3), (4).................................... 25.3 Schedule Pt I para 2................................... 25.13 4................................... 25.65 (1), (2)......................... 25.15 5................................... 25.18 (4)............................... 25.15 6................................... 25.15 Limited Partnerships Act 1907.. 1.4, 1.5, 8.63, 12.31, 24.3, 24.10, 24.11, 24.14, 24.57 s 1................................................. 24.3 (1)............................................. 24.33 3............................................... 24.1, 24.3 4(2)................................. 4.12, 24.1, 24.6, 24.14, 24.24, 24.25 (2B)........................... 24.6, 24.26, 24.40 (3)....................................... 24.25, 24.53 (3A)(b)...................................... 24.26 (4)............................................. 24.24 (34A)........................................ 24.40 5.................................. 24.1, 24.28, 24.31 6............................................. 24.1, 24.33 (1)........................... 24.10, 24.11, 24.12, 24.14, 24.44, 24.46, 25.36 (2)....................................... 24.46, 24.48

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Table of Statutes para Limited Partnerships Act 1907 – contd s 6(3)............................................. 24.49 (3B).......................................... 24.40 (5)............................................. 24.18 (a)........................................ 24.10 (b)........................................ 24.23 (c)......................................... 24.45 (d)........................................ 24.22 (e)......................................... 24.44 (f)................................... 24.19, 24.40 (6)............................................. 24.40 6A.............................................. 24.11 (1).......................................... 24.40 (2)(n)(v)................................. 24.11 (3).......................................... 24.40 7................................................. 24.3 8................................ 24.31, 24.37, 24.40 (1)............................................. 24.29 8A............................... 24.1, 24.32, 24.40 (1)(d)...................................... 24.35 8B.............................. 24.25, 24.37, 24.40 8C.............................. 24.4, 24.27, 24.31, 24.32, 24.40 8D........................................ 24.27, 24.40 (2), (3)................................... 24.32 9............................................ 24.1, 24.31, 24.33, 24.37 10............................................... 24.40 (1)..................................... 24.23, 24.36 (1A)–(1C)............................... 24.36 13......................................... 24.29, 24.32 14............................................... 24.34 15............................................... 24.34 16............................................... 24.34 (2)..................................... 24.30, 24.32 28, 30......................................... 24.40 36(1)........................................... 24.40 Local Government and Public Involvement in Health Act 2007....... 2.60 Lord Cairn’s Act see Chancery Amendment Act 1858 Lord Tenterden’s Act see Statute of Frauds Amendment Act 1828 Medical Act 1983 s 46............................................... 4.11 Medicines Act 1968 s 69........................................... 4.11, 25.20 71............................................... 25.20 Mental Capacity Act 2005........... 3.26, 10.24, 17.10, 17.12 s 1(2)............................................. 17.10 2(1)......................................... 3.25, 17.10 3................................................. 17.10 9................................................. 10.24 16............................................ 3.27, 17.2, 17.8, 17.10 18................................. 3.27, 10.24, 17.2, 17.8, 17.10

para Mental Capacity Act 2005 – contd (1)(e)....................................... 17.10 (f)....................................... 3.25 (k)...................................... 17.10 23............................................... 10.24 Sch 1 para 4....................................... 10.24 Sch 4............................................. 10.24 Mental Health Act 1959 s 149(2)......................................... 17.10 Sch 8 Pt I............................................ 17.10 Mental Health Act 1983 s 96............................................... 17.10 (1)........................................... 17.10 (g), (h)................................ 3.25 Minors’ Contracts Act 1987 s 3................................................. 3.22 Misrepresentation Act 1967......... 14.7, 14.10, 19.51 s 2................................................. 19.52 (1)............................................. 14.10 (2)....................................... 14.10, 19.52 National Health Service Act 1977..... 18.77 National Health Service Act 2006..... 18.77 s 259............................................. 8.54 Sch 21........................................... 8.54 para 2(1), (4)............................. 8.54 National Lottery etc Act 1993 s 2(1)............................................. 4.7 Partnership Act 1890.................. 1.1, 1.3, 1.4, 1.5, 1.6, 1.9, 1.11, 1.12, 2.12, 2.17, 2.20, 2.32, 2.45, 2.49, 5.8, 7.1, 7.2, 8.11, 8.20, 8.26, 8.37, 8.55, 8.61, 8.63, 9.1, 9.3, 9.4, 10.9, 10.11, 11.11, 12.5, 12.6, 12.23, 14.8, 14.10, 14.11, 14.52, 15.6, 16.7, 16.10, 16.24, 16.30, 16.35, 17.1, 17.14, 18.43, 18.45, 18.54, 19.13, 20.5, 20.21, 20.25, 22.5, 22.11, 22.19, 22.49, 22.73, 23.4, 23.23, 23.52, 24.24, 24.57, 25.12, 25.26, 25.29, 25.48, 25.51, 25.63, 25.65, 25.68, 25.90 s 1..................................... 2.13, 2.17, 2.20, 2.34, 2.39, 2.40 (1).......................... 1.1, 2.15, 2.16, 2.22, 8.53, 12.4, 12.26, 14.11, 24.5, 24.7, 25.7, 25.18

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Table of Statutes para Partnership Act 1890 – contd s 1(2).................................... 2.1, 2.49, 2.59 (a)........................................ 1.10 (3)............................................. 24.8 (d)........................................ 2.3 (e)......................................... 2.28 2............................................... 2.35, 23.7 (1).................................. 2.39, 8.26, 24.5 (2)........................................... 2.30, 23.8 (3)............................ 1.3, 1.4, 2.20, 2.32, 2.36, 2.38, 23.4, 23.5, 23.7 (a)........................................ 23.7 (b)...................................... 2.32, 23.7 (d)...................................... 2.35, 23.7 (e)......................................... 23.7 3..................................... 2.37, 23.4, 23.5, 23.6, 23.7, 24.57 4............................................... 8.55, 24.8 (1)............................................. 1.1, 8.55 (2)..................................... 1.1, 1.11, 3.8, 24.3, 24.8 5 .................................... 11.1, 12.1, 19.2, 19.3, 19.4, 19.8, 19.11, 19.31, 19.43, 19.72, 20.39, 21.8, 25.18, 25.65, 25.66 6............................................. 19.8, 19.49 7............................................... 19.4, 19.8 8.................................... 19.3, 19.4, 20.39 (1)............................................. 8.61 9................................. 1.11, 18.29, 19.49, 20.1, 20.4, 20.12, 20.14, 20.15, 20.23, 23.31, 23.54 10............................... 19.8, 19.44, 19.45, 19.51, 19.52, 19.53, 19.54, 19.56, 19.58, 20.5, 20.15 11............................. 19.58, 19.59, 19.60, 19.63, 20.4, 20.5, 20.6 (a)..................................... 19.61, 20.15 (b)............................ 19.8, 19.61, 20.15 12........................................... 19.58, 20.5 13............................... 19.8, 19.58, 19.59, 19.62, 19.63, 20.6 14..................................... 2.32, 5.7, 22.9, 22.54, 22.56, 22.73 (1).............................. 1.4, 5.1, 5.6, 5.7, 20.26, 21.12, 21.44, 25.68 (2)....................................... 19.8, 20.31 15................................. 1.4, 14.10, 15.58, 19.8, 19.14, 19.52, 21.37

para Partnership Act 1890 – contd s 16..................................... 1.4, 19.7, 19.8, 19.62, 19.75, 20.32, 20.33, 20.34, 20.36, 20.37, 24.10, 24.12 17......................................... 20.17, 20.21 (1)............................ 16.1, 20.13, 25.82 (2)..................................... 20.18, 20.25 (3)........................................... 20.21 18................................................ 8.6, 8.7, 8.8, 20.24 19....................................................... 2.9, 7.1, 7.22, 8.2, 8.20, 11.14, 11.16, 11.28, 11.39, 12.1, 16.13, 20.21, 25.26 20(1).......................... 8.1, 8.4, 8.31, 8.33, 8.35, 8.38, 11.2 (2).......................... 8.1, 8.4, 8.31, 8.33, 8.35, 8.38, 11.2, 22.17 (3)................................ 2.39, 8.25, 8.34 21............................................. 8.23, 8.25 23................................... 1.4, 1.11, 10.16, 15.38, 15.52 (1)..................................... 21.41, 23.52 (2).................................... 10.15, 16.32, 21.45, 23.52 (3).......................... 10.16, 23.51, 23.52 24.................................. 10.2, 12.1, 19.11 (1)............................. 9.9, 12.22, 12.28, 12.31, 18.56, 24.6, 24.12, 25.30, 25.56 (2)..................................... 12.33, 25.31 (b)...................................... 12.34 (3)........................................ 9.1, 12.23, 14.28, 18.18 (4).................................. 9.3, 9.7, 24.25 (5)......................... 12.11, 12.13, 22.73, 25.32, 25.41 (6)..................................... 12.24, 25.33 (7)............................. 7.23, 12.4, 19.11, 19.31, 24.22, 25.34 (8)............................. 7.21, 8.71, 10.11, 10.16, 12.3, 12.5, 12.6, 12.7, 12.21, 12.32, 14.53, 21.7, 21.9, 21.36, 22.73, 24.10, 25.35 (9)......................... 11.23, 12.11, 15.11, 21.35, 24.12, 25.36 25......................................... 16.38, 25.40 26............................................... 16.23 (1)........................................... 7.7 (2)........................................... 16.24 27..................................... 2.10, 7.8, 7.10, 18.7, 24.44

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Table of Statutes para Partnership Act 1890 – contd s 27(1)........................... 7.10, 16.23, 16.35, 16.41, 24.44 (2)........................................... 16.14 28............................. 10.17, 11.16, 11.17, 12.19, 14.24, 24.18, 25.37 29............................. 11.26, 11.32, 11.42, 14.51, 24.18 (1).............................. 8.23, 11.3, 25.39 (2)........................................... 18.3 30............................. 11.38, 11.42, 14.51, 25.38, 25.72 31................................ 15.8, 17.26, 24.23 (1).................................... 10.11, 22.14, 24.12, 24.23 (2)..................................... 10.12, 24.23 32............................ 7.7, 14.2, 16.1, 16.9, 16.23, 16.24, 16.26 (a)........................................... 7.7 (b).................................... 2.18, 7.6, 7.7 (c)......................................... 7.7, 16.23 33.................................... 1.4, 16.1, 23.54 (1)........................... 2.10, 10.18, 16.10, 16.28, 16.29, 21.15, 23.51 (2).................................... 10.16, 16.32, 23.51, 24.45 34................................... 2.10, 4.20, 16.1, 16.6, 24.24, 25.19 35................................. 14.11, 16.1, 17.1, 17.3, 17.8, 22.49, 24.47 (a).......................... 17.10, 17.14, 17.15 (b)............................ 3.25, 17.13, 17.14 (c).......................... 17.16, 17.18, 17.25 (d).................................... 14.13, 17.16, 17.18, 17.25 (e).......................... 17.22, 17.23, 22.11 (f)......................... 17.12, 17.15, 17.24, 17.25, 17.26, 22.24, 22.58, 25.90 36(1)......................... 18.27, 20.25, 20.27, 20.31, 21.15 (2)........................................... 20.28 (3)..................................... 20.31, 23.54 37.................................. 16.1, 16.21, 18.3 38...................................2.16, 7.9, 10.18, 12.8, 12.9, 18.2, 18.4, 18.5, 18.21, 18.27, 21.6, 21.16, 22.16, 22.18, 24.49, 25.91 (1)........................................... 1.4 39............................ 7.9, 10.1, 10.8, 10.9, 10.10, 10.12, 16.4, 18.2, 18.41, 18.45, 23.21, 24.12 40......................................... 14.58, 18.62

para Partnership Act 1890 – contd s 41................................... 10.7, 14.7, 14.8, 14.9, 14.11, 14.13, 16.8 (b)........................................... 23.48 (c)........................................... 14.10 42......................................... 10.18, 15.17 (1)........................... 10.1, 11.47, 18.11, 18.15, 18.16, 18.17, 18.18, 18.19, 18.20, 24.46 (2)........................................... 18.20 43............................... 15.16, 15.53, 16.1, 17.10, 18.4, 18.12, 18.18, 18.19, 18.34, 18.53, 18.54, 22.12, 24.46 44.............................. 9.3, 9.6, 9.9, 12.22, 14.16, 15.5, 18.59, 18.60, 23.43 (a)...................................... 12.31, 17.7, 23.25, 23.43 (b)......................... 12.23, 18.54, 18.56, 18.61, 23.21 (2)...................................... 14.22 (4)...................................... 18.59 45.................................. 2.16, 8.61, 25.18 46............................................... 1.4, 18.9 47........................................... 1.11, 18.59 Patents Act 1977............................. 8.11, 8.72 s 36............................................... 8.11 Pluralities Act 1838 s 29, 30......................................... 3.14 Powers of Attorney Act 1971 s 1(1)............................................. 2.9 Protection from Harassment Act 1997......................................... 19.54 s 1, 3............................................. 19.45 Race Relations Act 1976................... 13.2 Registered Designs Act 1949............. 8.72 Registration of Business Names Act 1916......................................... 5.5 Scotland Act 1998............................. 25.3 Senior Courts Act 1981 s 35A........................... 15.16, 15.17, 18.19 37......................................... 15.38, 15.44 42............................................... 21.5 49(2)(a)...................................... 21.10 50............................................... 18.68 51(3)........................................... 21.50 61.................................. 14.19, 15.1, 17.2 (6)........................................... 17.2 Sch 1......................................... 14.19, 15.1 para 1(f).................................... 17.2 Sex Discrimination Act 1975............. 13.2 Small Business, Enterprise and Employment Act 2015..... 22.85, 25.102, 25.103

xxx

Table of Statutes para Social Security Contributions and Benefits Act 1992 s 15(3A)........................................ 25.23 Solicitors Act 1957 s 1(a)............................................. 8.66 23............................................... 4.11 Solicitors Act 1974............................ 4.1 s 13A(2)(c).................................... 3.30 15(1)........................................... 3.30 16(2), (3).................................... 3.30 21............................................... 4.11 31(1)........................................... 4.2, 4.21 39............................................... 4.11 47............................................... 4.11 Sch 1......................................... 4.11, 16.14 Stannaries Court (Abolition) Act 1896.. 2.59 s 1................................................. 2.59 State Immunity Act 1978 s 20(1)(a)...................................... 3.4 Statute Law (Repeals) Act 2004........ 3.14 Statute of Frauds 1677 s 4................................................. 19.42 Statute of Frauds Amendment Act 1828 (Lord Tenterden’s Act) s 6........................................... 19.51, 19.52 Statute of Limitations 1623............... 15.50 s 8........................................... 14.20, 15.50 Statute of Monopolies 1623 s 1................................................. 15.58 Supreme Court of Judicature Act 1873..................................... 11.37, 15.4 s 34(3)........................................... 1.2 Taxation of Chargeable Gains Act 1992 s 59A............................................ 25.23 271(12)....................................... 25.23 Taxes Management Act 1970 s 75, 77......................................... 15.48 Trade Marks Act 1994...................... 8.57 s 10............................................... 8.57 Trading Partnerships Act 1841 s 1................................................. 3.14 Trustee Act 1925 s 34............................................... 8.36 (2)........................................... 8.36 36............................................... 22.17 Trustee Act 2000 s 29(2)........................................... 19.74 Trusts of Land and Appointment of Trustees Act 1996................ 18.9, 18.43, 18.46, 18.50 s 6(1)............................................. 8.36

para Trusts of Land and Appointment of Trustees Act 1996 – contd s 7................................................. 18.45 (3)............................................. 18.45 13............................................... 8.54 14(2)........................................... 18.45 16............................................. 8.36, 8.37 22............................................... 8.37 Unfair Contract Terms Act 1977....... 19.47 s 2, 3, 7......................................... 7.17 Sch 1 para 1....................................... 7.17 Value Added Tax Act 1994 s 45(1)......................................... 1.1, 19.45 Sch 4 para 5....................................... 18.33 Veterinary Surgeons Act 1966 s 19, 20......................................... 4.11 Water Resources Act 1991................ 19.50 AUSTRALIA NEW SOUTH WALES Limited Partnerships Act 1892.......... 5.7, 24.3 QUEENSLAND Mercantile Act 1867..................... 24.3, 24.30 Partnership Acts 1891–1965 s 47............................................... 18.59 (d)........................................... 18.59 CANADA Limited Partnerships Act 1849...... 24.3, 24.11 s 2................................................. 24.25 Nova Scotia Partnership Act 1954.... 18.9 IRELAND Investment Limited Partnerships Act 1994......................................... 24.40 JERSEY Limited Liability Partnerships (Jersey) Law 1997.................................. 1.12 art 2(2).......................................... 25.3 Limited Partnerships (Jersey) Law 1994......................................... 1.12 UNITED STATES Revised Uniform Partnership Act 1994......................................... 1.13 Uniform Limited Partnership Act 1992.. 24.40 Uniform Partnership Act 1914.......... 1.13

xxxi

Table of Statutory Instruments para Administration of Insolvent Estates of Deceased Persons Order 1986, SI 1986/1999............................ 22.1 art 4.............................................. 23.56 5(1).................................... 23.55, 23.56 Administration of Insolvent Estates of Deceased Persons (Amendment) Order 2002, SI 2002/1309........ 23.55 Civil Jurisdiction and Judgments Order 2001, SI 2001/3929........ 15.4 Civil Jurisdiction and Judgments Regulations 2009, SI 2009/3131............................ 15.4 Civil Procedure Rules 1998, SI 1998/3132.............. 1.15, 15.9, 15.47, 19.56, 21.13, 21.24, 21.32, 21.33, 21.50, 21.51 Pt 1 (rr 1.1–1.4) r 1.1.............................................. 15.5 1.2.............................................. 15.3 1.4.............................................. 15.24 PD 2B........................................... 15.1 r 3.1.............................................. 14.30 (3)(a)..................................... 14.30 Pt 6 (rr 6.1–6.52).......... 15.4, 21.26, 21.28, 21.42, 21.43, 25.25 r 6.3.............................................. 25.25 6.4.............................................. 21.27 6.5........................................ 21.27, 21.28 (3)(b)..................................... 25.25 (c)(i), (ii)............................ 21.27 6.6.............................................. 21.26 6.7.............................................. 21.27 (1), (2)................................... 25.25 6.8(a).......................................... 25.25 6.9........................................ 21.27, 21.30 (2).......................................... 25.25 6.13............................................ 15.4 6.15............................................ 21.29 6.20............................................ 25.25 (3A)..................................... 15.4 PD 6.............................................. 21.27 Pt 7 (rr 7.1–7.12).............. 1.10, 1.15, 15.4, 15.10, 15.32, 21.1, 21.12, 21.14, 21.16, 21.20, 21.27, 21.33, 21.34, 21.38 PD 7A............................. 15.1, 15.9, 19.56, 21.20, 21.27, 21.28, 25.25

para Procedure Rules 1998, SI 1998/3132 – contd Pt 10 (rr 10.1–10.5)................ 21.30, 25.25 PD 10...................................... 21.30, 25.25 r 16.6............................................ 21.10 PD 16............................................ 4.16 r 19.3............................... 20.11, 21.2, 21.3 (2)........................................ 21.9 19.4............................................ 21.19 19.5(3)(a)............................. 15.9, 25.107 19.6...................................... 15.10, 24.16 (1)........................................ 15.10 (4)(b)................................... 15.10 19.9........................... 15.10, 24.16, 25.24 20.4............................................ 21.25 20.6...................................... 14.60, 14.63 Pt 21 (rr 21.1–21.13).................... 21.5 Pt 23 (rr 23.1–23.12).................... 14.26 Pt 24 (rr 24.1–24.6)............... 14.19, 14.25, 14.26, 21.39 r 25.1............................................ 15.36 (1)(l).................................... 14.30 (n)............................. 14.19, 14.25 25.7............................................ 15.6 Pt 31 (rr 31.1–31.23).............. 15.12, 21.35 r 31.6, 31.16................................. 15.11 37.1............................................ 14.30 PD 40........................... 14.26, 14.27, 14.28 PD 40D......................................... 18.44 Pt 44 (rr 44.1–44.44.20)............... 17.7 r 44.2(2)(a)................................... 15.19 46.5............................................ 25.4 PD 48............................................ 21.51 Pt 62 (rr 62.1–62.21).................... 15.25 r 62.3(2)........................................ 15.25 62.4............................................ 15.25 Pt 69 (rr 69.1–69.11)... 15.38, 15.44, 21.45 r 69.2(1)........................................ 15.44 69.3............................................ 15.44 69.5............................................ 15.44 69.7...................................... 15.44, 15.46 (4), (5)................................. 15.46 69.8(1)........................................ 15.44 69.9............................................ 15.44 PD 69..................................... 15.38, 15.44, 15.45, 15.46 Pt 70 (rr 70.1–70.70.6)................. 21.41 PD 70.......................... 15.49, 21.41, 21.42, 21.43, 24.51 para 6A............................... 15.15, 24.51 r 72.2............................................ 21.49

Civil

xxxiii

Table of Statutory Instruments para Procedure Rules 1998, SI 1998/3132 – contd PD 72............................................ 21.49 Pt 73 (rr 73.1–73.22).................... 21.46 r 73.5(1)........................................ 21.46 PD 73...................................... 10.15, 21.46 Pt 81 (rr 81.1–81.38).................... 14.24 r 81.4............................................ 15.25 Sch 1............................................. 2.59 Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013, SI 2013/1388 reg 3.............................................. 24.39 Commercial Agents (Council Directive) Regulations 1993, SI 1993/3053................................ 2.44 reg 2(1)......................................... 2.44 Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012, SI 2012/2301...........25.84, 25.85, 25.86 Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2015, SI 2015/1695.................. 25.92 Companies and Partnerships (Accounts and Audit) Regulations 2013, SI 2013/2005............................ 12.20 Companies (Disqualification Orders) Regulations 2009, SI 2009/2471............................ 22.83, 25.101 Companies (Late Filing Penalties) and Limited Liability Partnerships (Filing Periods and Late Filing Penalties) Regulations 2008, SI 2008/497.............................. 25.86 Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016, SI 2016/1245............................ 12.20 Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015, SI 2015/17....... 25.13, 25.14, 25.16 reg 7, 8.......................................... 25.14 Pt 5 (regs 16–19)........................... 25.13 reg 24............................................ 25.13 Sch 5............................................. 25.13 Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2014, SI 2014/3140........................ 8.62, 25.14 Civil

para Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986, SI 1986/2123.................. 22.1 Copyright and Rights in Databases Regulations 1997, SI 1997/3032 reg 16............................................ 8.68 County Court Rules 1981, SI 1981/1687 Order 25 r 10........................................... 15.15 County Court Jurisdiction Order 2014, SI 2014/503.................... 15.1 art 3............................................ 15.1, 17.2 Employment Equality (Age) Regulations 2006, SI 2006/1031............................ 13.2 Employment Equality (Religion or Belief) Regulations 2003, SI 2003/1660............................ 13.2 European Economic Interest Grouping Regulations 1989, SI 1989/638.............................. 2.51 reg 3.............................................. 2.51 Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001, SI 2001/1062 Schedule........................................ 24.39 Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, SI 2001/544 art 51ZA–51ZF............................ 24.39 Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001, SI 2001/2256 reg 6(1)......................................... 24.39 High Court and County Courts (Allocation of Arbitration Proceedings) Order 1996, SI 1996/3215............................ 15.25 art 3–5.......................................... 15.26 High Court and County Courts Jurisdiction Order 1991, SI 1991/724 art 4A........................................... 15.1 High Court and County Courts Jurisdiction (Amendment) Order 2014, SI 2014/82............ 15.1 Insolvency Act 1986 (Amendment) (No 2) Regulations 2002, SI 2002/1240..................... 22.20, 22.57, 22.61 Insolvency (Amendment of Subordinate Legislation) Order 1986, SI 1986/2001.................. 22.1 Insolvency (England and Wales) Rules 2016, SI 2016/1024... 22.1, 23.20, 23.22 r 6.42............................................ 23.23 7.79–7.86................................... 23.29 7.91............................................ 23.29

xxxiv

Table of Statutory Instruments para Insolvency (England and Wales) Rules 2016, SI 2016/1024 – contd r 7.99............................................ 22.26 7.108.......................................... 23.23 7.117, 7.118............................... 23.29 10.34–10.44............................... 22.12 10.149........................................ 23.20 14.15.......................................... 23.14 14.19(2)...................................... 23.14 14.25.................................... 23.10, 23.13 14.41.......................................... 23.14 Insolvency Practitioners Regulations 2005, SI 2005/524.................... 22.1 Insolvency Practitioners and Insolvency Services Account (Fees) Order 2003, SI 2003/3363............................ 22.1 Insolvency Practitioners (Recognised Professional Bodies) Order 1986, SI 1986/1764.................. 22.1 Insolvency Practitioners Tribunal (Conduct of Investigations) Rules 1986, SI 1986/952........... 22.1 Insolvency Proceedings (Fees) Order 2004, SI 2004/593.................... 22.1 Insolvency Proceedings (Fees) Order 2016, SI 2016/692.................... 23.26 Insolvency Proceedings (Monetary Limits) Order 1986, SI 1986/1996............................ 22.1 Insolvency Proceedings (Monetary Limits) (Amendment) Order 2004, SI 2004/547.................... 3.29 Insolvency Regulations 1994, SI 1994/2507............................ 22.1 Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987, SI 1987/2023.... 22.1, 22.83, 25.101 Insolvent Companies (Reports on Conduct of Directors) Rules 1996, SI 1996/1909.................. 22.1 Insolvent Partnerships Order 1986, SI 1986/2142............................ 22.1 Insolvent Partnerships Order 1994, SI 1994/2421................ 3.28, 3.30, 16.2, 17.5, 21.48, 22.1, 22.2, 22.5, 22.10, 22.13, 22.41, 22.42, 22.68, 22.72, 22.80, 23.3, 23.4, 23.24, 23.25, 23.33, 23.35, 23.40, 23.41, 23.44, 23.46, 23.52, 24.52 art 1(1).......................................... 22.1 (2)...................................... 22.4, 22.90

para Insolvent Partnerships Order 1994, SI 1994/2421 – contd art 2(1).............................. 22.6, 22.8, 22.9, 22.23, 22.26, 22.31, 22.38, 22.44, 22.54, 22.56, 22.59, 22.67, 22.73, 23.26, 23.32, 24.56 (2)(a)..................................... 22.73 3(2)........................... 22.7, 23.22, 23.29 (4).......................................... 23.22 4........................................ 22.72, 22.74 (1).......................................... 22.74 (3).......................................... 22.72 5.............................................. 22.72 6........................................ 22.42, 22.55 (1).......................................... 22.41 (3).......................................... 22.42 (5)(a)..................................... 22.2 Pt IV (arts 7, 8)............................. 22.19 art 7.............................. 22.7, 22.19, 22.25, 22.35, 22.64, 22.78 (1).................................... 22.23, 22.88 8.............................. 22.7, 22.19, 22.25, 22.34, 22.59, 23.15, 23.24, 23.25, 23.31, 23.44, 24.53 (5).......................................... 22.2 (8).......................................... 23.31 (9).......................................... 22.31 9............................. 22.56, 22.57, 22.58 (b).......................................... 22.54 10.......................... 22.59, 23.15, 23.25, 23.31, 23.44, 24.54 (2)........................................ 22.59 (3)(b)................................... 22.2 (4)........................................ 22.59 (6)........................................ 23.31 11.......................... 22.49, 22.67, 22.69, 22.71, 22.75, 22.83, 23.24, 23.25, 23.32, 23.44, 24.55 (1)–(3)................................. 22.67 14(1)........................................ 22.80 (2).................................. 22.10, 22.13 16............................ 3.28, 22.81, 22.82, 22.83, 22.87, 25.105 18(1)........................................ 22.1 19(5).................................. 22.10, 22.13 20............................................ 22.1 Sch B1 para 29(5)................................. 22.55 Sch 1............................ 22.72, 22.73, 22.74 Pt I............................................ 22.75 para 1(1)............................... 22.74 Sch 2............................... 8.50, 17.5, 22.42, 22.49, 22.55 para 1....................................... 22.50

xxxv

Table of Statutory Instruments para Insolvent Partnerships Order 1994, SI 1994/2421 – contd Sch 2 – contd para 2...................... 22.48, 22.49, 22.74 4....................................... 22.46 6....................................... 22.47 7................................. 22.50, 22.53 8................................. 22.50, 22.52 9....................................... 22.51 10..................................... 22.50 Sch 3........................... 22.19, 22.20, 22.25, 22.56, 22.88 para 3................. 22.20, 22.22, 22.25, 22.27, 22.29, 22.77, 23.23 4................................... 22.23 5............................. 22.30, 22.77 Pt II (paras 6–10)...................... 22.27 para 6.................. 22.20, 22.21, 22.69 7................................... 22.27 8................................... 22.26 Sch 4........................... 22.19, 22.25, 22.27, 22.34, 22.56, 22.59, 23.44, 23.48, 23.49 Pt I (paras 1–4)......................... 22.61 para 3................. 22.22, 22.25, 22.27, 22.40, 23.31 4............................. 22.20, 22.62 Pt II (paras 5–30)..... 22.27, 23.30, 23.31 para 5.................. 22.20, 22.21, 22.32 6................................... 22.22 (a)............................... 22.37 (b)............................... 22.38 7(a)............................... 22.37 (b)............................... 22.38 8.................. 22.32, 22.33, 22.36 9.................. 22.35, 22.39, 24.53 10................................. 22.27 11........................... 22.26, 22.34 12, 13, 15..................... 22.34 23................................. 23.25 24................................. 23.31 26................................. 22.34 Sch 5...................................... 22.54, 22.56, 22.57, 22.58 para 2................................. 22.54, 22.56 Sch 6....................................... 22.54, 22.59 para 1....................................... 22.61 2...................... 22.60, 22.61, 22.63 3...................... 22.64, 22.65, 24.54 4...................... 22.54, 22.62, 22.66 Sch 7........................... 22.59, 22.67, 22.68, 22.69, 22.70, 23.44, 23.48, 23.49 para 2....................................... 24.55 21............................... 23.25, 23.32 Sch 8.................... 3.28, 22.7, 22.81, 22.82, 22.83, 22.87, 24.56 Sch 9........................... 22.19, 22.56, 22.57, 22.61, 22.77, 22.90

para Insolvent Partnerships Order 1994, SI 1994/2421 – contd Sch 9 – contd form 1B..................................... 22.55 2....................................... 22.57 3....................................... 22.77 4...................... 22.23, 22.37, 22.38 5–7................................... 22.32 8................................. 22.32, 22.61 10..................................... 22.56 14–18............................... 22.68 Insolvent Partnerships (Amendment) Order 1996, SI 1996/1308........ 22.78 Insolvent Partnerships (Amendment) Order 2002, SI 2002/1308.... 22.2, 22.90 Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516.... 22.2, 22.41 art 7.............................................. 22.41 Insolvent Partnerships (Amendment) Order 2006, SI 2006/622.......... 22.2 Insolvent Partnerships (Amendment) Order (Northern Ireland) 2003, SI 2003/144.............................. 22.2 Intellectual Property (Enforcement etc) Regulations 2006, SI 2006/1028............................ 14.51 Large and Medium-sized Limited Liability Partnerships (Accounts) Regulations 2008, SI 2008/1913................................ 25.86 Sch 1 para 66(3)................................. 25.86 Legislative Reform (Limited Partnerships) Order 2009, SI 2009/1940............. 24.3, 24.28, 24.29 Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514........ 24.3, 24.6, 24.7, 24.11, 24.18, 24.26 art 1(2).......................................... 24.40 2(9).......................................... 24.40 3.............................................. 24.39 Schedule.................................. 24.32, 24.33 Limited Liability Partnerships Regulations 2001, SI 2001/1090..1.8, 25.2, 25.29, 25.41, 25.52, 25.100 reg 2.............................................. 25.51 4............................22.86, 25.87, 25.94, 25.100, 25.102, 25.104, 25.105 (2)......................................... 25.101 (g)..................................... 25.54 5............................ 25.49, 25.50, 25.61, 25.89, 25.90, 25.91, 25.98, 25.99 reg 5(2)(b)..................................... 25.54 (c)..................................... 25.50 7(1)................................... 25.30, 25.59

xxxvi

Table of Statutory Instruments para Limited Liability Partnerships Regulations 2001, SI 2001/1090 – contd reg 7(2)................................... 25.31, 25.56 (3)......................................... 25.32 (4)......................................... 25.33 (5)........................ 25.34, 25.58, 25.76 (6)................................... 25.35, 25.53 (7)......................................... 25.36 (8)......................................... 25.37 (9)................................... 25.38, 25.72 (10)................................. 25.39, 25.72 8.............................................. 25.40 Sch 2.......................... 25.87, 25.94, 25.105 Sch 3...................................... 25.89, 25.91, 25.98, 25.99 Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911...... 25.2, 25.7, 25.74, 25.84, 25.86 Pt 5 (regs 8–12)......................... 25.86 Pt 7 (regs 17–22)....................... 25.86 Pt 9 (regs 25–32)....................... 25.86 reg 33........................................ 25.85 34.................................. 25.85, 25.86 35........................................ 25.85 36, 39, 45............................ 25.85 Limited Liability Partnerships Act 2000 (Commencement) Order 2000, SI 2000/3316.................. 25.1 Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804............... 25.2, 25.7, 25.42 reg 4.............................................. 25.17 7.............................................. 25.12 (9), (10)................................. 25.72 8–10........................................ 25.14 11...................................... 25.13, 25.14 12, 13...................................... 25.14 19............................................ 25.50 30...................................... 25.54, 25.88 48........................... 25.42, 25.43, 25.44 50, 51...................................... 25.92 83............................................ 25.7 Sch 1 para 5(1)................................... 25.7 Limited Liability Partnerships (Forms) Regulations 2001, SI 2001/927.25.7 Limited Liability Partnerships (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002, SI 2002/915.............................. 25.50 Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016, SI 2016/575................25.84, 25.86

para Limited Liability Partnerships (Scotland) Regulations 2001, SI 2001/128.............................. 25.3 Limited Liability Partnerships (Scotland) Amendment Regulations 2009, SI 2009/310.25.3 Limited Partnerships (Forms) Rules 2009, SI 2009/2160 Schedule....................... 24.32, 24.33, 24.44 Nursing and Midwifery Order 2001, SI 2002/253 art 44(1)........................................ 4.11 Partnerships (Accounts) Regulations 2008, SI 2008/569.................. 6.8, 12.20 reg 3.............................................. 12.20 4(3)......................................... 12.20 5(1)......................................... 12.20 6, 7.......................................... 12.20 Primary Medical Services (Prohibition on the Sale of Goodwill) Regulations 2019, SI 2019/251... 8.54 Registrar of Companies (Fees) (Companies, Overseas Companies and Limited Liability Partnerships) Regulations 2009, SI 2009/2101... 25.3 Registrar of Companies (Fees) (Limited Partnerships and Newspaper Proprietors) Regulations 2009, SI 2009/2392............................ 24.34 Regulatory Reform (Removal of 20 Member Limit in Partnerships etc) Order 2002, SI 2002/3203....... 4.12, 24.24 Rules of the Supreme Court 1965, SI 1965/1776 Order 1 r 4............................................. 15.47 Order 15 r 4............................................. 20.11 (2)......................................... 21.2 Order 18 r 8............................................. 4.16 Order 81................................. 21.32, 21.43 r 1......................................... 1.15, 21.20 6......................................... 15.9, 15.15 (1)(b).................................... 21.20 (2)......................................... 15.15 10(4)....................................... 2.59 Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008, SI 2008/409.............................. 25.86 Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246............. 18.23, 18.24, 18.25, 18.70

xxxvii

Table of Cases para 337965 BC Ltd v Tackama Forest Products Ltd (1992) 91 DLR (4th) 129 (BC CA)....... 24.10 A A & M (debtors) (No 48 of 1925), Re [1926] Ch 274.................................................... 3.22 ACC Bank v Johnston [2011] IEHC 108......................................................................... 17.6 ACC Loan Management v Dolan [2016] IEHC 68.......................................................... 2.35 A-G v Blake [1997] Ch 84, [1996] 3 WLR 741, [1996] 3 All ER 903............................. 11.36 A-G v Blake [2001] 1 AC 268, [2000] 3 WLR 625, [2000] 4 All ER 385......11.13, 14.50, 18.68 A-G v Boden [1912] 1 KB 539........................................................................................ 18.35 A-G v Cocke [1988] Ch 414, [1988] 2 WLR 542, [1988] 2 All ER 391.......................... 15.51 A-G v Guardian Newspapers Ltd (No 2) sub nom A-G v Observer Ltd [1990] 1 AC 109, [1988] 3 WLR 776, [1988] 3 All ER 545............................................................8.68, 19.70 A-G for Hong Kong v Reid [1994] 1 AC 324, [1993] 3 WLR 1143, [1994] 1 All ER 1.. 11.36 A-G of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988, [2009] 2 All ER 1127................................................................................................................7.2, 11.32 AIB Group (UK) plc (formerly Allied Irish Banks plc & AIB Finance Ltd) v Martin [2001] UKHL 63, [2002] 1 WLR 94, [2002] 1 All ER 353..................................... 8.19 AIB Group (UK) Plc v Mark Redler & Co Solicitors [2014] UKSC 58, [2014] 3 WLR 1367, [2015] 1 All ER 747...................................................................................... 14.51 AMT Coffee Ltd, Re [2019] EWHC 46 (Ch), [2019] 1 WLUK 274 (Ch D).................... 25.41 Aas v Benham [1891] 2 Ch 244...............................................................8.68, 11.4, 11.5, 11.29, 11.31, 11.32, 11.34, 11.35, 11.40, 11.46, 15.32 Abbatt v Treasury Solicitor [1969] 1 WLR 1575, [1969] 3 All ER 1175, (1969) 113 SJ 739....................................................................................................................7.22, 12.10, 12.12, 19.7 Abbott v Abbott [1936] 3 All ER 823...........................................................................7.7, 16.10 Abbott v Crump (1870) 5 BLR 109 (India)..................................................................... 17.19 Abbott v Design & Display Ltd [2017] EWHC 2975 (IPEC), [2017] 11 WLUK 516, [2018] FSR 17........................................................................................11.42, 14.21, 14.29 Abbott v Econowall UK Ltd [2016] EWHC 660 (IPEC), [2016] 3 WLUK 689, [2017] FSR 1...................................................................................................................... 15.23 Abdel Hadi Abdallah al Qahtani & Sons Beverage Industry Co v Antliff [2010] EWHC 1735 (Comm).......................................................................................................2.63, 7.11 Abdulla v Birmingham City Council; sub nom Birmingham City Council v Abdulla [2011] EWCA Civ 1412, [2012] 2 All ER 591, [2012] CP Rep 9............................ 13.23 Abenheim, Re (1913) 109 LT 219........................................................................2.18, 23.7, 23.9 Aberdare & Plymouth Rly Co Ltd v Hankey (1887) 3 TLR 493..................................... 10.8 Aberdeen Rly Co v Blaikie Bros (1854) 1 Macq 461, (1854) 17 D (HL) 20.................... 11.1 Abernethie v AM & J Kleiman Ltd [1970] QB 10, [1969] 2 WLR 1364, [1969] 2 All ER 790......................................................................................................................... 2.17 Abouraya v Sigmund [2014] EWHC 277 (Ch), [2014] 2 WLUK 460, [2015] BCC 503 25.46, 25.65 Abrahams v Spitz (1963) 107 SJ 113............................................................................... 19.41 Abrahams & Co v Dunlop Pneumatic Tyre Co [1905] 1 KB 46...................................... 21.33 Acceptance Corpn Ltd v Burns & Dutton Construction (1962) Ltd (1970) 14 DLR (3d) 175......................................................................................................................... 23.9 Ace Capital Ltd v CMS Energy Corpn [2008] EWHC 1843 (Comm), [2008] 7 WLUK 917, [2008] 2 CLC 318........................................................................................... 15.23

xxxix

Table of Cases para Ackerman, ex p (1808) 14 Ves Jr 604, 33 ER 653........................................................... 23.41 Acraman, Re (1843) 3 Mont D & De G 399.............................................................19.58, 19.72 Adam v Newbigging (1888) LR 13 App Cas 308...........................................................2.1, 14.7, 14.8, 14.9 Adams v Bankart (G) & Bankart (GT) (1835) 1 Cr M & R 681, 149 ER 1254..........19.11, 21.7 Adams v Cape Industries plc [1990] Ch 433, [1990] 2 WLR 657, [1991] 1 All ER 929........1.14, 21.23 Adansonia Fibre Co, Re (1873–74) LR 9 Ch App 635.................................................... 19.17 Addis v Knight (Grace), Henderson (William) & Knight (Edward) (1817) 2 Mer 117, 35 ER 885.................................................................................................................... 23.11 Admiral Management Services Ltd v Para-Protect Europe Ltd [2002] EWHC 233 (Ch), [2002] 1 WLR 2722, [2003] 2 All ER 1017............................................................ 14.51 Aer Lingus plc v Gildacroft Ltd [2006] EWCA Civ 4, [2006] 1 WLR 1173, [2006] 2 All ER 290.................................................................................................................... 14.60 Agace, ex p (1792) 2 Cox Eq Cas 312, 30 ER 145.......................................................... 19.1 Agacio (Jose Joaquim) v Forbes (1861) 14 Moo PCC 160, 15 ER 267............................ 21.3 Agar v Macklew (1825) 2 Sim & St 418, 57 ER 405...................................................... 18.35 Agip (Africa) Ltd v Jackson [1990] Ch 265, [1989] 3 WLR 1367, [1992] 4 All ER 385......19.53, 19.58, 19.62 Agnew v McKenzie Ellis Wood Co Ltd (1913) 26 WLR 113 (Canada)........................... 2.39 Agriculturist Cattle Insurance Co, Re (1870) LR 5 Ch App 725..................................... 16.27 Ahsan v Westmead Business Group Ltd (in liquidation) (unreported, 6 April 2010)....... 2.1 Aiken v Stewart Wrightson Members’ Agency Ltd [1995] 1 WLR 1281, [1995] 3 All ER 449, [1995] 2 Lloyd’s Rep 618................................................................................ 15.52 Ainsworth v Creeke (1868–69) LR 4 CP 476.................................................................. 19.5 Airey v Borham (1861) 29 Beav 620, 54 ER 768, (1861) 4 LT 391...............12.11, 12.24, 14.50, 15.41, 15.44 Akici v LR Butlin Ltd [2005] EWCA Civ 1296, [2006] 1 WLR 201, [2006] 2 All ER 872..... 8.45 Akita Holdings Ltd v A-G of Turks & Caicos Islands [2017] UKPC 7, [2017] AC 590, [2017] 2 WLR 1153................................................................................................ 14.21 Akman (A) & Son (Fla) Inc v Chipman (1988) 45 DLR (4th) 481..............................2.41, 11.13 Akodu v SRA (unreported, 13 November 2009)............................................................. 19.50 Alati v Kruger (1955) 94 CLR 216.................................................................................. 14.9 Alberg v Chandler (1948) 64 TLR 394........................................................................... 4.2 Alberni String Quartet v Customs & Excise Comrs [1990] VATTR 166......................... 2.18 Albion Life Assurance Society, Re (1880–81) LR 16 Ch D 83...................................12.31, 14.61 Albion Steel & Wire Co v Martin (1875–76) LR 1 Ch D 580......................................... 11.18 Alcock v Robb (1978) 2 BPR 97152............................................................................... 8.53 Alcock v Taylor (1830) Taml 506, 48 ER 201................................................................. 16.11 Alcoy & Gandia Rly & Harbour Co v Greenhill [1896] 1 Ch 19, (1897) 76 LT 542...... 18.40 Alden v Beckley & Co (1890) LR 25 QBD 543.........................................................21.31, 21.38 Alderson v Pope (1808) 1 Camp 404n.................................................................5.6, 19.4, 20.32 Aldridge, Re [1894] 2 Ch 97........................................................................................... 18.9 Alexander v Barker (1831) 2 Cr & J 133, 149 ER 56..................................................... 21.3 Alexander v Clark (1862) 24 D 323 (Ct of Sess)............................................................. 18.32 Alexander v Long (1884) 1 TLR 145.............................................................................. 2.19 Alexander v Rayson [1936] 1 KB 169, 114 ALR 357...................................................... 4.23 Alfaro v De la Torre (1876) 24 WR 510.......................................................................2.16, 2.39 Ali Shipping Corpn v Shipyard Trogir [1999] 1 WLR 314, [1998] 2 All ER 136, [1998] 1 Lloyd’s Rep 643................................................................................................... 15.21 Allan v Ng & Co [2012] 2 HKLRD 160......................................................................... 19.54 Allcard v Skinner (1887) LR 36 Ch D 145...................................................................... 7.18 Allen v Hyatt (1914) 30 TLR 444................................................................................... 11.44 Allen & Son v Coventry [1980] ICR 9............................................................................ 18.24 Allfrey v Allfrey (1849) 1 Mac & G 87, 41 ER 1195...................................................... 14.44 Alliance Bank Ltd v Kearsley (1870–71) LR 6 CP 433.................................................... 19.16 Alliance Bank Ltd v Tucker (1867) 17 LT 13............................................................19.23, 19.72 Allied Irish Banks v Smith [2015] IEHC 707.............................................................19.65, 20.13

xl

Table of Cases para Allied Pharmaceutical Distributors Ltd v Walsh [1991] 2 IR 8........................................ 19.10 Allison (Kenneth) Ltd (in liquidation) v AE Limehouse & Co [1992] 2 AC 105, [1991] 3 WLR 671, [1991] 4 All ER 500........................................................................... 21.29 Allwood v Clifford [2002] EMLR 3................................................................................ 11.37 All Link International v Ha Kai Cheong (2005) 3 HKLRD 65........................................ 2.33 Alna Press & Castle Wynd Printers Ltd v Trends of Edinborough 1969 SLT (Notes) 91.20.18 Alston v Sims (1855) 1 Jur NS 438...........................................................................11.31, 11.41 Altomart Ltd v Salford Estates (No 2) Ltd [2014] EWCA Civ 1408, [2015] CP Rep 8, [2014] 6 Costs LR 1013.......................................................................................... 15.23 Amaca Pty Ltd v CSR Ltd [2001] NSWSC 324............................................................... 18.40 Amadio Pty Ltd v Henderson (1998) 81 FCR 149.....................................................2.1, 2.7, 2.8 Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84, [1981] 3 WLR 565, [1981] 3 All ER 577.... 19.11 Amalgamated Syndicate, Re [1897] 2 Ch 600................................................................. 17.24 Ambler v Bolton (1872) LR 14 Eq 427............................................................8.11, 18.11, 18.50 American Cyanamid Co v Ethicon Ltd (No 1) [1975] AC 396, [1975] 2 WLR 316, [1975] 1 All ER 504.........................................................................................15.36, 15.37, 17.4, 19.75 American Leisure Group v Olswang [2015] EWHC 629 (Ch)...................................15.9, 25.107 American Pioneer Leather Co Ltd, Re [1918] 1 Ch 556...................................17.1, 17.24, 17.25 Amhouse Lee Ltd v Chappell (Independent, 26 July 1996).............................................. 4.6 Ammonia Soda Co Ltd v Chamberlain [1918] 1 Ch 266................................................. 12.26 Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1975] AC 561, [1975] 2 WLR 779, [1975] 1 All ER 968................................................................ 18.75 Anderson v Anderson (1857) 25 Beav 190, 53 ER 609.............................................15.32, 17.21 Anderson v Davies [1993] PIQR Q87............................................................................. 12.21 Anderson Group v Davies [2001] NSWSC 356.........................................................16.30, 20.31 Anderson-Berry, Re [1928] Ch 290................................................................................. 18.40 Anderson (WB) & Sons Ltd v Rhodes (Liverpool) Ltd [1967] 2 All ER 850.............19.48, 19.51 Andrewes v Garstin (1861) 4 LT 580..............................................................11.1, 11.12, 11.43, 14.4, 14.7 Andrews v Pugh (1854) 24 LJ Ch 58............................................................................... 2.34 Andrews v Ramsay & Co [1903] 2 KB 635, [1903] 7 WLUK 82.................................... 14.52 Ang Tin Yong v Ang Boon Chye [2012] 1 SLR 447........................................................ 18.34 Angel v Jay [1911] 1 KB 666........................................................................................... 15.1 Anglo-Scottish Beet Sugar Corpn v Spalding UDC [1937] 2 KB 607............................... 19.51 Anheuser-Busch Inc v Budejovicky Budvar NP (t/a Budweiser Budvar Brewery) [1984] FSR 413, (1984) 81 LSG 1369, (1984) 128 SJ 398................................................. 8.52 Anon, Re (1856) 2 K & J 441....................................................................................3.27, 12.13, 15.32, 17.19 Antonelli v Allen [2000] NLJR 1825............................................................................... 19.61 Antonelli v Secretary of State for Trade & Industry [1996] 2 EGLR 229, [1995] COD 334, [1995] NPC 68............................................................................................... 4.11 Apthorp v Nevill & Co (1908) 23 TLR 575.................................................................... 4.3 Arab Monetary Fund v Hashim (No 3) [1991] 2 AC 114, [1991] 2 WLR 729, [1991] 1 All ER 871.............................................................................................................. 1.14 Arbuckle v Taylor (1815) 3 Dow 160, 3 ER 1023.....................................................19.43, 19.54 Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374, [1961] 2 WLR 170, [1961] 1 All ER 417................................................................................................4.2, 4.22 Arden v Roy (1883) 1 NZLR (CA) 365....................................................................20.13, 20.15 Arklow Investments Ltd v MacLean [2000] 1 WLR 594, (2000) 144 SJLB 81................ 11.2 Armagas Ltd v Mundogas SA (The Ocean Frost) [1986] AC 717, [1986] 2 WLR 1063, [1986] 2 All ER 385....................................................................................5.1, 11.37, 19.3, 19.45, 19.51 Armitage v Nurse [1998] Ch 241, [1997] 3 WLR 1046, [1997] 2 All ER 705................ 14.53 Armitage, ex p Good, Re (1877) LR 5 Ch D 46...............................................19.19, 20.9, 20.21 Armour v Liverpool Corpn [1939] Ch 422..................................................................... 2.57 Armstrong v Strain [1952] 1 KB 232, [1952] 1 All ER 139, [1952] 1 TLR 82..........19.51, 19.54

xli

Table of Cases para Arnold v Britton [2015] UKSC 36, [2015] AC 1619, [2015] 2 WLR 1593..................... 7.11 Artisans’ Land & Mortgage Corpn, Re [1904] 1 Ch 796................................................ 15.52 Artistic Upholstery Ltd v Art Forma (Furniture) Ltd [1999] 4 All ER 277, [2000] FSR 311, (1999) 22(12) IPD 22118..............................................................................2.57, 8.52 Artman v Artman [1996] BPIR 511................................................................................ 20.9 Arton v Booth (1820) 4 Moore CP 192........................................................................... 19.19 Arundell v Bell (1883) 52 LJ Ch 537............................................................................... 18.41 Asbestos Cases, Re 514 F Supp 914 (1981)..................................................................... 19.75 Ascherson v Tredegar Dry Dock & Wharf Co Ltd [1909] 2 Ch 401............................... 18.40 Ashberg (C & M), Re (The Times, 17 July 1990)........................................................17.3, 22.19 Ashborder BV v Green Gas Power Ltd [2004] EWHC 1517 (Ch), [2005] BCC 634, [2005] 1 BCLC 623................................................................................................ 19.9 Ashbury Rly Carriage & Iron Co Ltd v Richie (1874–75) LR 7 HL 653......................... 3.2 Ashby v James (1843) 11 M & W 542, 152 ER 920.................................................14.42, 15.58 Ashley, ex p Murton, Re (1840) 1 Mont D & De G 252................................................. 8.26 Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [1973] 1 WLR 828, [1973] 2 All ER 856, [1973] 2 Lloyd’s Rep 21............................................................................ 4.24 Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488, [1988] 3 WLR 867, [1988] 2 All ER 577................................................................................................ 15.23 Ashworth v Munn (1880) LR 15 Ch D 363............................................................8.1, 8.2, 8.33, 8.38, 10.1 Ashworth v Stanwix & Walker (1861) 4 LT 85, 121 ER 606, (1860) 3 El & El 701....... 19.48 Aspinall v London & North Western Rly Co (1853) 11 Hare 325, 68 ER 1299............. 16.32 Assaubayev v Michael Wilson & Partners Ltd [2014] EWCA Civ 1491, [2014] 11 WLUK 563, [2015] CP Rep 10............................................................................... 25.71 Associated Portland Cement Manufacturers (1910) Ltd v Ashton [1915] 2 KB 1............ 2.39 Associated Provincial Picture Houses Ltd v Wednesbury Corpn [1948] 1 KB 223, [1947] 2 All ER 680, (1947) 63 TLR 623....................................................................16.42, 16.43 Associated Shipping Services Ltd v Department of Private Affairs of HH Sheikh Zayed Bin Sultan Al-Nahayan (Financial Times, 31 July 1990)......................................... 1.10 Astle v Wright (1856) 23 Beav 77, 53 ER 30................................................................... 18.62 Athletic Union of Constantinople v National Basketball Association [2002] EWCA Civ 830, [2002] 1 WLR 2863, [2002] All ER (D) 507 (May)........................................ 15.30 Atkinson v Mackreth (1866) LR 2 Eq 570...................................................................... 20.6 Atlantic Acceptance Corpn Ltd v Burns & Dutton Construction (1962) Ltd (1970) 14 DLR (3d) 175......................................................................................................... 23.10 Atwood v Maude (1867–68) 3 Ch App 369, (1868) 16 WR 665..............................17.20, 18.62 Attwood v Banks (1839) 2 Beav 192, 48 ER 1153.......................................................... 20.21 Attwood v Lamont [1920] 3 KB 571............................................................................... 18.74 Attwood v Small (1838) 6 Cl & Fin 232, 7 ER 684......................................................14.8, 21.7 Attwood (G) Holdings v Woodward [2009] EWHC 1083 (Ch)...................................... 15.36 Atwell v Roberts [2013] WASCA 37............................................................................... 10.1 Aubert v Maze (1801) 2 Bos & P 371, 126 ER 1333...................................................... 4.21 Aubert v Walsh (1810) 3 Taunt 277, 128 ER 110........................................................... 4.18 Aubin v Holt (1855) 2 K & J 66, 69 ER 696.................................................................. 4.11 Auden McKenzie (Pharma Division) v Patel [2019] EWCA Civ 2291, [2019] 12 WLUK 399... 14.51 Aulton v Atkins (1856) 18 CB 249, 139 ER 1364........................................................... 10.14 Austen v Boys (1858) 2 De G & J 626, 44 ER 1133....................................................7.22, 7.24, 8.52, 18.67 Austin v Jackson (1879) 11 Ch D 942n........................................................................... 18.58 Australia & New Zealand Bank Ltd v Ateliers de Constructions Electriques de Charleroi [1967] 1 AC 86, [1966] 2 WLR 1216, [1966] 1 Lloyd’s Rep 463........................... 19.16 Australian Joint Stock Bank v Steel (No 2) (1890) 11 NSW Eq 328................................ 5.3 Average (Arthur) Association for British, Foreign & Colonial Ships, Re (1874–75) LR 10 Ch App 542....................................................................................................... 2.15 Avis v Balfour (unreported, 26 July 1999)......................................................18.37, 18.41, 18.63 Avrahami v Biran [2013] EWHC 1776 (Ch), [2013] 6 WLUK 660...........................11.11, 14.52 Awwad v Geraghtly & Co [2001] QB 570, [2000] 3 WLR 1041, [2000] 1 All ER 608..4.4, 4.21

xlii

Table of Cases para Axa Equity & Law Life Assurance Society plc v Wootton [1997] 11 EG 30.............16.36, 16.40 B BBC Worldwide Ltd v Bee Load Ltd (t/a Archangel Ltd) (unreported, 6 February 2007). 2.1, 2.4 BBGP Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch), [2011] Ch 296, [2011] 2 WLR 496.....................................15.13, 24.3, 24.18, 24.21 BBGP Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch), [2011] Ch 296, [2011] 2 WLR 496.......................................... 15.11 Back Office Ltd v Percival [2013] EWHC 1385 (QB), [2013] Bus LR D60..................... 18.67 Backhouse v Charlton (1878) LR 8 Ch D 444...........................................................18.27, 19.16 Backhouse v Hall (1865) 6 B & S 507, 122 ER 1283....................................................8.7, 20.24 Backman v Canada [2001] SCC 10 (SC Canada).........................................2.5, 2.15, 2.18, 2.19, 2.29, 2.39 Badeley v Consolidated Bank (1888) LR 38 Ch D 238.........................................2.20, 2.35, 23.7 Badger v Major (1997) STC (SCD) 218.......................................................................... 1.11 Badgerhill Properties Ltd v Cottrell [1991] BCC 463, [1991] BCLC 805, 54 BLR 23..... 19.12 Badhams v Williams (1902) 86 LT 191........................................................................... 12.26 Badyal v Badyal [2019] EWHC 3423 (Ch), [2019] 11 WLUK 356................................. 18.59 Barlow (Ian) v Clifford & Co [2005] UKEAT 0910 04 2809.......................................... 16.42 Bagel v Miller [1903] 2 KB 212......................................................................20.19, 20.23, 21.15 Bagot v Easton (No 1) (1877–78) LR 7 Ch D 1............................................................14.9, 17.1 Bagshaw v Parker (1847) 10 Beav 532, 50 ER 686..........................................16.11, 16.12, 17.9 Bahous (R) v Pizza Express Restaurant (2011) UK EAT/0029/11/DA............................. 13.23 Baille v Blanchet (1864) 4 New Rep 48........................................................................... 15.4 Baillie v Goodwin & Co (1886) LR 33 Ch D 604........................................................... 21.23 Bainbridge, ex p Fletcher, Re (1878) LR 8 Ch D 218...................................................... 10.1 Baird v Planque (1858) 1 F & F 344, 175 ER 756.......................................................... 5.6 Baker v Barclays Bank Ltd [1955] 1 WLR 822, [1955] 2 All ER 571, (1955) 99 SJ 491....8.1, 10.2, 14.54, 19.16 Baker v Black Sea & Baltic General Insurance Co Ltd [1998] 1 WLR 974, [1998] 2 All ER 833, [1998] CLC 820........................................................................................ 2.19 Baker v Casey (1872) 19 Gr 537 (Canada)...................................................................... 2.39 Baker v Gent (1892) 9 TLR 159................................................................................21.10, 21.11 Baker v Gibbons [1972] 1 WLR 693, [1972] 2 All ER 759, (1972) 116 SJ 313.............. 8.68 Baldwin v Casella (1871–72) LR 7 Exch 325.................................................................. 20.33 Balfour v Hollandia Ravensthorpe (1978) 18 SASR 240................................................. 14.9 Balfron Trustees Ltd v Peterson [2001] IRLR 758, [2002] Lloyd’s Rep PN 1, [2002] WTLR 157.............................................................................................................. 19.45 Ball v Dunsterville (1791) 4 Term Rep 313, 100 ER 1038.............................................. 19.20 Ball v Eden Project Ltd [2002] 1 BCLC 313, [2001] ETMR 87, [2002] FSR 43..........8.52, 11.32 Ball, Re (1930) 74 SJ 298................................................................................................ 10.20 Baloglow v Konstantinidis [2001] NSWCA 451.............................................................. 18.34 Bamber v Eaton see Osea Camp Sites Ltd, Re Banbury v Bank of Montreal [1918] AC 626.................................................................. 19.52 Bank of America National Trust & Savings Association v Taylor (The Kyriaki) [1992] 1 Lloyd’s Rep 484...................................................................................................... 15.10 Bank of Australasia v Breillat (1847) 6 Moo PCC 152, 13 ER 642.............................19.2, 19.16 Bank of Beirut SAL v HRH Prince Adel El-Hashemite [2015] EWHC 1451 (Ch), [2016] Ch 1, [2016] 1 BCLC 127....................................................................................... 25.7 Bank of Boston Connecticut (formerly Colonial Bank) v European Grain & Shipping Ltd (The Dominique) [1989] AC 1056, [1989] 2 WLR 440, [1989] 1 All ER 545.. 14.16 Bank of Credit & Commerce International SA (in liquidation) (No 8), Re [1996] Ch 245, [1996] 2 WLR 631, [1996] 2 All ER 121........................................................ 23.10 Bank of Credit & Commerce International (Overseas) Ltd v Akindele [2001] Ch 437, [2000] 3 WLR 1423, [2000] 4 All ER 221.............................................................. 19.58

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Table of Cases para Bank of England v Vagliano Bros [1891] AC 107........................................................... 1.4 Bank of Ireland v Colliers sub nom Governor of the Company of the Bank of Ireland v Colliers International (UK) plc (Administration) [2012] EWHC 2942 (Ch)............ 22.49 Bank of Ireland v Jaffery [2012] EWHC 1377 (Ch), [2012] 5 WLUK 672...................... 14.52 Bank of Montreal v Dobbin [1996] 5 Bank LT 190........................................................ 20.9 Bank of Montreal v Kiwi Polish Co (Canada) Ltd [1971] SCR 991 (Canada)................. 19.18 Bank of New South Wales v Owston (1878–79) LR 4 App Cas 270............................... 19.24 Bank of New Zealand v New Zealand Guardian Trust Co Ltd (1999) 1 NZLR 664..........14.51, 19.70 Bank of Scotland v Henry Butcher & Co [2001] 2 All ER (Comm) 691.....18.6, 19.3, 19.5, 19.6, 19.7, 19.9, 19.11, 19.23 Bank of Upper Canada v Bradshaw (1865–67) LR 1 PC 479, 16 ER 371, (1867) 4 Moo PCNS 406............................................................................................................... 25.72 Bankrupt (No 622 of 1995), Re (The Times, 27 June 1996)........................................... 20.9 Banks v Gibson (1865) 34 Beav 566, 55 ER 753.........................................................8.55, 18.66 Banner Homes Holdings Ltd (formerly Banner Homes Group plc) v Luff Developments Ltd (No 2) [2000] Ch 372, [2000] 2 WLR 772............................................2.40, 2.41, 2.50 Banque des Marchands de Moscou (Koupetschesky) v Kindersley [1951] Ch 112, [1950] 2 All ER 549, (1950) 66 TLR (Pt 2) 654................................................................. 1.14 Barber v Fletcher (1779) 1 Doug KB 305, 99 ER 197..................................................... 20.32 Barber v Rasco International Ltd [2012] EWHC 2449 (QB)........................................... 18.29 Barber, ex p (1869–70) LR 5 Ch App 687................................................................. 7.22, 12.19, 14.24, 15.19, 18.12, 18.35 Barclay v Pearson [1893] 2 Ch 154........................................................................4.2, 4.22, 4.24 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, [1968] 3 WLR 1097, [1968] 3 All ER 651............................................................................................2.41, 19.73 Barclays Bank plc v De By [2017] EWHC 3079 (QB), [2017] 6 WLUK 356................... 9.9 Barclays Bank Trust Co Ltd v Bluff [1982] Ch 172, [1982] 2 WLR 198, [1981] 3 All ER 232................................................................................................................. 18.14, 18.16, 18.18, 18.19, 18.41 Barclays Mercantile Industrial Finance Ltd v Melluish (Inspector of Taxes) [1990] STC 314, 63 TC 95, [1990] BTC 209............................................................................. 2.5 Barfield v Loughborough (1872–73) LR 8 Ch App 1, [1861–73] All ER Rep 1187........9.7, 18.7, 18.11, 18.58 Barfoot, executors of John Wilkes v Goodall, Dickenson the Elder, Dickenson the Younger, & Fisher (1811) 3 Camp 147, 170 ER 1336............................................ 20.28 Baring v Dix (1786) 1 Cox Eq Cas 213, 29 ER 1134................................................17.23, 17.24 Barker v Goodair (1805) 11 Ves Jr 78, 34 ER 1080........................................................ 22.14 Barker & Owen v Richardson (1827) 1 Y & J 362, 148 ER 710.................................... 19.19 Barlow Clowes International Ltd (in liquidation) v Eurotrust International Ltd [2005] UKPC 37, [2006] 1 WLR 1476, [2006] 1 All ER 333............................................. 19.53 Barnard, Re; Edwards v Barnard (1886) LR 32 Ch D 447.............................................. 19.17 Barnard, Re sub nom Martin’s Bank Ltd v Trustee [1932] 1 Ch 269.........................24.10, 24.51 Barnes v Addy (1873–74) LR 9 Ch App 244, (1874) 22 WR 505, (1874) 43 LJ Ch 513.19.62 Barnes v Consolidated Motor Co [1942] 1 DLR 736 (Canada)....................................... 2.39 Barnes (James) v Strathern 1929 JC 41, 1929 SLT 37..................................................... 4.7 Barnes v Youngs [1898] 1 Ch 414................................................................................... 16.43 Barnes Thomas (t/a Barnes Thomas & Co) v Leavesley [2002] All ER (D) 982............... 16.14 Barratt v Hartley (1866) LR 2 Eq 789............................................................................. 12.25 Barrow v Barrow (1872) 27 LT 431................................................................................ 14.42 Barrow v Scammell (1881–82) LR 19 Ch D 175............................................................. 14.43 Barrow, ex p Christie, Re (1832) Mont & B 352............................................................ 20.3 Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515, [1980] 2 WLR 430, [1980] 2 All ER 92............................................................................................................. 14.48 Barton v Hanson, Stockwell, Williams, Simcock & Tibbs (1809) 2 Taunt 49, 127 ER 993......................................................................................................................... 19.12

xliv

Table of Cases para Barton v Morris [1985] 1 WLR 1257, [1985] 2 All ER 1032, (1986) 51 P & CR 84...8.21, 8.22, 8.26, 8.32, 8.39, 12.21, 14.42 Barton v North Staffordshire Rly Co (1888) LR 38 Ch D 458..................................15.51, 15.53 Base Metal Trading Ltd v Shamurin [2004] EWCA Civ 1316, [2005] 1 WLR 1157, [2005] 1 All ER (Comm) 17.................................................................................... 11.10 Bass Brewers Ltd v Appleby [1997] 2 BCLC 700, [1996] PNLR 385, (1996) 73 P & CR 165...............................................................................................................5.1, 6.6, 19.59, 19.61, 19.62 Batard v Hawes (1853) 2 El & Bl 287, 118 ER 775......................................................2.7, 12.33 Bate v Robbins (1863) 32 Beav 73, 55 ER 28...........................................................12.23, 18.11 Bates v Post Office Ltd (No 3: Common Issues) [2019] EWHC 606 (QB), [2019] 3 WLUK 260............................................................................................................. 2.41 Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505, [1981] 1 All ER 1077, (1981) 41 P & CR 345........................................................................................... 14.43 Bates (D) & Co v Dale [1937] 3 All ER 650................................................................... 18.73 Bates (Jim) v Brownstones East III Properties Ltd (1993) Ont CJ Lexis 8/1/93................ 24.11 Bates van Winkelhof v Clyde & Co LLP [2014] UKSC 32, [2014] 1 WLR 2047, [2014] 3 All ER 225.......................................................................................................13.2, 25.75 Bathurst v Scarborow [2004] EWCA Civ 411, [2005] 1 P & CR 4, (2004) 148 SJLB 420......................................................................................................................... 8.38 Batstone Ltd v Headline Filters Ltd (No 2) [1990] FSR 385............................................ 11.33 Batten v Wedgwood Coal & Iron Co (No 1) (1884) LR 28 Ch D 317............................ 15.47 Battley v Lewis (sued with Bailey & Potter) (1840) 1 Man & G 155, 133 ER 286.......... 7.4 Battye v Shammall (2005) 91 SASR 315......................................................................... 11.1 Baxter v Hozier (1839) 5 Bing NC 288, 132 ER 1115.................................................... 14.42 Baxter v Plenderleath (1824) 2 LJOS Ch 119.................................................................. 7.7 Baxter v West (1858) 28 LJ Ch 169, (1860) 1 Drew & Sm 173..........................2.8, 7.24, 15.42, 15.48, 17.20 Bawden v Howell (1841) 3 Man & G 638, 133 ER 1296............................................... 21.3 Bayoil SA, Re [1999] 1 WLR 147, [1999] 1 All ER 374, [1999] 1 Lloyd’s Rep 211........ 22.23 Bayonet Ventures v R & C Comrs [2018] UKFTT 262 (TC), [2018] 5 WLUK 212........ 7.4 Beak v Beak (1675) 3 Swan 627, 36 ER 1000................................................................. 18.2 Beale, ex p Corbridge, Re (1876–77) LR 4 Ch D 246........................................23.5, 23.7, 23.46 Beaman v ARTS [1949] 1 KB 550, [1949] 1 All ER 465, 65 TLR 389............................ 15.60 Bean v Wade (1885) 2 TLR 157...................................................................................... 20.19 Bear, Re [1915] WN 211................................................................................................. 18.58 Beard & Co, ex p Trustee, Re [1915] HBR 191............................................................2.12, 2.35 Beard, Re (1888) 58 LT 629............................................................................................ 10.23 Beasley v Cadwalader, Wickerham & Toft [1996] WL 438777 (Fla Cir Ct 1999).....14.17, 16.42 Beauchamp (Inspector of Taxes) v FW Woolworth plc [1990] 1 AC 478, [1989] 3 WLR 1, [1989] STC 510.....................................................................................2.16, 12.26 Beauchamp Bros, Re see Lovell & Christmas v Beauchamp Beautiland Co Ltd v IRC [1991] STC 467.....................................................................2.16, 2.39 Beaver v Cohen [2006] EWHC 199 (Ch)....................................................................8.53, 18.35 Bechervaise v Lewis (1871–72) LR 7 CP 372.................................................................. 18.40 Bechstein’s Business Trusts, Re (1914) 58 SJ 864............................................................ 15.48 Beck v Kantorowicz (1857) 3 K & J 230, 69 ER 1093.................................................... 11.36 Beckett Investment Management Group Ltd v Hall [2007] EWCA Civ 613, [2007] ICR 1539, [2007] IRLR 793.................................................................................  18.67, 18.72 Beckham v Drake (1841) 9 M & W 79; revs’d sub nom Drake v Beckham (1843) 11 M & W 315, 152 ER 823.............................................................................19.1, 19.13, 19.22 Beckman v IRC [2000] STC (SCD) 59, [2003] WTLR 773, [2000] STI 162................... 18.12 Bedford Insurance Co Ltd v Instituto de Resseguros do Brasil [1985] QB 966, [1984] 3 WLR 726, [1984] 3 All ER 766.............................................................................. 4.16 Begum v Hafiz [2015] EWCA Civ 801, [2016] Ch 241, [2015] 3 WLR 1495................. 18.46 Belfield v Bourne [1894] 1 Ch 521............................................................................15.23, 18.62 Bell v Barnett (1872) 21 WR 119.................................................................................... 12.29

xlv

Table of Cases para Bell v Lever Bros Ltd [1932] AC 161.........................................................................2.41, 11.10, 11.43, 11.44 Bell v Nevin (1866) 12 Jur NS 935.................................................................................. 16.28 Bell’s Indenture, Re [1980] 1 WLR 1217, [1980] 3 All ER 425, (1979) 123 SJ 322  19.9, 19.53, 19.61, 19.62, 20.6 Belmont Finance Corpn v Williams Furniture Ltd (No 2) [1980] 1 All ER 393.........15.18, 19.62 Belvedere Fish Guano v Rainham Chemical Works sub nom Rainham Chemical Works Ltd (in liquidation) v Belvedere Fish Guano Co Ltd [1921] 2 AC 465.................... 25.70 Benedict v Van Allen (1859) 17 UCR 234....................................................................... 24.25 Benge v Benge [2017] EWHC 2124 (Ch), [2017] 2 WLUK 321................................18.46, 18.50 Benham v Gray (1847) 5 CB 138..................................................................................8.43, 11.8 Benincossa v Dentalkit Srl (Case C-269/95) [1998] All ER (EC) 135, [1997] ECR I-3767, [1997] ETMR 447.................................................................................................. 15.4 Beningfield v Baxter (1886) LR 12 App Cas 167.......................................................10.19, 18.20 Benmag Ltd v Barda [1955] 2 Lloyd’s Rep 354............................................................... 19.41 Bennett v Bennett [2018] EWHC 1931 (Ch), [2018] 7 WLUK 605....................2.9, 15.52, 15.61 Bennett v Goude (1853) 21 LTOS 237............................................................................ 18.53 Bennett v Lincoln (2005) JLR 125................................................................................... 1.12 Bennett v Richardson [1980] RTR 358........................................................................... 19.50 Bennett v Wallace 1998 SC 457, 1998 SLT 1165, 1998 SCLR 757.................................  9.2, 9.8 Bennet, Jones v Bennet, Re [1896] 1 Ch 778................................................................... 11.24 Benson v Hadfield (1844) 4 Hare 32, 67 ER 549............................................................ 18.32 Benson, Re [1899] 1 Ch 39............................................................................................. 14.30 Bentley v Bates (1840) 4 Y & C Ex 182, 160 ER 971......................................10.4, 10.10, 10.12 Bentley v Craven (1853) 18 Beav 75, 52 ER 29............................................................... 11.27 Béquelin Import Co v GL Import Export SA (Case C-22/71) [1971] ECR 949, [1972] CMLR 81............................................................................................................... 4.10 Berg & Busschers v Besselsen (Case C-144/87) [1988] ECR 2559, [1989] 3 CMLR 817, [1990] ICR 396....................................................................................................... 18.24 Berghoff Trading Ltd v Swinbrook Developments Ltd [2009] EWCA Civ 413, [2009] 2 Lloyd’s Rep 233................................................................................................12.33, 18.40 Bergmann v Macmillan (1881) LR 17 Ch D 423..............................................10.10, 10.11, 15.7 Berkeley v Hardy (1826) 5 B & C 355, 108 ER 132....................................................... 19.11 Berlevy v Blyth Dutton [1997] CLY 3821....................................................................19.27, 21.8 Besch v Frolich (1842) 1 Ph 172, 41 ER 597......................................................17.6, 17.9, 17.10 Best v Ghose [2018] IEHC 76......................................................................................... 11.1 Betjemann v Betjemann [1895] 2 Ch 474........................................................14.8, 14.24, 15.54, 15.60, 15.62, 18.32 Bevan v Lewis (1827) 1 Sim 376, 57 ER 618.................................................................. 19.12 Bevan v National Bank Ltd (1906) 23 TLR 65................................................................ 5.5 Bevan v Webb (Inspection of Books) (1901) 2 Ch 59...............................................11.23, 11.24, 11.30, 15.32 Bevan, ex p (1804) 10 Ves Jr 107, 32 ER 784................................................................. 20.2 Beveridge v Beveridge (1872) LR 2 Sc & Div 183........................................................... 12.9 Beximco Pharmaceuticals Ltd v Shamil Bank of Bahrain EC (No 1) [2004] EWCA Civ 19, [2004] 1 WLR 1784, [2004] 4 All ER 1072...................................................... 7.12 Bhatti v R & C Comrs [2013] UKFTT 355 (TC), [2013] 6 WLUK 501........................2.16, 2.39 Bhayani v Taylor Bracewell LLP [2016] EWHC 3360 (IPEC), [2016] 12 WLUK 657, [2017] ETMR 14.................................................................................................... 8.52 Bhullar Bros, Re sub nom Bhullar v Bhullar [2003] EWCA Civ 424, [2003] 2 BCLC 241, [2003] WTLR 1397...............................................................................11.17, 11.27, 11.32 Biddulph, Re (1843) 3 Mont D & De G 364...............................................................19.60, 20.6 Bieber v Teathers Ltd (In Liquidation) [2012] EWCA Civ 1466, [2013] 1 BCLC 248, [2013] WTLR 1...................................................................................................... 9.8 Bigelow v Powers (1911) 25 OLR 28 (Canada)............................................................... 15.5 Biggs v Lawrence (1789) 3 Term Rep 454, 100 ER 673.................................................. 4.8

xlvi

Table of Cases para Bignold (Thomas) & Bignold (John Cocksedge) v Waterhouse (William), Waterhouse (John), Waterhouse (Samuel), Watson (John) & Coldwell (Thomas) (1813) 1 M & S 255, 105 ER 95.................................................................................................... 20.36 Bilborough v Holmes (1877) LR 5 Ch 255.....................................................18.32, 20.15, 20.21 Bile Bean Manufacturing Co Ltd v Davidson (1905) 22 RPC 553................................... 18.66 Bilioara Pty v Leisure Investment Pty Ltd (2001) 11 NTLR 148.................................7.10, 18.34 Bilton v Blakely (1856) 6 Gr 575.................................................................................... 11.24 Binney v Mutrie (No 1) (1886) LR 12 App Cas 160....................................9.6, 9.8, 10.7, 12.19, 14.24, 18.16, 18.55, 18.59, 18.60 Bird v Brown (1850) 4 Exch 786, 154 ER 1433.............................................................. 19.5 Bird Precision Bellows, Re [1984] Ch 419, [1984] 2 WLR 869, [1984] 3 All ER 444..... 2.61 Birmingham City Council v Abdulla see Abdulla v Birmingham City Council Birtchnell v Equity Trustee Executors & Agency Co Ltd (1929) 42 CLR 384...2.41, 11.4, 11.11, 11.17, 11.40 Bishop v Countess of Jersey (1854) 2 Drew 143, 61 ER 673........................................... 19.6 Bishop (Inspector of Taxes) v Finsbury Securities Ltd [1966] 1 WLR 1402, [1966] 3 All ER 105, 43 TC 591................................................................................................. 2.5 Bishop v Golstein see Golstein v Bishop Bishop v Smyma & Cassaba Rly Co (No 1) [1895] 2 Ch 265......................................... 18.59 Bishop v Tudor Estates [1952] CPL 807, 160 EG 464..................................................... 5.5 Bishopsgate Investment Management Ltd (in liquidation) v Homan [1995] Ch 211, [1994] 3 WLR1270, [1995] 1 All ER 347............................................................... 19.66 Bishton, ex p Bate, Re (1838) 3 Deac 358....................................................................... 23.16 Biss, Re [1903] 2 Ch 40..............................................................................................11.4, 11.29 Bissell v Cole [1998] CLY 4071......................................................................................2.2, 7.21, 11.35, 11.40 Black (Herbert) v Davies (unreported, 6 May 2005)....................................................... 15.18 Blackburn v Walker (1920) 150 LT Jo 73........................................................................ 19.42 Blackburn, Low & Co v Vigors (1887) LR 12 App Cas 531........................................... 20.34 Blackpool & Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195, [1990] 3 All ER 25, 88 LGR 864, (1991) 3 Admin LR 322, (1991) 155 LG Rev 246.............................2.1, 2.15 Blackpool Marton Rotary Club v Martin (Inspector of Taxes) [1988] STC 823, [1990] BTC 3...................................................................................................................2.46, 2.47 Blackwood v Robertson 1984 SLT (Sh Ct) 68................................................................. 14.53 Blain v Holland (1889) 60 LT 285.................................................................................. 19.18 Blake v Gale (1886) LR 32 Ch D 571.......................................................................15.61, 19.69 Blake, ex p Burnett, Re (1842) 2 Mont D & De G 357................................................... 23.41 Blakeney v Dufaur (1851) 15 Beav 40, 51 ER 451.......................................................... 15.42 Blair v Bromley (1846) 5 Hare 542, 67 ER 1026, (1846) 2 Ph 354...........................21.19, 21.37 Blair v Ellis (1874) 34 UCQB 466 (Canada).................................................................... 21.3 Blair v Tomkins & Osborne (t/a Osborne & Tomkins) [1971] 2 QB 78, [1971] 2 WLR 503, [1971] 1 All ER 468........................................................................................ 8.11 Blair Open Hearth Furnace Co Ltd, Re [1914] 1 Ch 390................................................ 24.31 Blay v Pollard & Morris [1930] 1 KB 628................................................................16.19, 18.34 Blew v Wyatt (1832) 5 C & P 397.................................................................................. 20.21 Blisset v Daniel (1853) 10 Hare 493, 68 ER 1022........................................1.2, 7.11, 7.22, 11.7, 12.10, 14.24, 14.44, 16.40, 16.42, 16.43 Bloomer v Currie (1908) 51 SJ 277................................................................................. 15.48 Bloomfield, Re (1978) 2 TRNZ 597................................................................................ 18.18 Bloxham (in liquidation), Re [2017] IEHC 664.............................................................8.52, 8.53 Bluck v Capstick (1879) LR 12 Ch D 863....................................................................... 18.62 Blundell, Re (1888) LR 40 Ch D 370.............................................................................. 19.62 Blundon v Storm [1972] SCR 135, 20 DLR (3d) 413 (Canada)....................11.27, 11.28, 11.32, 15.62, 15.63, 18.9 Blythe v Fladgate [1891] 1 Ch 337................................................................19.43, 19.48, 19.51, 19.62, 20.6, 20.19

xlvii

Table of Cases para Blythe, ex p Blythe, Re (1881–82) LR 16 Ch D 620........................................................ 23.46 Boardman v Phipps [1964] 1 WLR 993, [1964] 2 All ER 187, (1964) 108 SJ 619.......... 14.51 Boardman v Phipps [1967] 2 AC 46, [1966] 3 WLR 1009, [1966] 3 All ER 721.........8.68, 11.4, 11.29, 11.33, 11.35, 11.46, 14.28, 19.71 Boddam v Ryley (1783) 1 Bro CC 239, 28 ER 1104....................................................... 12.23 Bodin v Ducher (1909) 11 WLR 145 (Canada)............................................................... 12.31 Boegli-Gravures SA v Darsail-ASP Ltd [2009] EWHC 2690 (Pat)................................... 25.70 Boehm v Goodall [1911] 1 Ch 155................................................................15.46, 15.47, 15.48 Boghani v Nathoo [2011] EWHC 2101 (Ch), (2011) 108(32) LSG 17........................18.2, 18.21 Boissevain v Weill [1950] AC 327, [1950] 1 All ER 728, 66 TLR (Pt 1) 771.................. 4.21 Bolkiah v KPMG [1999] 2 AC 222, [1999] 2 WLR 215, [1999] 1 BCLC 1..............19.75, 20.34 Bolton v Carmichael (1856) 1 Ir Jur (NS) 298................................................................. 16.14 Bolton v Puller, Assignees (1796) 1 Bos & P 539, 126 ER 1053...................................... 8.28 Bolton Partners v Lambert (1889) LR 41 Ch D 295........................................................ 19.5 Bonanza Creek Gold Mining Co Ltd v R [1916] 1 AC 566............................................. 1.10 Bond v Barrow Hæmatite Steel Co [1902] 1 Ch 353....................................................... 12.26 Bond v Gibson & Jephson (1808) 1 Camp 185, 170 ER 923.......................................... 19.3 Bond v Milbourn (1871) 20 WR 197.............................................................................. 18.62 Bonfield v Smith (1844) 12 M & W 405, 152 ER 1254..................................................5.7, 20.3 Bonnin v Neame [1910] 1 Ch 732..................................................................10.12, 15.21, 15.23 Bonville v Bonville (1865) 35 Beav 129, 55 ER 844........................................................ 15.17 Bonzalie v Cullu [2013] NSWSC 1576............................................................................ 14.13 Boome v Wicker [1927] 1 Ch 667................................................................................... 18.66 Boot (Henry) Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd [2001] QB 388, [2000] 3 WLR 1824, [2001] 1 All ER 257...................................................... 15.30 Booth, Assignees of G Browne, a bankrupt v Hodgson & Hodgson (1795) 6 Term Rep 405, 101 ER 619..................................................................................................... 4.21 Booth v Parks (1828) 1 Mol 465..................................................................................... 18.2 Borries v Imperial Ottoman Bank (1873–74) LR 9 CP 38............................................... 21.11 Borron, ex p Parratt, Re (1836) 2 Mont & A 626........................................................... 20.34 Bothe v Amos [1976] Fam 46, [1975] 2 WLR 838, [1975] 2 All ER 321...................2.26, 15.64, 16.14, 16.17 Bottomley v Nuttall (1858) 5 CBNS 122......................................................................... 20.22 Bottrill v Harling [2015] EWCA Civ 564, [2015] 6 WLUK 332......................................7.22, 9.9 Bouch v Sproule (1887) LR 12 App Cas 385.................................................................9.6, 12.26 Boulter v Peplow (1850) 9 CB 493, 137 ER 984...........................................................2.7, 12.33 Bounty v Heaton (1865) 13 LT 238..........................................................................20.13, 21.15 Bourdillon v Roche (1858) 27 LJ Ch 681........................................................................ 19.6 Bourne v Brandon Davies (unreported, 15 June 2006).................................................... 8.11 Bourne v Colodense Ltd [1985] ICR 291, [1985] IRLR 339, (1985) 82 LSG 923........... 21.45 Bourne v Davis [2006] All ER (D) 160 (Jun), [2006] EWHC 1567 (Ch)......................... 18.2 Bourne, Re [1906] 2 Ch 427.................................................................................8.2, 8.36, 10.8, 18.2, 18.27 Bourne v Freeth (1829) 9 B & C 632, 109 ER 235......................................................... 5.2 Bovine Ltd v Dent & Wilkinson (1904) 21 TLR 82........................................................ 18.25 Bovis Lend Lease Ltd (formerly Bovis Construction Ltd) v Saillard Fuller & Partners (2001) 77 Con LR 134............................................................................................ 14.60 Bower v Swadlin (1738) 1 Atk 294, 26 ER 188.............................................................. 20.9 Bower v Stevens [2004] EWCA Civ 496, [2004] ICR 1582, [2004] IRLR 957................ 4.11 Bowers, ex p Owen, Re (1851) 4 De G & Sm 351, 64 ER 865....................................... 8.26 Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65................................................. 4.18 Bowman v Secular Society Ltd [1917] AC 406................................................................ 4.18 Boyle, Re [1947] IR 61.................................................................................................... 19.74 Boynton (A) Ltd, Re [1910] 1 Ch 519............................................................................. 15.46 Brace v Calder [1895] 2 QB 253................................................................................14.5, 18.23, 18.25, 18.70 Bracey, Re [1936] Ch 690............................................................................................... 10.20

xlviii

Table of Cases para Bradbury v Dickens (1859) 27 Beav 53, 54 ER 21......................................................16.21, 18.3 Bradford v Gammon [1925] Ch 132, [1924] All ER Rep 766..........................12.33, 18.2, 18.40 Bradford & Bingley plc v Rashid [2006] UKHL 37, [2006] 1 WLR 2066, [2006] 4 All ER 705.................................................................................................................... 15.58 Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833......................................................8.6, 18.40 Bradley v Millar (1812) 1 Rose 273................................................................................ 20.2 Bradley v Riches (1878) LR 9 Ch D 189........................................................20.33, 20.36, 20.41 Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661, [2015] 4 All ER 639...................................................................................................................16.42, 16.43 Braginton, Re (1866–67) LR 2 Ch App 550.................................................................... 23.49 Brake v Guy [2019] EWHC 3332 (Ch), [2019] 11 WLUK 507....................................... 8.17 Brake, Re; Patley Wood Farm LLP v Brake [2016] EWHC 1688 (Ch), [2017] 1 WLR 343, [2016] 7 WLUK 584....................................................................................... 22.55 Brand v Sandground (1901) 85 LT 517.....................................................................21.27, 21.45 Brand Farrar Buxhaum LLP v Samuel-Rozenbaum Diamond Ltd (2005) HKLRD 342.........25.3, 25.7 Bras v Bras 463 F 2d 413 (1972)..................................................................................... 12.34 Bray v Ford [1896] AC 44............................................................................................... 24.20 Bray v Fromont (1821) 6 Madd 5, 56 ER 990..................................................7.23, 10.4, 10.10, 10.24, 12.4 Braymist Ltd v Wise Finance Co Ltd [2002] EWCA Civ 127, [2002] Ch 273, [2002] 2 All ER 333.................................................................................................2.7, 20.13, 25.12 Breiss v Woolley [1954] AC 333, [1954] 2 WLR 832, [1954] 1 All ER 909.................... 19.5 Brenan v Preston (1852) 2 De GM & G 813, 42 ER 1090........................................15.31, 15.48 Brenner v Rose [1973] 1 WLR 443, [1973] 2 All ER 535, (1972) 117 SJ 245....8.43, 11.8, 11.30 Brensell v Brensell (1995) 3 NZLR 320; aff’d (1998) NZFLR 28..........2.39, 8.23, 8.24, 9.6, 9.7, 12.28 Brett v Beckwith (1856) 3 Jur NS 31, (1856) 26 LJ Ch 130, (1856) 28 LTOS 214........2.19, 2.31 Brettel v Williams, Akroyd & Price (1849) 4 Exch 623, 154 ER 1363..............19.3, 19.6, 19.11, 19.23, 19.42 Brewer v Yorke (1882) 46 LT 289................................................................................... 18.62 Brewery Assets Corpn, Re see Truman’s Case Briars v Williams & Soden Solicitors [2011] All ER (D) 101 (Aug)................................. 2.20 Brickland, Assignees of Mason, a bankrupt v Newsome, Late Sheriff of Surrey (1808) 1 Camp 474, 170 ER 1026........................................................................................ 21.2 Bridge v Deacons [1984] AC 705, [1984] 2 WLR 837, [1984] 2 All ER 19....8.53, 18.72, 18.73, 18.74, 18.76 Bridgewater Navigation Co, Re [1891] 2 Ch 317.............................................................9.6, 9.8, 12.26, 23.21 Brierly v Cripps (1836) 7 C & P 709, 173 ER 310.......................................................... 14.42 Briggs v Oates [1991] 1 All ER 407, [1990] ICR 473, [1990] IRLR 472.....................2.32, 18.23 Briggs & Co, ex p Wright, Re [1906] 2 KB 209.............................................19.11, 19.15, 19.20 Bright (Henry Smith) v Hutton (1852) 3 HL Cas 341, 10 ER 133.................................. 2.7 Brinsmead v Harrison (1871–72) LR 7 CP 547............................................................... 20.9 Bristol & West Building Society v Mothew (t/a Stapley & Co) [1998] Ch 1, [1997] 2 WLR 436, [1996] 4 All ER 698.................................................................2.41, 11.2, 14.53 Bristol Joint Stock Bank, Re (1890) LR 44 Ch D 703..................................................... 17.24 Bristow & Porter v Taylor (1817) 2 Stark 50, 171 ER 568............................................. 19.34 Britain v Rossiter (1882–83) LR 11 QBD 123................................................................. 8.31 British Eagle International Airlines Ltd Compagnie Nationale Air France [1975] 1 WLR 758, [1975] 2 All ER 390, [1975] 2 Lloyd’s Rep 43................................................ 23.10 British Homes Assurance Corpn Ltd v Paterson [1902] 2 Ch 404............1.4, 19.1, 19.10, 19.52, 19.56, 19.60, 20.15 British Midland Tool Ltd v Midland International Tooling Ltd [2003] EWHC 466 (Ch), [2003] 2 BCLC 523................................................................................................ 11.17 British Sky Broadcasting Group Plc v Digital Satellite Warranty Cover Ltd (In Liquidation) [2012] EWHC 2642 (Ch)................................................................... 8.68 British Wagon Co Ltd v Gray [1896] 1 QB 35................................................................ 21.29

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Table of Cases para Britton v Customs & Excise Comrs [1986] VATTR 209...............................................2.18, 2.58 Broadhurst v Broadhurst [2006] EWHC 2727 (Ch)..................................................11.26, 11.42 Brogden v Metropolitan Rly Co (1876–77) LR 2 App Cas 666...................................19.6, 19.13 Brooke v Garrod (1857) 3 K & J 608, 69 ER 1252......................................................... 7.25 Brookman v Mather (1913) 29 TLR 276........................................................................ 4.7 Brooks v Brooks (1901) 85 LT 453................................................................................. 7.10 Brooks v Brooks (AH) (a firm) [2010] EWHC 2720 (Ch), [2011] 3 All ER 982, (2010) 160 NLJ 1615......................................................................................................... 21.30 Brooks v Sutton (1867–68) LR 5 Eq 361........................................................................ 14.35 Brostof v Clark Kenneth Leventhal (unreported, 11 March 1996)........................2.16, 2.19, 6.4, 6.6, 8.55 Browell v Goodyear (The Times, 14 March 2000).......................................................... 18.2 Browell v Goodyear (The Times, 24 October 2000)....................................................8.10, 18.39 Browell Reed (1842) 1 Hare 434, 66 ER 1102................................................................ 15.42 Brown v De Tastet (1821) Jac 284, 37 ER 858.............................................................15.7, 18.9, 18.11, 18.17 Brown v Douglas (1840) 11 Sim 283, 59 ER 883............................................................ 20.23 Brown v Duncan (1829) 10 B & C 93, 109 ER 385........................................................ 4.8 Brown v Gordon (1852) 16 Beav 302, 51 ER 795.....................................................20.21, 20.23 Brown v InnovatorOne Plc [2012] EWHC 1321 (Comm)............................................... 25.72 Brown v IRC [1965] AC 244, [1964] 3 WLR 511, [1964] 3 All ER 119......................... 8.1 Brown v Kidger, Price Bostock & Knight (1858) 3 H & N 853, 157 ER 713.................. 19.17 Brown v Macallum (1848) 10 LTOS 482........................................................................ 18.2 Brown v Oakshot (1857) 24 Beav 254, 53 ER 355......................................................... 8.26 Brown v Tapscott (1840) 7 M & W 119......................................................................... 2.31 Brown & Owen v Hall (1956) 6 DLR (2d) 460 (Canada).........................................11.18, 11.44 Brown, Janson & Co v Hutchinson & Co (No 1) [1895] 1 QB 737..........................10.15, 23.52 Browne v Collins (1871) LR 12 Eq 586...........................................................12.19, 18.2, 18.16 Browne v Gibbins (1725) 5 Bro Parl Cas 491, 2 ER 817................................................. 12.34 Brownell v Brownell (1786) 2 Bro CC 62, 29 ER 35....................................................... 14.44 Browning v Browning (1862) 31 Beav 316, 54 ER 1160................................................. 9.7 Brownlie v Russell (1882–83) LR 8 App Cas 235........................................................... 2.57 Brown’s (J) Estate, Re [1893] 2 Ch 300........................................................................... 18.40 Bruce v Kordula 2001 SLT 983, 2001 GWD 17-662....................................................... 15.23 Brusewitz v Brown [1923] NZLR 1106.......................................................................... 7.19 Buckley v Barber (1851) 6 Exch 164, 155 ER 498.......................................................... 8.2 Buckmaster & Moore v Fado Investments Ltd [1986] PCC 95....................................... 1.12 Bucks Constabulary Widows & Orphans Fund Friendly Society (No 2), Re [1979] 1 WLR 936, [1979] 1 All ER 623, (1978) 122 SJ 557................................................ 2.46 Budgen v O’Brien [1966] 1 ITR 64................................................................................. 2.32 Budgen v Voisey (1956) 2 DLR (2d) 427 (Canada)......................................................... 18.4 Budgett, Re [1894] 2 Ch 557.......................................................................................... 23.42 Bue v Worcester PCT [2010] EWHC 1123 (Admin), [2010] 3 WLUK 876..................... 18.30 Bull v West London School Board (1876) 34 LT 674...................................................... 21.18 Bullen v Sharp (1865–66) LR 1 CP 86...................................................................2.1, 2.19, 2.35 Bulli Coal Mining Co Ltd v Osborne [1899] AC 351...................................................... 15.60 Bullock v Crockett (1862) 3 Giff 507, 66 ER 509, (1862) 8 Jur NS 502......................... 18.62 Bullock v London General Omnibus Co [1907] 1 KB 264.............................................. 21.2 Bullock (Alexander) & Co v IRC [1976] STC 514, 51 TC 563, [1976] TR 201............2.5, 10.22 Bumper Development Corpn v Comr of Police of Metropolis [1991] 1 WLR 1362, [1991] 4 All ER 638, (1991) 135 SJ 382................................................................. 2.7 Bunarsee Dass v Gholam Hossein (1870) 13 WR 29....................................................... 19.17 Bunce (SP) v Postworth Ltd (t/a Skyblue) [2005] EWCA Civ 490, [2005] IRLR 557...... 12.18 Bunn, Executor of Bunn v Guy (1803) 4 East 190, 102 ER 803...................................... 4.11 Burchell v Wilde [1900] 1 Ch 551..................................................................5.1, 5.3, 5.5, 18.51, 18.63, 18.64, 18.66, 20.26 Burden v Burden (1813) 1 Ves & B 170, 35 ER 67...................................................12.36, 18.10

l

Table of Cases para Burdett-Coutts v IRC [1960] 1 WLR 1027, [1960] 3 All ER 153, (1960) 39 ATC 156... 8.1 Burdick v Garrick (1869–70) LR 5 Ch App 233................................................8.1, 15.18, 19.71 Burdon v Barkus (1862) 4 De GF & J 42, 45 ER 1098, (1862) 8 Jur NS 656..............7.7, 12.34, 16.11, 18.42 Burgess v Merrill (1812) 4 Taunt 468, 128 ER 410......................................................... 3.22 Burgess v Morton (1894) 10 TLR 339............................................................................ 21.11 Burn v Burn (1798) 3 Ves Jur 573, 30 ER 1162.............................................................. 19.20 Burnand, ex p Baker Sutton & Co, Re [1904] 2 KB 68.............................................11.22, 11.24 Burnard v Aaron & Sharpley (1862) 31 LJCP 334.......................................................... 2.30 Burnell v Hunt (1841) 5 Jur 650...................................................................................2.20, 2.34 Burnside v Harrison Marks Productions [1968] 1 WLR 782, [1968] 2 All ER 286, (1968) 112 SJ 296.................................................................................................21.2, 21.4 Burrows v Rhodes [1899] 1 QB 816............................................................................... 12.34 Burston Finance Ltd v Speirway Ltd [1974] 1 WLR 1648, [1974] 3 All ER 735, (1975) 29 P & CR 34......................................................................................................... 10.6 Burt, Boulton & Hayward v Bull [1895] 1 QB 276......................................................... 15.48 Burton v Wookey (1822) 6 Madd 367, 5 ER 1131......................................................11.1, 11.38 Bury v Allen (1845) 1 Coll 589, 63 ER 556....................................................12.36, 14.9, 14.25, 14.53, 14.62, 18.62, 23.48 Butchart v Dresser (1853) 4 De GM & G 542, 43 ER 619..........................................18.2, 19.13 Butcher v Pooler (1883) LR 24 Ch D 273....................................................................... 15.19 Butler’s Trustees v Butler (1896) 29 NSR (17 R & G) 145.............................................. 18.2 Butt v Kelson [1952] Ch 197, [1952] 1 All ER 167, [1952] 1 TLR 214.......................... 10.21 Butterworth, ex p Plant, Re (1835) 4 Deac & Ch 160..................................................... 23.18 Button v Phelps [2006] EWHC 53 (Ch)........................................................................2.40, 2.41 Butts v Tynan (1968) 64 WWR 680................................................................................  7.6, 7.8 Buxton v Lister (1746) 3 Atk 383, 26 ER 1020............................................................... 14.3 Byford v Oliver [2003] EWHC 295 (Ch), [2003] 2 WLUK 748, [2003] EMLR 20 8.11, 8.55, 8.57, 8.72 Byrne v Kinematograph Reuters Society Ltd [1958] 1 WLR 762, [1958] 2 All ER 579, (1958) 102 SJ 509................................................................................................... 16.43 Byrne v Napier (1975) 62 DLR (3d) 589......................................................................... 14.17 Byrne v Reid [1902] 2 Ch 735..............................................................................7.25, 14.2, 14.3 C CAS (Nominees) Ltd v Nottingham Forest plc (Application for Disclosure) [2001] 1 All ER 954, [2002] BCC 145, (2000) 97(40) LSG 42................................................... 15.13 CH Giles & Co v Morris [1972] 1 WLR 307, [1972] 1 All ER 960, [1971] 11 WLUK 114......................................................................................................................... 14.2 CMS Dolphin Ltd v Simonet [2002] BCC 600, [2001] 2 BCLC 704, [2001] Emp LR 895.....................................................................................................................11.7, 11.33 Cabvision v Feetum see Feetum v Levy Cadbury Schweppes plc v Somji [2001] 1 WLR 615, [2001] 1 BCLC 498, [2001] BPIR 172...................................................................................................................23.34, 23.41 Caddick v Skidmore (1857) 2 De G & J 52, 44 ER 907................................................8.31, 8.35 Cade (JE) & Son Ltd, Re [1991] BCC 360, [1992] BCLC 213........................................ 17.25 Cairnplace Ltd v CBL (Property Investment) Co Ltd [1984] 1 WLR 696, [1984] 1 All ER 315, (1984) 47 P & CR 531................................................................................... 8.44 Calgary Associate Clinic v Johnston [1931] 4 DLR 247.................................................. 21.3 Callwood v Callwood [1960] AC 659, [1960] 2 WLR 705, [1960] 2 All ER 1............... 8.31 Camden London Borough v Shortlife Community Housing Ltd (1992) 25 HLR 330, 90 LGR 358, [1992] EG 31 (CS).................................................................................. 8.41 Camerata Property Inc v Credit Suisse Securities (Europe) Ltd [2011] EWHC 479 (Comm), [2011] 2 BCLC 54, [2011] 1 CLC 627..................................................... 14.53 Cameron v Julien (1957) 9 DLR (2d) 460....................................................................... 11.22

li

Table of Cases para Cameron v McMurray (1855) 17 D 1143....................................................................... 11.22 Cameron v Murdoch (1986) 64 ALR 575..................................................8.22, 8.23, 11.1, 11.5, 18.9, 18.12, 18.18 Cameron v Young (1871) 9 M 786................................................................................. 19.1 Camillo Tank Steamship Co v Alexandria Engineering (1921) 38 TL 134...................... 14.23 Camiveo v Dunnes Stores [2017] IEHC 147................................................................... 24.25 Campbell v Campbell (1825) 3 LJOS Ch 129................................................................. 20.21 Campbell v Campbell (1893) 6 R 137............................................................................. 7.10 Campbell v Campbell [2017] EWHC 182 (Ch), [2017] 1 WLUK 484............14.53, 18.41, 18.45 Campbell v Frisbee [2002] EWHC 328 (Ch), [2000] All ER (D) 211 (May).............11.13, 14.16 Campbell v McCreath 1975 SC 81, 1975 SLT (Notes) 5...........................................20.34, 20.35 Campbell v Pownall (1844) 3 LTOS 182......................................................................... 2.31 Campbell v Thompson [1953] 1 QB 445, [1953] 2 WLR 656, [1953] 1 All ER 831....... 2.47 Campion, ex p Brown, Re (1842) 2 Mont D & De G 718.............................................. 23.46 Canada Southern v Amoco (1997) 144 DLR 30.............................................................. 19.75 Canadian Bank of Commerce v Marks (1890) 19 OR 450 (Canada).............................. 20.15 Canadian Grain Co v Mitten [1921] 1 WWR 829, 57 DLR 464..................................... 19.6 Canadian Imperial Bank v Skender [1986] 1 WWR 284................................................. 8.6 Candler v Candler (1821) Jac 225, 37 ER 834................................................................ 4.11 Cannan v Bryce (1819) 3 B & Ald 179, 106 ER 628....................................................... 4.21 Canning v Catling (1864) 4 New Rep 259...................................................................... 2.39 Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321.............................................................................................2.40, 8.36 Cantor v Cox (1976) 239 Estates Gazette 121................................................................ 4.23 Cantor Fitzgerald International v Callaghan [1999] 2 All ER 411, [1999] ICR 639, [1999] IRLR 234.................................................................................................... 14.14 Cantor Fitzgerald v Horkulak sub nom Horkulak v Cantor Fitzgerald [2004] EWCA Civ 1287, [2005] ICR 402, [2004] IRLR 942................................................................ 11.10 Caparo Industries plc v Dickman [1990] 2 AC 605, [1990] 2 WLR 358, [1990] 1 All ER 568......................................................................................................................... 14.53 Caport v Dixon (1904) 6 WALR 71 (Australia).............................................................. 8.30 Carlen v Drury (1812) 1 Ves & B 154, 35 ER 61............................................................ 15.43 Carlisle v Nigra Dock Co (1838) 5 OS 660 (Canada)..................................................... 20.13 Carlyon-Britton v Lumb (1922) 38 TLR 298............................................................11.31, 11.41 Carmichael v Evans [1904] 1 Ch 486..........................................................................11.1, 17.18 Carmichael v Sharp (1882) 1 OR 381 (Canada).............................................................. 17.7 Carnacho v Law Society [2004] EWHC 1673 (Admin)................................................... 4.11 Carnie v Esanda Finance Corpn Ltd (1995) 182 CLR 398.............................................. 15.10 Carr v Smith, Executors of Lee (1843) 5 QB 128, 114 ER 1197...............................14.22, 14.42 Carroll, Re [1902] 2 Ch 175........................................................................................... 19.68 Carter v Boehm, 97 ER 1162, (1766) 3 Burr 1905.......................................................... 11.44 Carter v Whalley, Saunders, Veysey & Jackson (1830) 1 B & Ad 11, 109 ER 691......... 5.6 Carter Bros v Ranouf (1962) 36 ALJR 67.......................................................................8.9, 8.23 Cartesio Oktato es Szolgaltato bt (Case C-210/06) [2009] Ch 354, [2009] 3 WLR 777, [2009] Bus LR 1233................................................................................................ 24.8 Carver v Duncan (Inspector of Taxes) [1985] AC 1082, [1985] 2 WLR 1010, [1985] 2 All ER 645.............................................................................................................. 11.4 Cary v Cary (1862) 10 WR 669...................................................................................... 8.49 Cassels v Stewart (1880–81) LR 6 App Cas 64.................................................. 7.23, 10.1, 10.4, 11.1, 11.6, 11.45, 16.25 Casson Beckman & Partners v Papi [1991] BCC 68, [1991] BCLC 299.......................2.41, 8.23, 11.31, 12.14 Castledine v RSM Bentley Jennison Ltd [2011] EWHC 2363 (Ch).................................. 7.24 Catch a Ride Ltd v Gardner [2014] EWHC 1220 (Ch)................................................... 15.42 Caterpillar Logistics Services (UK) Ltd v Huesca de Crean [2012] EWCA Civ 156, [2012] 3 All ER 129, [2012] CP Rep. 22................................................................ 19.75 Cathcart, Re [1893] 1 Ch 466......................................................................................... 17.12

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Table of Cases para Catlin v Cyprus Finance Corpn (London) Ltd [1983] QB 759, [1983] 2 WLR 566, [1983] 1 All ER 809................................................................................................ 21.7 Cavalier Insurance Co Ltd, Re [1989] 2 Lloyd’s Rep 430................................................ 4.17 Cavander v Bulteel (1873–74) LR 9 Ch App 79...............................................10.9, 10.10, 23.18 Cavendish v Greaves (1857) 24 Beav 163, 53 ER 319..................................................... 21.10 Cave v Robinson, Jarvis & Rolf (a firm) [2002] UKHL 18, [2003] 1 AC 384, [2002] 2 WLR 1107.............................................................................................................. 15.60 Cawthorn v Trickett (1864) 15 CBNS 754...................................................................... 21.3 Cayne v Global Natural Resources plc [1984] 1 All ER 225, [1982] 8 WLUK 53........... 15.37 Cayzer v Beddow [2007] EWCA Civ 644........................................................................2.1, 2.41 Celtec Ltd v Astley [2005] All ER (D) 400 (May)............................................................ 18.25 Certain Ltd Partners in Henderson PFI Secondary Fund II LLP v Henderson PFI Secondary Fund II LP [2012] EWHC 3259 (Comm), [2013] QB 934, [2013] 2 WLR 1297............................................................................................15.10, 24.12, 24.14, 24.16, 24.17 Chafer Ltd v Lilley [1947] LJR 231, 176 LT 22.............................................................. 8.52 Chaff & Hay Acquisition Committee v JA Hemphill & Sons Pty Ltd (1947) 74 CLY 375......................................................................................................................... 1.11 Chahal (Nirmal Singh) v Mahal (unreported, 15 July 2005).......................................2.49, 16.18 Challinor v Juliet Bellis & Co [2013] EWHC 620 (Ch), [2013] 3 WLUK 471................ 15.16 Chambers v Howell (1847) 11 Beav 6, 50 ER 718....................................................11.45, 16.20 Champion v Workman [2001] All ER (D) 212 (Jun)..................................................8.10, 18.35, 18.38, 18.39 Chan v Zacharia (1983) 154 CLR 178...................................................11.2, 11.4, 11.13, 11.29, 11.44, 16.19, 22.17 Chan (Kak Loui) v Zacharia (1984) 154 CLR 178.......................................................... 18.20 Chandroutie v Gajadhar [1987] AC 147, [1987] 2 WLR 1, (1987) 84 LSG 36..........15.61, 18.2, 18.14, 18.16, 18.19, 18.41, 21.6 Chaplin v Smith [1926] 1 KB 198................................................................................... 8.45 Chapman v Beckinton (1842) 3 QB 703, 114 ER 676..................................................... 16.28 Chapman v Great Western Rly Co (1879–80) LR 5 QBD 278.................................12.36, 14.53, 14.59, 14.62 Chapman v Hayman (1885) 1 TLR 397.......................................................................... 8.52 Chappell v Griffith (1885) 53 LT 459........................................................................18.64, 18.66 Chapple v Cadell (1822) Jac 537, 37 ER 953...................................................12.3, 18.34, 18.35 Charge Card Services Ltd (No 2), Re [1989] Ch 497, [1988] 3 WLR 764, [1988] 3 All ER 702.................................................................................................................... 23.10 Charlesworth v Jennings (1864) 34 Beav 96, 55 ER 569.............................................11.44, 14.8 Charlton v Poulter (1753) 19 Ves 148n........................................................................... 17.20 Charit-email Technology Partnership LLP v Vermillion International Investments Ltd [2009] EWHC 388 (Ch), [2009] BPIR 762............................................................. 25.93 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, [2009] 3 WLR 267............................................................................................................. 7.11 Charter plc v City Index [2007] EWCA Civ 1382, [2008] Ch 313, [2008] 2 WLR 950......14.60, 14.61 Chatsworth Investments Ltd v Cussins (Contractors) Ltd [1969] 1 WLR 1, [1969] 1 All ER 143, (1968) 112 SJ 843..................................................................................... 18.32 Chatteris v Isaacson (1887) 57 LT 177..........................................................................5.9, 18.64 Cheema v Jones [2017] EWCA Civ 1706, [2017] 11 WLUK 26, (2018) 159 BMLR 204......................................................................................................................... 7.24 Chelmsford City Football Club (1980) Ltd, Re [1991] BCC 133.................................... 22.43 Cherry v Boultbee (1839) 4 My & Cr 442, 41 ER 171................................................... 23.12 Cheese v Keen [1908] 1 Ch 245...................................................................................... 14.46 Cheeseman v Price (1865) 35 Beav 142, 55 ER 849..................................................17.20, 17.21 Cherney v Neuman [2011] EWHC 2156 (Ch)................................................................. 14.60 Chettiar (ARPL Palaniappa) v Chettiar (PLAR Arunsalam) [1962] AC 294, [1962] 2 WLR 548, [1962] 1 All ER 494.............................................................................. 4.24

liii

Table of Cases para Chetty (decs’d) v Vijauaraghavachariar [1922] 1 AC 488.........................................14.23, 15.55 Chia v Ireland (2000) SASC 47...................................................................................16.1, 16.34 Chief Constable of Hampshire v Southampton City Council (2014) 1/12/2014 CA........ 14.60 Chilton v Cooke & Sons (1877) 37 LT 607.................................................................... 19.32 Chisum Services Pty & the Companies Act 1961, Re (1982) 7 ACLR 614...................... 20.34 Chittick v Maxwell (1993) 18 ALR 728.......................................................................... 19.4 Chitty v Boorman (1890) 7 TLR 43................................................................................ 2.28 Chohan Clothing Co (Manchester) Ltd v Fox Brooks Marshall (The Times, 9 December 1997)................................................................................................................21.27, 21.43 Choil Trading SA v Addax Energy SA [2009] All ER (D) 45 (Oct).................................. 15.4 Choudnri v Palta [1992] BCC 787, [1994] 1 BCLC 184...........................................15.46, 18.44 Choudhury (Ziaul) v Choudhury (Badrul) [2006] EWHC 1837 (Ch).............................. 2.63 Churton v Douglas (1859) John 174, 70 ER 385............................................................ 18.66 Christchurch Pavilion Partnership v Deloitte Touche [2002] UKPC 4, [2002] All ER (D) 39 (Feb).................................................................................................................. 4.23 Christie v Christie [1917] 1 IR 17................................................................................... 8.25 Christie (WJ) & Co v Greer [1981] 4 WWR 34.............................................................. 14.50 Christie, ex p (1804) 10 Ves Jr 105, 32 ER 783.............................................................. 23.11 Christie, Owen & Davies v RAOBGLE Trust Corpn [2011] EWCA Civ 1151................ 2.7 Christopher, ex p Harris, Re (1816) 1 Madd 583, 56 ER 214.....................................8.30, 19.12 Cia de Sequros Imperio v Heath (REBX) Ltd (formerly CE Heath & Co (America) Ltd) [2001] 1 WLR 112, [2000] 2 All ER (Comm) 787, [2000] CLC 1543.................... 15.61 Citadel Management Inc v Thompson [1999] 1 FLR 21, [1998] Fam Law 738, (1998) 95(36) LSG 32........................................................................................................ 19.73 Citic New Zealand v Fletcher (CP583-SW/99) (H Ct, New Zealand).............................. 8.21 CitizenM LND St Paul’s Properties BV v Chil Ltd [2016] EWCA Civ 771, [2016] 7 WLUK 525............................................................................................................. 7.11 City & County Properties Ltd v Kamali [2006] EWCA Civ 1879, [2007] 1 WLR 1219. 21.27 City Equitable Fire Insurance Ltd, Re [1925] Ch 407, [1924] All ER Rep 485................ 14.53 City of London Gaslight & Coke Co v Nicholls (1826) 2 C & P 365............................. 19.12 Clack v Carlon (1861) 30 LJ Ch 639.............................................................................. 19.74 Clark v Clark (1883–84) LR 9 App Cas 733................................................................... 11.44 Clark v Cutland [2003] EWCA Civ 810, [2004] 1 WLR 783, [2003] 4 All ER 733........ 19.63 Clark v Leach (1863) 1 De GJ & Sm 409, 46 ER 163.........................................7.8, 7.10, 16.23, 16.40, 16.41 Clark v Watson 1982 SLT 450........................................................................................ 18.35 Clark v Wilson (1913) 23 WLR 258 (Canada)................................................................ 15.19 Clarke Boyce v Mouat [1994] 1 AC 428, [1993] 3 WLR 1021, [1993] 4 All ER 268..... 19.75 Clarke v Newland [1991] 1 All ER 397.........................................................18.67, 18.72, 18.77 Clarke v Tipping (1846) 9 Beav 284, 50 ER 352............................................................. 14.44 Clarke, ex p Buckley, Re (1845) 14 M & W 469, 153 ER 559....................................... 20.4 Clarke, Re (1838) 3 Deac 201......................................................................................... 23.16 Clarke & Chapman v Hart (1858) 6 HL Cas 633, 10 ER 1443................................15.63, 16.24 Class v Marshall (1885) 33 WR 409............................................................................... 18.43 Clay & Newman v Southern (1852) 7 Exch 717, 155 ER 1137...................................... 21.3 Clayton’s Case (1816) 1 Mer 572..............................................................................19.65, 20.13 Cleather v Twisden (1885) LR 28 Ch D 340................................................................... 19.43 Clegg v Edmondson (1857) 8 De GM & G 787, 44 ER 593.........................11.29, 15.53, 15.62, 15.63, 16.25 Clegg v Fishwick (1849) 1 Mac & G 294, 41 ER 1278....................................10.4, 10.17, 15.40 Clemance v Hollis (1978) 2 NZLR 471.......................................................................... 19.52 Clements v Bowes (1852) 17 Sim 167, 60 ER 1092....................................................14.42, 17.1 Clements v Hall (1858) 2 De G & J 173, 44 ER 954................................................11.47, 15.62 Clements v Norris (1878) LR 8 Ch D 129.................................................................11.29, 12.11 Clements v Udal [2001] BCC 658, [2002] 2 BCLC 606, [2001] BPIR 454................11.31, 15.32 Clifford v Timms [1908] AC 12...................................................................................... 17.20 Clough, Re; Bradford Commercial Banking Co v Cure (1885) LR 31 Ch D 324.........18.2, 19.28 Clugas v Penaluna (1791) 4 Term Rep 466, 100 ER 1122.............................................. 4.8

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Table of Cases para Clyde & Co LLP v Bates van Winkelhof [2011] EWHC 668 (QB), [2012] ICR 928, [2011] IRLR 467..............................................................................................13.26, 15.27 Coasters Ltd, Re [1911] 1 Ch 86..................................................................................... 21.37 Coates v Coates (1821) 6 Madd 287, 56 ER 1100.......................................................... 15.32 Coates v Williams (1852) 7 Exch 205, 155 ER 918........................................................ 2.16 Coatsworth & Cooper Ltd v Schotanus [1962] OR 1118 (Canada)................................ 20.27 Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 WLR 1752, [2008] 4 All ER 713................................................................................................ 2.50 Cobbetts LLP v Hodge [2009] EWHC 786 (Ch), [2010] 1 BCLC 30, (2009) 153(17) SJLB 29...................................................................................................2.33, 11.10, 11.13, 11.14, 14.51 Coca-Cola Fin Corpn v Finsat International Ltd [1998] B 43.......................................... 14.64 Coco v AN Clark (Engineers) Ltd [1968] FSR 415, [1969] RPC 41................................ 11.35 Coco v Clark (1969) RPC 41.......................................................................................... 19.75 Cody v Roth (1909) 28 NZLR 565................................................................................. 8.30 Coffey’s Registered Designs, Re [1982] FSR 227.........................................................8.27, 11.35 Colbeans Palmer Ltd v Stock Affiliates Pty Ltd [1972] RPC 303...............................11.42, 12.26 Coleman v Bellhouse (1859) 9 UCCP 31......................................................................... 12.31 Coleman v Customs & Excise Comrs [1976] VATTR 24................................................ 2.16 Coleman v Mellersh (1850) 2 Mac & G 309, 42 ER 119................................................ 14.46 Coleman Taymar Ltd v Oakes [2001] 2 BCLC 749, (2001) 98(35) LSG 32, (2001) 145 SJLB 209................................................................................................................. 11.33 Coles v Trecothick (1804) 9 Ves Jr 234, 32 ER 592........................................................ 11.44 Coles, Re sub nom Leaf v Coles (1852) 1 De GM & G 417, 42 ER 613.....................17.9, 17.10 Coles (JH) Pty Ltd (in liquidation) v JF Need [1934] AC 82.....................................18.64, 18.66 Coles, Leaf v Coles, Re (1851) 1 De GM & G 171, 42 ER 517...................................... 17.15 Collett & Hubbard v Hubbard (1846) 2 Coop temp Cott 94, 47 ER 1069..................... 21.7 Collie, ex p Adamson, Re (1878) LR 8 Ch D 807........................................................... 20.5 Collie, ex p Manchester & County Bank, Re (1876) LR 3 Ch D 481.............................. 23.16 Collier v Sunday Referee Publishing Co Ltd [1940] 2 KB 647......................................... 14.5 Collins v Barker [1893] 1 Ch 578..................................................................15.41, 15.47, 18.34 Collins v Collins (1858) 26 Beav 306, 53 ER 916, (1858) 28 LJ Ch 186......................... 18.35 Collins v Jackson (1862) 31 Beav 645, 54 ER 1289........................................................ 11.31 Collins v Lane (unreported, 22 June 1999)...................................................................... 16.43 Collins v Young (1853) 21 LTOS 25............................................................................... 15.43 Colvill-Reeves v Canadian Home Publishers (1989) No B289/93 (Ontario).................... 24.10 Commercial Banking Co of Sydney Lt dv Mann [1961] AC 1, [1960] 3 WLR 726, [1960] 3 All ER 482..............................................................................................19.5, 19.6 Commerzbank Aktiengesellschaft v IMB Morgan (unreported, 7 December 2004)......... 19.65 Compagnie Générale Trans-Atlantique v Thomas Law & Co (The Bourgogne) [1899] AC 431................................................................................................................... 21.23 Compania Merabello San Nicholas SA, Re [1973] Ch 75, [1972] 3 WLR 471, [1972] 3 All ER 448.............................................................................................................. 1.14 Companies (Nos 004088 & 004089 of 1986), Titan LG & Titan International Inc, Re (New Law Digest 13 August 1996)......................................................................... 22.88 Company (No 003102 of 1991), ex p Nyckeln Finance Co, Re a [1991] BCLC 539....... 1.14 Company (No 005174 of 1999), Re a [2000] 1 WLR 502, [2000] BCC 698, [2000] 1 BCLC 593.........................................................................................................22.77, 23.23 Company (No 00596 of 1986), Re a [1987] BCLC 133..............................................12.7, 15.42 Company (No 007466 of 2003), Re a [2004] EWHC 60 (Ch), [2004] 1 WLR 1357, [2004] BCC 288..................................................................................................24.34, 25.7 Company (No 007816 of 1994), Re a sub nom Secretary of State for Trade & Industry v Great Western Assurance Co SA [1995] 2 BCLC 539; aff’d [1997] 2 BCLC 685, [1999] Lloyd’s Rep IR 377................................................................................22.20, 22.69 Company, Re a [1999] WLR 1093.................................................................................. 16.43 Comr of State Revenue v Rojoda Pty Ltd [2020] HCA 7................................................8.1, 8.33 Comr of State Taxation v Henschke Pty Ltd [2010] HCA 43.......................................... 16.1 Condliffe v Sheingold [2007] EWCA Civ 1043............................................................... 11.37

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Table of Cases para Conlon v Simms [2006] EWCA Civ 1749, [2008] 1 WLR 484, [2007] 3 All ER 802..........11.12, 11.43, 11.44, 14.4, 14.8, 14.9, 14.51, 14.54 Connaught Income Fund Series 1 (In Liquidation) v Capita Financial Managers Ltd [2014] EWHC 3619 (Comm), [2015] 1 BCLC 241...................................15.9, 16.2, 22.80, 24.1, 24.39 Connell v Bond Corpn Ltd (1992) 8 WAR 353............................................................... 10.1 Connell v Deputy Comr of Taxation (1996) 96 ATR 4505 (W Australia SC).................. 20.4 Connell v Slack (1909) 28 NZLR 560.......................................................................14.17, 14.50 Connelly (C) & Co v Wilbey (Inspector of Taxes) [1992] STC 783................................. 2.19 Connery v Best, Saxby & Co (1884) Cab & El 291........................................................ 2.8 Connors Bros Ltd v Connors [1940] 4 All ER 179.......................................................... 18.73 Const v Harris (1824) Turn & R 496.........................................................7.21, 7.22, 7.24, 11.1, 12.10, 15.33 Constantinople & Alexandria Hotel Co, Re see Ebbett’s Case Construction Engineering (Australia) Pty Ltd v Hexyl Pty Ltd (1985) 58 ALR 411 (Australia)............................................................................................................... 2.42 Continental Bank Leasing Corpn v Canada [1998] 2 SCR 298..............................2.18, 2.19, 4.2 Conway v Wingate [1952] 1 All ER 782, 45 R & IT 319, (1952) 31 ATC 148............... 10.14 Cook v Collingridge (1823) Jac 607, 37 ER 979......................................................14.28, 16.20, 18.20, 18.34 Cook v Deeks [1916] 1 AC 554...................................................................................... 11.10 Cook, ex p (1728) 2 P Wms 500..................................................................................... 23.33 Cooke v Benbow (1865) 3 De GJ & Sm 1, 46 ER 538...........................................9.7, 9.8, 12.32 Cooke v Colcraft (1773) 2 Wm Bl 856............................................................................ 18.70 Cooke & Farquhar v Seeley (1848) 2 Exch 746, 154 ER 691......................................... 21.3 Cookney v Anderson (1862) 32 LJ Ch 305..................................................................... 15.4 Cooley v Wood (unreported, 1993)................................................................................. 1.12 Coomber, Re [1911] 1 Ch 723........................................................................................ 11.2 Coomber v Atkins (1895) 39 SJ 792............................................................................... 15.41 Conway Petronius Clothing Co Ltd [1998] 1 WLR 72, [1978] 1 All ER 185, (1978) 122 SJ 15....................................................................................................................... 11.25 Coope v Eyre (1788) 1 Hy Bl 37..................................................................................... 2.16 Cooper v Critchley [1955] Ch 431, [1955] 2 WLR 510, [1955] 1 All ER 520...............8.1, 8.30, 8.37, 10.4 Cooper v Griffin [1892] 1 QB 740.................................................................................. 10.15 Cooper v Page (1876) 34 LT 90..................................................................................2.35, 16.43 Cooper, Re; Cooper v Cooper (1878) 26 WR 785........................................................... 8.37 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, [1997] 2 WLR 898, [1997] 3 All ER 297.......................................................................14.2, 15.34 Cope v Cope (1885) 52 LT 607....................................................................................... 7.10 Cordova v De Cordova (1878–79) LR 4 App Cas 692.................................................... 18.34 Cork v Cork [1997] 1 EGLR 5, [1997] 16 EG 130......................................................... 8.48 Corpe v Overton (1833) 10 Bing 252, 131 ER 901......................................................... 3.23 Corpn of the London Assurance of Houses & Goods from Fire v Bold (1844) 6 QB 514, 115 ER 192............................................................................................................. 8.7 Corson, ex p De Tastet, Re (1810) 17 Ves Jr 247............................................................ 23.41 Cothay v Fennell (1830) 10 B & C 671, 109 ER 599...................................................... 20.13 Cottington v Fletcher (1741) 2 Atk 155, 26 ER 498....................................................... 4.23 Cotton Crops, Re (1988) 1 Qd 34 (Australia)...........................................................24.30, 24.31 Coughlan (JJ) Ltd v Ruparelia [2003] EWCA Civ 1057, [2004] PNLR 4, (2003) 100(37) LSG 34.....................................................................................................19.9, 19.10, 19.43 Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707, [1999] 2 All ER 457, [1999] EMLR 434.............................................................................................................. 15.61 Countryside Assured Financial Services v Smart [2004] EWHC 1214 (Ch)..................... 18.72 Countrywide Banking Corpn v Brian Norman Dean as Liquidator of CB Sizzlers Ltd (in liquidation) [1998] AC 338, [1998] 2 WLR 441, [1998] BCC 105......................... 19.9

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Table of Cases para Courage Ltd v Crehan (Case C-453/99) [2002] QB 507, [2001] 3 WLR 1646, [2001] All ER (EC) 886................................................................................................4.10, 4.21, 4.22 Coursell v Bond Corpn Pty (1992) 8 WAR 352............................................................... 8.33 Court v Berlin [1897] 2 QB 396....................................................................19.13, 20.19, 20.21, 21.8, 21.9 Courtenay v Wagstaff (1864) 16 CBNS 110.................................................................... 2.6 Coventry (t/a RDC Promotions) v Lawrence [2012] EWCA Civ 26, [2012] 1 WLR 2127, [2012] 3 All ER 168................................................................................................ 18.68 Coventry v Barclay (1863) 3 De GJ & Sm 320, 46 ER 659..............................7.22, 12.19, 14.42 Cowan v Dart (1848) 10 LTOS 466................................................................................ 19.34 Cowan v Wakeling [2008] EWCA Civ 229..................................................................... 15.6 Coward v Phaestos Ltd [2013] EWHC 1292 (Ch).................................2.1, 2.7, 2.15, 8.20, 8.21, 11.6, 11.9 Cowasjee Nanabhoy v Lalbhoy Vullubhoy (1876) ILR 1 Bom 468 (India)...................... 17.23 Cowell v Quilter Goodison Co [1989] IRLR 392............................................................ 2.32 Cowell v Watts (1850) 2 H & Tw 224, 47 ER 1665.................................................15.62, 15.63 Cox v Coulson [1916] 2 KB 177..................................................................................... 2.30 Cox v Hickman (1860) 8 HL Cas 268, 11 ER 431.......................................1.3, 2.12, 2.19, 2.20, 2.36, 19.2, 19.3 Cox v Hubbard (1847) 4 CB 317.................................................................................... 21.3 Cox v Stephens (1863) 11 WR 929................................................................................. 15.8 Cox v Willoughby (1879–80) LR 13 Ch D 863......................................................7.8, 7.10, 8.31 Coxon v Small (unreported, 13 December 2001)......................................................11.26, 11.38 Craddock v Piper (1850) 1 Mac & G 664, 41 ER 1422.................................................. 19.74 Cragg v Ford (1842) 1 Y & C Ch Cas 280, 62 ER 889...............................................12.36, 19.6 Craig v Cole [1964] WAR 257........................................................................................ 18.72 Cramaso LLP v Viscount Reidhaven’s Trustees [2014] UKSC 9, [2014] AC 1093, [2014] 2 WLR 317............................................................................................................. 25.12 Crane v Lewis (1887) 36 WR 480.............................................................................19.19, 21.17 Craven v Craven (1908) 52 SJ 498.................................................................................. 16.28 Craven, Assignees of William & Benjamin Aldred, bankrupts v Edmondson (1830) 6 Bing 734, 130 ER 1463........................................................................................... 22.16 Crawford v Stirling (1802) 4 Esp 207, 170 ER 693......................................................... 19.6 Crawford, ex p Crawford, Re (1873) 28 LT 244.......................................................10.12, 22.14 Crawley BC v Ure [1996] QB 13, [1995] 3 WLR 95, [1996] 1 All ER 724..................... 8.46 Crawshay v Collins (1826) 2 Russ 325, 38 ER 358..................................................12.28, 18.17, 18.42, 22.14 Crawshay v Maule (1818) 1 Swan 4959, 36 ER 479....................................2.39, 7.6, 7.23, 8.26, 16.11, 16.25, 16.28, 17.10, 18.2 Creasey v Breachwood Motors Ltd [1992] BCC 638, [1993] BCLC 480..................20.13, 20.15 Crédit Lyonnais v Russell Jones & Walker [2002] EWHC 1310 (Ch), [2003] Lloyd’s Rep PN 7, [2003] PNLR 2............................................................................................. 19.48 Crédit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144, [1996] 5 Bank LR 233, [1997] CLC 95................................................................................................ 7.19 Crédit Lyonnaise Bank Nederland NV (formerly Generale Bank Nederland NV) v Export Credits Guarantee Department [1998] 1 Lloyd’s Rep 19, [1997] 6 Bank LR 355, (1997) 94(34) LSG 29..................................................................................... 19.51 Crédit Lyonnais Bank Nederland NV (now Generale Bank Nederland NV) v Export Credits Guarantee Department [2000] 1 AC 486, [1999] 2 WLR 540, [1999] 1 All ER 929..............................................................................................................19.45, 19.51 Credit Suisse First Boston (Europe) v Robert Lister [1999] 1 CMLR 710, [1999] ICR 794, [1998] IRLR 700............................................................................................ 18.24 Credit Suisse Asset Management Ltd v Armstrong [1996] ICR 882, [1996] IRLR 450, (1996) 93(23) LSG 35............................................................................................. 12.13 Crescent Farm (Sidcup) Sports Ltd v Sterling Offices [1972] Ch 553, [1972] 2 WLR 91, [1971] 3 All ER 1192..........................................................................................8.71, 21.36 Cribb v Korn (1911) 12 CLR 295................................................................................... 2.62

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Table of Cases para Cricklewood Holdings v Quigley [1992] 1 NZLR 463.................................................... 19.51 Cripps v Comrs of Tax (1999) AATA 937 (Australia)...................................................2.26, 2.39 Cripps v Tappin & Co (1882) Cab & El 13.................................................................... 20.15 Criterion Properties plc v Stratford UK Properties LLC [2002] EWCA Civ 1883, [2003] 1 WLR 2108, [2003] BCC 50................................................................................. 3.2 Criterion Properties plc v Stratford UK Properties LLC [2004] UKHL 28, [2004] 1 WLR 1846, [2004] BCC 570............................................................................................ 19.4 Crittenden v Bayliss [2002] All ER (D) 92 (Jan).............................................................. 4.4 Croft v Day (1843) 7 Beav 84, 49 ER 994...................................................................... 8.57 Croft v Pyke (1733) 3 P Wms 180, 24 ER 1020.............................................................. 18.11 Crommelin v Deputy Comr of Taxation (1998) 39 ATR 377 (Australia Fed Ct).......18.39, 18.53 Crosbie v Guion (1857) 23 Beav 518, 53 ER 203........................................................... 16.28 Crouch & Lydon v IPG Finance Australia Pty (2013) QCA 220..................................... 19.45 Crowder, ex p Nolte, Re (1826) 2 Gl & J 295................................................................. 21.7 Crown Dilmun v Sutton [2004] All ER (D) 222.............................................................. 11.33 Crowson Fabrics Ltd v Rider [2007] EWHC 2942 (Ch), [2008] IRLR 288, [2008] FSR 17........................................................................................................................... 11.10 Croxton’s Case, Re (in the matter of The Oundle Brewery Co & of the Joint Stock Companies Winding Up Acts 1848 & 1849) (1852) 5 De G & Sm 432, 42 ER 685......................................................................................................................... 12.34 Cruikshank v M’Vicar (1844) 8 Beav 106, 50 ER 42..................................................14.24, 18.2 Cruikshank v Sutherland (1922) 128 LT 449.................................................................. 7.22 Cruikshank v Sutherland [1922] All ER Rep 716........................................................8.10, 18.35 Cruttwell v Lye (1810) 17 Ves Jr 335, 34 ER 129........................................................... 8.52 Crystalate Gramophone Record Manufacturing Co Ltd v British Crystalite Co Ltd (1934) 51 RPC 315................................................................................................. 8.57 Cumming & West, ex p Neilson & Craig, Re [1929] 1 Ch 534...................................... 23.3 Cunningham (J & J) Ltd Lucas [1957] 1 Lloyd’s Rep 416...........................................16.11, 19.8 Curl Bros Ltd v Webster [1904] 1 Ch 685....................................................................... 18.66 Curnot & Parkinson, Re (1871) 40 LJ Ch 608................................................................ 7.4 Curran v Carey (1887) 4 Man LR 450............................................................................ 17.7 Curtis v Curtis & Beart [1909] TH 141 (South Africa)................................................... 17.20 Curtis v Perry (1802) 6 Ves Jr 739, 31 ER 1285.............................................................. 4.23 Customer Systems Plc v Ranson [2012] EWCA Civ 841, [2012] IRLR 769, (2012) 156(26) SJLB 31.................................................................................................11.1, 11.10 Customs & Excise Comrs v Allen (unreported, 6 February 2003)................................... 22.53 Customs & Excise Comrs v Barclays Bank plc [2006] UKHL 28, [2007] 1 AC 181, [2006] 3 WLR 1...................................................................................................... 25.70 Customs & Excise Comrs v Lord Fisher [1981] 2 All ER 147, [1981] STC 238.............. 2.16 Cuthbert v Edinborough (1872) 21 WR 98....................................................14.38, 15.63, 15.64 D D & C Builders Ltd v Rees [1966] 2 QB 617, [1966] 2 WLR 288, [1965] 3 All ER 837.20.21 D & K Constructions Pty Ltd v Head (1987) 9 NSWLR 118.......................................... 19.75 DB Rare Books Ltd v Antiqbooks [1995] 2 BCLC 306..............................................11.1, 14.50, 16.12, 17.26 DKLL Solicitors v R & C Comrs [2007] EWHC 2067 (Ch), [2007] BCC 908, [2008] 1 BCLC 112............................................................................................................... 22.55 DPP v McLoughlin [1986] IR 355........................................................................2.20, 2.31, 2.33 DPP v Phillips [1935] 1 KB 391...................................................................................... 4.7 Dacie v John (1824) 13 Price 446, 147 ER 1044............................................................. 11.23 Dadswell v Jacobs (1887) LR 34 Ch D 278..................................................................... 11.24 Daiches v Bluelake Investments Ltd (1985) 17 HLR 543, (1985) 51 P & CR 51, [1985] 2 EGLR 67.............................................................................................................. 15.42 Dale v Hamilton (1846) 5 Hare 369, 67 ER 955............................................................. 8.35 Dale v Hamilton (1847) 2 Ph 266, 41 ER 945.....................................................2.39, 7.3, 11.13

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Table of Cases para Dale v Hamilton (1853) 10 Hare 7, 68 ER 1116............................................................. 18.43 Dale v Powell (1911) 105 LT 291.............................................................................12.33, 12.37 Dallhold Estates (UK) Pty Ltd, Re [1992] BCC 394, [1992] BCLC 621, [1992] EG 18 (CS)......................................................................................................................... 22.42 Dana Gas PJSC v Dana Gas Sukuk Ltd [2017] EWHC 1896 (Comm), [2017] 7 WLUK 70........................................................................................................................... 1.10 Dance v Girdler (1804) 1 Bos & P 34, 127 ER 370, (1804) 1 Bos & PNR 34................. 8.8 Daniel v Cross (1796) 3 Ves Jr 277, 30 ER 1009............................................................ 20.21 Daniell v Sinclair (1880–81) LR 6 App Cas 181.............................................................. 14.46 Daniels v Daniels [1978] Ch 406, [1978] 2 WLR 73, [1978] 2 All ER 89....................... 25.46 Daoud v Boutros [2013] NSWSC 687............................................................................. 2.40 Daraydan Holdings Ltd v Solland International Ltd [2004] EWHC 611 (Ch), [2005] Ch 199, [2004] 3 WLR 1106............................................................................11.36, 19.70 Darby v Darby (1856) 3 Drew 495, 61 ER 992...........................................................7.10, 8.26, 8.37, 18.42 Darby v Meehan (The Times, 25 November 1998)...................................................15.16, 18.66 Davey & Co v Alby United Carbide Factories Ltd (unreported, 1914)............................ 21.4 David & Matthews, Re [1899] 1 Ch 378........................................................8.52, 18.37, 18.41, 18.51, 18.63, 18.65, 18.66 Davidson v Thirkell (1850) 1 Gr 284.............................................................................. 14.48 Davidson v Wayman [1984] 2 NZLR 115 (NZ CA).....................................18.35, 18.36, 18.37, 18.51, 18.63 Davies v Barlow (1881) 2 NSWR (L) 66 (Australia)........................................................ 16.32 Davies v British Geon Ltd [1957] 1 QB 1, [1956] 3 WLR 679, [1956] 3 All ER 389...... 21.27 Davies v Davies (1837) 2 Keen 534, 48 ER 733.............................................................. 16.20 Davies v Davies (1887) LR 36 Ch D 359........................................................................ 18.70 Davies v Games (1879) LR 12 Ch D 813........................................................................ 8.25 Davies v Uratotiu (1995) 6 BPR 13 (NSW Sup Ct).......................................................... 2.21 Davies Flooring (Southern) Ltd, Re see Working Project Ltd, Re Davis v Amer (1854) 3 Drew 64, 61 ER 826................................................................... 15.43 Davis v Davis [1894] 1 Ch 393.............................................................2.2, 2.20, 2.39, 7.2, 8.24, 8.26 Davis v Firman (1902) 28 VLR 53.................................................................................. 11.33 Davis v Hyman & Co (1903) 72 LJKB 426..............................................................21.15, 21.27, 21.43, 21.44 Davis (Reverend Edward) v Spurling (1829) Taml 199, 48 ER 80................................... 14.46 Davison v Donaldson (1881–82) LR 9 QBD 623............................................................ 20.18 Davy v Scarth [1906] 1 Ch 55..........................................................................15.19, 15.46, 18.9 Daw v Herring [1892] 1 Ch 284.....................................................................................7.8, 7.10 Dawes, ex p Willcock, Re (1816) 2 Rose 392.................................................................. 23.42 Dawnay Day & Co Ltd v Braconier d’Alphen [1997] IRLR 285...............................18.62, 18.74 Dawnay Day & Co Ltd v Cantor Fitzgerald International [2000] RPC 669.................... 8.59 Dawson v Beeson (1865) 34 Beav 566, 55 ER 753.......................................................... 18.66 Dawson v Helicopter Exploration Co (1956) 20 WWR 359; revs’d (1957) 8 DLR (2d) 97........................................................................................................................... 2.1 Dawson, Re [1966] 2 NSWLR 211................................................................................. 19.70 Day v Sharp (1846) 7 LTIS 62......................................................................................... 12.25 Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd [2004] EWHC 44 (Comm), [2004] 1 All ER (Comm) 991, [2004] 2 CLC 489....................................4.9, 4.10 Deacon v White & Case (2003) 3 HKLRD 670............................................11.17, 11.40, 14.51, 18.71, 18.74 Dean v MacDowell (1878) LR 8 Ch D 345.....................................................11.5, 11.13, 11.31, 11.35, 11.38, 11.40, 14.37, 14.50, 15.19, 18.68 Dean v Wilson (1878–79) LR 10 Ch D 136...............................................................16.21, 18.3, 18.43, 18.44 Deane v Voluntary Health Insurance Board [1992] 2 IR 319.......................................... 2.15

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Table of Cases para De Beer v Kanaar & Co (No 2) [2002] EWHC 688 (Ch)..........................................19.51, 19.61 De Begnis v Armistead (1833) 10 Bing 107, 131 ER 846.........................................4.2, 4.3, 4.21 De Courcenay’s Estate, Re [1912] 1 IR 341.................................................................... 19.74 Debtor (No 24 of 1935), Re [1936] Ch 292.................................................................... 21.47 Debtor (No 72 of 1982), Re sub nom Debtor (No 26 of 1983), Re [1984] 1 WLR 1143, [1984] 2 All ER 257, (1985) 82 LSG 36................................................................. 21.47 Debtor (No 303 of 1997), Re (The Times, 3 October 2000).....................................12.33, 14.64 Debtor (No 784 of 1991) [1992] Ch 554, [1992] 3 WLR 119, [1992] 3 All ER 376...... 22.20 De Berkom v Smith & Lewis (1793) 1 Esp 29, 170 ER 270............................................ 5.1 Debenham v Phillips (1887) 3 TLR 512.......................................................................... 2.36 Deep Sea Fishery Co’s (Ltd) Claim, Re see Fenwick, Stobart & Co Ltd, Re De Mautort v Saunders (JF) & Saunders (CA) (1830) 1 B & Ad 398, 109 ER 836.....20.3, 21.12 De Mazar v Pybus (1799) 4 Ves Jr 644, [1799] 5 WLUK 34........................................... 8.55 Dempster v Mallina Holdings Ltd (1994) 15 ACSR 1...............................................11.44, 14.10 De Nicols v Curlier (No 2) [1900] 2 Ch 410.................................................................8.31, 8.35 Denison v Fawcett (1958) 12 DLR (2d) 537..................................................11.27, 11.28, 18.44 Denmark Productions Ltd v Boscobel Productions Ltd [1969] 1 QB 699, [1968] 3 WLR 841, [1968] 3 All ER 513........................................................................................ 2.4 Dennehy v Jolly (1874) 22 WR 448................................................................................ 15.23 Dent Co (a partnership) (in administration), Re [2016] EWHC 2650 (Ch), [2017] Ch 422, [2017] 3 WLR 198.......................................................................................... 23.2 De Pol v Cunningham [1974] STC 487, 49 TC 445........................................................ 2.7 Deputy Comr of Taxation v Tuza (1997) 35 ATR 32 (NSW Sup Ct)............................... 2.1 De Renzy v De Renzy [1924] NZLR 1065.....................................................18.11, 18.17, 18.18 Devaynes v Noble see Clayton’s Case Deveney v Crampsey [1969] SCR 267 (Canada SC)......................................................19.5, 19.7 Devon & Somerset Farmers Ltd, Re [1994] Ch 57, [1993] 3 WLR 866, [1994] 1 All ER 717......................................................................................................................... 22.42 Dibbins v Dibbins [1896] 2 Ch 348..................................................................3.27, 7.25, 10.24, 18.34, 19.5 Dickenson v Gross (Inspector of Taxes) (1927) 11 TC 614.............................................  2.5, 7.4 Dickenson v Lockyer (1798) 4 Ves Jr 36, 31 ER 19........................................................ 20.19 Dickinson v Rushmer [2000] EWCA Civ 42................................................................... 14.28 Dickinson v Valpy (1829) 10 B & C 128, 109 ER 399.............................................2.7, 5.5, 7.25 Dickie v Torbay Pharmacy (1986) Ltd [1995] 3 NZLR 429............................................ 2.40 Dickson v MacGregor 1992 SLT (Land Ct) 83..............................................................2.5, 24.25 Dickson v National Bank of Scotland Ltd 1917 SC (HL) 50, 1917 SLT 318...............18.2, 18.27 Dinardo (Roxborough) & Partners’ Judicial Factor v Dinardo 1992 SC 188, 1993 SLT 16........................................................................................................................... 15.18 Dinham v Bradford (1869–70) LR 5 Ch App 519..................................9.7, 12.23, 12.26, 18.17, 18.20, 18.34, 18.35, 18.57 Diplock, Re sub nom Ministry of Health v Simpson [1948] Ch 465, [1948] 2 All ER 318, [1948] LJR 1670.......................................................................................19.64, 19.68 Diversified Mineral Resources v CRA Exploration (1995) ICCLR 6(5) 95–96................ 2.41 Dixon v Dixon [1904] 1 Ch 161..................................................................................... 15.48 Dixon v Wing (1843) 1 LTOS 647.................................................................................. 14.42 D’Jan of London Ltd, Re [1993] BCC 646, [1994] 1 BCLC 561...............................11.10, 25.73 Dobbin v Foster (1844) 1 Car & Kir 323, 174 ER 831................................................... 20.19 Dobson v Festi Rasini & Co [1891] 2 QB 92............................................................21.14, 21.28 Docker v Soames (1834) 2 My & K 655, 39 ER 1095.................................................... 14.28 Dockril v Coopers & Lybrand (1994) 111 DLR (4th) 62..........................................11.23, 15.13 Dodd v Amalgamated Marine Workers’ Union [1924] 1 Ch 116, (1923–24) 17 Ll Rep 50........................................................................................................................... 11.24 Dodds v Walker [1981] 1 WLR 1027, [1981] 2 All ER 609, (1981) 42 P & CR 131...... 16.22 Dodge v Eisenman (1985) 23 DLR (4th) 711.................................................................. 4.2 Dodson v Downey [1901] 2 Ch 620...............................................................10.11, 10.13, 10.14 Doe d Colnaghi v Bluck (1838) 8 C & P 464.................................................................. 8.43

lx

Table of Cases para Doe d Waithman, on the demise of v Miles (1816) 1 Stark 181, 171 ER 439.................. 16.24 Dole Dried Fruit & Nut Co v Trustin Kerwood Ltd [1990] 2 Lloyd’s Rep 309............... 21.10 Dominion Bank of Canada v Palitti [1931] 3 WWR 377 (Canada)................................. 21.12 Dominion Iron & Steel Co Ltd v Invernairn [1927] N 277............................................. 2.57 Donaldson v Williams (1833) 1 Cr & M 345, 149 ER 432.......................................12.11, 19.22 Doody, Re [1893] 1 Ch 129............................................................................................ 19.74 Douglas v Hello! Ltd (No 6) [2003] EWHC 786 (Ch), [2003] 3 All ER 996, [2003] EMLR 31; on appeal [2005] EWCA Civ 595, [2006] QB 125, [2005] 3 WLR 331........... 8.68, 14.51 Douglas v Hello! Ltd sub nom OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC 1, [2007] 2 WLR 920...................................................................................8.68, 18.71, 19.75 Douglas v Patrick (1790) 3 Term Rep 683, 100 ER 802................................................. 19.37 Douglas, Re [1930] 1 Ch 342.......................................................................................... 23.47 Doup v Stewart (1867) 13 Gr 637 (Canada)................................................................... 15.43 Down v Lutz (1954) 12 WWR 407 (Canada).................................................................. 16.24 Downing v Al Tameer Establishment Investment [2002] EWCA Civ 721, [2002] All ER (Comm) 545, [2002] CLC 1291..........................................................................8.54, 15.23 Downs v Chappell [1997] 1 WLR 426, [1996] 3 All ER 344, [1996] CLC 1492............ 14.10 Downs v Collins (1848) 6 Hare 418, 67 ER 1228..............................................7.25, 14.4, 18.34 Downsview Nominees Ltd v First City Corpn Ltd [1993] AC 295, [1993] 2 WLR 86, [1993] 3 All ER 626................................................................................................ 14.53 Dowse v Gorton [1891] AC 190..................................................................................... 10.20 Dowson & Mason Ltd v Potter [1986] 1 WLR 1419, [1986] 2 All ER 418, (1986) 83 LSG 3429................................................................................................................ 14.24 Doyle v Irish National Insurance Co plc [1998] 1 ILRM 502 (Eire)..........................14.12, 14.16 Drake v Beckham see Beckham v Drake Drake v Harvey [2011] EWCA Civ 838, [2012] 1 All ER (Comm) 617, [2012] 1 BCLC 724, [2011] WTLR 1557, [2012] Bus LR D44.........................................7.11, 14.42, 18.35 Draper v Manchester, Sheffield & Lincolnshire Rly Co (1861) 7 Jur NS 86, 45 ER 786, (1861) 3 De GF & J 23........................................................................................... 11.24 Draper, ex p Booth, Re (1832) 1 LK Bcy 81.................................................................... 10.4 Dresser Industries Inc v Digges (1989) WL 139243 (D Md)............................................ 19.45 Dubai Aluminium v Salaam [2002] UKHL 48, [2003] 2 AC 366, [2002] 3 WLR 1913......14.60, 19.9, 19.24, 19.43, 19.44, 19.45, 19.46, 19.48, 19.50, 19.51, 19.53, 19.54, 19.58, 19.59, 19.61, 19.62, 20.5, 20.6 Du Boulay v Raggett (1988) 58 P & CR 138, [1989] 1 EGLR 229................................. 2.42 Duché v Duché (1920) 149 LT Jo 338............................................................................. 11.25 Duckwari plc (No 2), Re [1999] Ch 253, [1998] 3 WLR 913, [1999] BCC 11........11.10, 15.16, 15.18 Duke Group Ltd v Pilmer (1998) 27 ACSR 1.................................................................. 2.1 Duke Group Ltd v Pilmer (1999) 31 ACSR 213; revs’d sub nom Pilmer v Duke Group Ltd [2001] 2 BCLC 773.......................................................................................... 5.3 Duke Group Ltd v Pilmer (1999) 73 SASR 64.................................................................  5.6, 5.7 Dunbar v Harvey [1913] 2 Ch 530................................................................................. 2.49 Duncan v Lowndes & Bateman (1813) 3 Camp 478, 170 ER 1452............................19.3, 19.23 Duncan v The MFV Marigold PD 145 [2006] CSOH 128, 2006 SLT 975, 2007 SCLR 155....................................................................................................................18.2, 18.12, 18.34, 18.42 Dungate v Dungate [1965] 1 WLR 1477, [1965] 3 All ER 818, (1965) 109 SJ 715........ 15.58 Dungate v Lee [1969] 1 Ch 545, [1967] 2 WLR 670, [1967] 1 All ER 241............4.7, 4.11, 4.14 Dunn v Institute of Cemetery Management (2011) UK EAT/0531/10/DA....................... 13.5 Dunne v English (1874) LR 18 Eq 524...........................................................11.14, 11.28, 18.44 Dunlop Pneumatic Tyre Co Ltd v AG für Motor und Motorfahrzeugbau vorm Cudell & Co [1902] 1 KB 342................................................................................................ 21.23 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79............. 7.15

lxi

Table of Cases para Dunwoody Sports Marketing v Prescott [2007] EWCA Civ 461, [2007] 1 WLR 2343, [2007] CP Rep 34................................................................................................... 18.70 Duple Motor Bodies v Ostime (Inspector of Taxes) [1961] 1 WLR 739, [1961] 2 All ER 167, (1961) 39 TC 537........................................................................................... 12.27 Dutia v Geldof [2016] EWHC 547 (Ch), [2016] 3 WLUK 428, [2016] 2 BCLC 252  2.1, 2.32, 2.49, 25.4, 25.12 Dutton v Morrison (1810) 17 Ves Jr 193, 34 ER 75....................................................... 22.14 Dutton Massey & Co, ex p Manchester & Liverpool District Banking Co Ltd, Re [1924] 2 Ch 199................................................................................................................. 23.15 Duvergier v Fellows (1828) 5 Bing 248, 130 ER 1056; aff’d (1832) 1 Cl & Fin 39.......4.21, 4.23 Duxbury v Isherwood (1864) 10 LT 712......................................................................... 15.7 Dyke v Brewer & Tiddy (1849) 2 Car & Kir 828, 175 ER 348.................................20.13, 20.14 Dymoke v Association for Dance Movement Psychotherapy UK Ltd [2019] EWHC 94 (QB), [2019] 1 WLUK 221...............................................................................16.42, 16.43 E EAD Solicitors LLP v Abrams [2015] 6 WLUK 206, [2015] BCC 882, [2016] ICR 380.......13.9, 13.20 EBR Attridge Law LLP (formerly Attridge Law) v Coleman [2009] 10 WLUK 816, [2010] 1 CMLR 28, [2010] IRLR 10...................................................................... 13.9 Eagle Shoe Co Ltd v Thompson (1956) 2 DLR (2d) 755 (Canada)................................. 20.25 Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd’s Rep 357.......... 15.27 Eagle Trust plc v SBC Securities Ltd [1993] 1 WLR 484, [1992] 4 All ER 488............... 19.62 Eardley v Broad (1970) 120 NLJ 432............................................................................8.20, 8.26 Earl of Beauchamp v Winn (1873) LR 6 HL 223............................................................ 14.43 Earl of Dundonald Masterman (1868–69) LR 7 Eq 504.............................................19.9, 19.61 Earl Ranelaugh v Hayes (1683) 1 Vern 189, 23 ER 405.................................................. 18.40 Earle v Cow (1920) 36 TLR 713..................................................................................... 20.18 Easdown v Cobb [1940] 1 All ER 49.............................................................................. 2.33 Eason v Miller [2016] CSOH 59, [2016] 4 WLUK 585, 2016 GWD 13-248.................. 18.34 East v Maurer [1991] 1 WLR 461, [1991] 2 All ER 733................................................. 19.52 East, Re (1914) 111 LT 101............................................................................................ 10.20 Easterbrook v Barker (1870–71) LR 6 CP 1.................................................................... 2.19 Eastern Construction Co v National Trust Co Ltd [1914] AC 197.................................. 19.5 Eastwood v Magox Electric plc [2004] UKHL 35, [2005] 1 AC 503, [2004] 3 WLR 322......................................................................................................................... 25.72 Easum v Easum (1847) 9 LTOS 429............................................................................... 14.46 Eaton v Caulfield [2011] EWHC 173 (Ch), [2011] BCC 386..........................25.6, 25.40, 25.41, 25.44, 25.75 Eaton v Caulfield (No 2) [2013] EWHC 2214 (Ch), [2014] BCC 653............11.13, 25.44, 25.90 Ebbett’s Case sub nom Constantinople & Alexandria Hotel Co, Re (1869–70) 5 Ch App 302......................................................................................................................... 3.23 Ebert v Trustee of the Property of Wolff [1998] Lloyd’s Rep Bank 280........................... 20.9 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, [1972] 2 WLR 1289, [1972] 2 All ER 492......................................................................................................2.61, 11.7, 12.10, 16.42, 17.24 Eckhart v Wilson (1799) 8 Term Rep 140, 101 ER 1311................................................ 10.4 Eden Refuge Trust & others v Hohepa (2010) 3 NZTR 20-009..................................... 24.18 Edgeworth Construction Ltd v ND Lea & Associates Ltd [1993] 3 SCR 206 (Canada SC).......................................................................................................................... 25.70 Edmonds v Lawson [2000] QB 501, [2000] 2 WLR 1091, [2000] ICR 567.................... 2.43 Edmonds v Robinson (1885) LR 29 Ch D 170................................................................ 18.62 Edmonds, ex p, Re (1862) 4 De GF & J 488, 45 ER 1273.............................................. 10.13 Edmondson v Davis (1801) 4 Esp 14, 170 ER 625.......................................................... 4.11 Edmunds v Bushell & Jones (1865–66) LR 1 QB 97....................................................... 19.4

lxii

Table of Cases para Edmundson v Thompson & Blakey (1861) 31 LJ Ex 207........................................2.33, 5.3, 5.6 Edwards v Society of Graphical & Allied Trades (SOGAT) [1971] Ch 354, [1970] 3 WLR 713, [1970] 3 All ER 689.............................................................................. 16.43 Edwards v Standard Rolling Stock Syndicate [1893] 1 Ch 574....................................... 15.39 Edwards v Worboys [1984] AC 724, [1984] 2 WLR 850, [1983] Com LR 151.......18.72, 18.73, 18.76 Eggleston v Ashridge Investments Ltd (unreported, 17 April 1997)................................. 7.19 Ehrmann v Ehrmann (1894) 72 LT 17..........................................................................7.25, 15.8 Ehrmann v Ehrmann (No 2) [1896] 2 Ch 826................................................................. 21.35 Ekins v Brown (1854) Ecc & Ad 400, 164 ER 231......................................................... 10.3 El Ajou v Dollar Land Holdings plc (No 1) [1993] 3 All ER 717, [1993] BCC 698, [1993] BCLC 735.................................................................................19.71, 20.33, 20.34, 20.35, 20.36 Elders Pastoral v Rutherford (1990) 3 NZBLC 101..................................................20.27, 20.30 Elevated Construction Ltd v Nixon [1970] 1 OR 650 (Canada)..................................... 24.10 Elgar, Re (1814) 2 Rose 175............................................................................................ 23.47 Elias v Mitchell [1972] Ch 652, [1972] 2 WLR 740, [1972] 2 All ER 153...................... 8.36 Elite Business Systems v Price (unreported, 27 June 2005).............................................. 5.5 Ell v Harper (1886) 4 NZLR (SC) 307............................................................................ 21.11 Ellerman Lines Ltd v Lancaster Maritime Co Ltd (The Lancaster) [1980] 2 Lloyd’s Rep 497......................................................................................................................... 19.67 Ellery v Imhof [1904] TH 170 (South Africa).................................................................. 18.42 Ellesmere Brewery Co v Cooper [1896] 1 QB 75............................................................ 14.61 Ellins, ex p Hickin, Re (1850) 3 De G & Sm 662, 64 ER 651.......................................2.20, 2.34 Elliot v Brown (1791) 3 Swan 489n................................................................................ 10.3 Ellis v Coleman (unreported, 10 December 2004)........................................................... 15.23 Ellis v Joseph Ellis & Co [1905] 1 KB 324, [1905] 1 WLUK 38...................................... 2.32 Ellis v Steele (1855) 25 LTOS 183................................................................................... 20.14 Ellis v Wadeson [1899] 1 QB 714..................................................................21.15, 21.18, 21.41 Ellis v Ward (1872) 21 WR 100...................................................................................... 2.8 Elmslie v Beresford [1873] WN 152................................................................................ 15.32 Elton, ex p (1796) 3 Ves Jr 238, 30 ER 988.................................................................... 23.42 Emanuel v Symon [1908] 1 KB 302..............................................................................1.14, 10.4 Emerson (Emerson’s Executrix) v Estate of Emerson [2004] EWCA Civ 170, [2004] 1 BCLC 575, (2004) 101(10) LSG 27...........................................................11.4, 18.9, 18.16 Emersub XXXVI Inc v Wheatley (unreported, 14 July 1998).......................................... 18.73 England v Curling (1844) 8 Beav 129, 50 ER 51...................................................2.8, 7.21, 7.22, 14.2, 14.3 English v Dedham Vale Properties Ltd [1978] 1 WLR 93, [1978] 1 All ER 382, (1978) 35 P & CR 148....................................................................................................... 11.44 English & American Bank, Re see Fraser Trenholm, Re English Insurance Co Ltd v National Benefit Assurance Co Ltd [1929] AC 114, (1928) 31 Ll Rep 321.......................................................................................................2.19, 2.33 Ensign Tankers (Leasing) Ltd v Stokes (Inspector of Taxes) [1992] 1 AC 655, [1992] 2 WLR 469, [1992] 2 All ER 275..............................................................................2.5, 2.16 Entwisle, ex p Kennedy, Re (1852) 2 De GM & G 228, 42 ER 859................................ 23.42 Epsley v Williams [1997] 1 EGLR 9, [1997] 08 EG 137, [1996] EG 161 (CS)..........18.72, 18.73 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471.................... 2.5 Erlanger v New Sombrero Phosphate Co (1877–78) 3 App Cas 1218.......................14.54, 15.61 Ernst & Young v Butte Mining plc (No 2) [1997] 1 WLR 1485, [1997] 2 All ER 471, [1997] 1 Lloyd’s Rep 313.................................................................................21.21, 21.23, 21.24, 21.25 Ernst & Young v Falconi (1994) 17 OR (3d) 512........................................................... 19.61 Ernst & Young v Stuart (1997) 144 DLR (4th) 328........................................................ 14.50 Eslin v Hay (1884) 15 LR Ir 431.....................................................................................9.8, 11.9 Essell v Hayward (1860) 30 Beav 158, 54 ER 849......................................................17.6, 17.18 Essex v Essex (1855) 1 De GJ & Sm 409, 52 ER 674, 20 Beav 442.......................7.8, 7.10, 8.31

lxiii

Table of Cases para Essop v Home Office (UK Border Agency) [2017] UKSC 27, [2017] 1 WLR 1343, [2017] 3 All ER 551........................................................................................................... 13.10 Esso Petroleum Co Ltd v Harper’s Garage (Southport) Ltd [1968] AC 269, [1967] 2 WLR 871, [1967] 1 All ER 699............................................................................4.9, 16.36 Estate Realities v Wignall [1991] 3 NZLR 482..........................................................19.9, 19.53, 19.61, 20.4 Eurocruit Ltd, Re; Goldfarb v Poppleton [2007] EWHC 1433 (Ch), [2008] Bus LR 146, [2007] BCC 916...................................................................................................... 25.98 Euro-Diam Ltd v Bathurst [1990] 1 QB 1, [1988] 32 WLR 517, [1988] 2 All ER 23  4.8, 4.17, 4.19, 4.23, 4.24 Eurofood IFSC Ltd, Re (Case C-341/04) [2006] Ch 508, [2006] 3 WLR 309, [2006] All ER (EC) 1078......................................................................................................... 22.90 European Society Arbitration Acts, ex p Liquidators of the British Nation Life Assurance Association, Re (1878) LR 8 Ch D 679.................................................................3.2, 19.31 European Strategic Bureau Ltd v Technomark Consulting Services (unreported, 20 June 1995)...................................................................................................................... 2.40 Evans v Clayhope Properties Ltd [1988] 1 WLR 358, [1988] 1 All ER 444, (1988) 4 BCC 27.............................................................................................................15.46, 15.47 Evans v Coventry (1854) 4 De GM & G 911, 43 ER 1125............................................. 15.42 Evans v Coventry (1857) 8 De GM & G 835, 44 ER 612............................................... 12.32 Evans v Holmes (1922) 2 WWR 696 (Canada)............................................................... 14.42 Evans v Yeatherd (1824) 2 Bing 133, 130 ER 256.......................................................... 12.34 Evans, Re (1887) LR 34 Ch D 597.................................................................................. 10.20 Evans (C) & Son Ltd v Spritebrand Ltd [1983] QB 310, [1985] 1 WLR 317, [1985] 2 All ER 415.............................................................................................................. 25.70 Evening Standard Co Ltd v Henderson [1987] ICR 588, [1987] IRLR 64, [1987] FSR 165...................................................................................................................15.32, 15.34 Everett v Williams (1874) 29 LT 846.....................................................................3.23, 4.1, 4.21 Everingham v Everingham (1911) 12 SRNSW 5 (Australia)......................................11.44, 11.45 Ewens, ex p Hemaman (1848) 12 Jur 643....................................................................... 20.3 Ewing v Buttercup Margarine Co Ltd [1917] 2 Ch 1, (1917) 34 RPC 232......................5.9, 8.58 Ewing & Co v Ewing (1882–83) LR 8 App Cas 822....................................................... 8.2 Ewing v Osbaldiston (1837) 2 My & Cr 53, 40 ER 561.................................................4.3, 4.21 Exeter City Associated Football Club v Football Conference [2004] EWHC 831 (Ch), [2004] 1 WLR 2910, [2004] 4 All ER 1179.....................................................15.23, 15.27, 22.19, 25.42 Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323, [2003] All ER (Comm) 830, [2003] EMLR 25.............................................................................. 18.68 F F&C Alternative Investments (Holdings) Ltd v Barthelemy [2011] EWHC 1731 (Ch), [2012] Ch 613, [2012] 3 WLR 10............................................................11.1, 14.53, 25.72 FA & AB Ltd v Lupton (Inspector of Taxes) [1972] AC 634, [1971] 3 WLR 670, [1971] 3 All ER 948........................................................................................................... 2.5 FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, [2015] AC 250, [2014] 3 WLR 535................................................................................... 11.37 FHR European Ventures LLP v Mankarious [2011] EWHC 2308 (Ch).......................... 11.14 FSA v Fradley & Woodward (t/a Top Bet Placement Service) [2005] EWCA Civ 1183, [2006] 2 BCLC 616................................................................................................ 24.38 Faccenda Chicken Ltd v Fowler [1987] Ch 117, [1986] 3 WLR 288, [1986] 1 All ER 617.....................................................................................................................8.68, 11.10 Fagenblat v Feingold (unreported, 17 December 2001)................................................... 18.37 Fairstar Heavy Transport NV v Adkins [2012] EWHC 2952 (TCC), [2012] 2 CLC 795, [2012] Info TLR 39................................................................................................ 8.11 Fairthorne v Weston (1844) 3 Hare 387, 67 ER 432....................................................... 15.35

lxiv

Table of Cases para Famatina Development Corpn Ltd, Re [1914] 2 Ch 271................................................. 12.14 Family Endowment Society, Re (1869–70) LR 5 Ch App 118......................................... 18.32 Faraday (Michael), Rodgers & Eller v Carter (1927) 11 TC 565..................................7.5, 16.14 Faramus v Film Artistes’ Association [1964] AC 925, [1964] 2 WLR 126, [1964] 1 All ER 25...................................................................................................................... 16.43 Farey v Cooper [1927] 2 KB 384.................................................................................... 18.66 Farmer’s Mart Ltd v Milne [1915] AC 106, 1914 SC (HL) 84, 1914 2 SLT 153.............4.3, 4.21 Farquhar v Hadden (1871–72) LR 7 Ch App 1...........................................................10.1, 10.23 Farrar v Beswick (1836) 1 Mood & R 527, 174 ER 182................................................. 10.2 Farrar v Deflinne (1843) 1 Car & Kir 580, 174 ER 946............................................20.27, 20.30 Farrar, Calverley v Hutchinson (1839) 9 Ad & El 641, 112 ER 1355............................. 21.37 Faulks v Faulks [1992] 1 EGLR 9, [1992] 15 EG 15...................................................8.11, 18.34 Fawcett v Whitehouse (1829) 1 Russ & M 132, 39 ER 51..........................................2.41, 11.36 Fear & Coward, ex p Hare, Re (1835) 2 Mont & A 478................................................ 8.26 Featherstone v Cooke (1873) LR 16 Eq 298................................................................... 15.42 Featherstone v Staples [1986] 1 WLR 861, [1986] 2 All ER 461, (1986) 52 P & CR 287........................................................................................................... 8.48, 11.8, 19.29 Featherstonehaugh v Fenwick (1810) 17 Ves Jr 298, 34 ER 115............11.4, 11.7, 11.29, 11.33, 16.25, 18.11, 18.17, 18.42 Featherstonehaugh v Turner (1858) 25 Beav 382, 53 ER 683......................................... 18.62 Federal Comr of Taxation v Everett (1980) 28 ALR 179 (Australia)............................... 10.1 Federal Comr of Taxation v Jeffries (1980) 80 ATC 284................................................. 16.1 Feetum v Levy sub nom Cabvision v Feetum [2005] EWCA Civ 1601, [2006] Ch 585, [2006] 3 WLR 427.................................................................................25.1, 25.52, 25.102 Fennell v Foot Anstey LLP (unreported, 28 July 2016).................................................... 13.9 Fennelly v Connex South Eastern Ltd [2001] IRLR 390.................................................. 19.54 Fenston v Johnstone (Inspector of Taxes) (1940) 23 TC 29.............................................2.1, 2.31 Fenwick, Stobart & Co Ltd, Re sub nom Deep Sea Fishery Co’s (Ltd) Claim, Re [1902] 1 Ch 507...........................................................................................................20.34, 20.41 Feredat v Wrightwick (1829) 1 Russ & M 45, 39 ER 18................................................ 8.26 Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR 1213, [1976] 3 All ER 817, [1976] 2 Lloyd’s Rep 669.................................................................... 2.33 Ferguson v Mackay 1984 SC 115, 1985 SLT 94............................................................. 14.50 Fergusson v Fyffe (1841) 8 Cl & Fin 121, 8 ER 49......................................................... 20.21 Ferns v Carr (1885) LR 28 Ch D 409.............................................................................. 18.62 Ferns v West [2019] EWHC 141 (TCC), [2019] 1 WLUK 148........................................ 8.55 Financial Conduct Authority (a Company Ltd by Guarantee) v Capital Alternatives Ltd (26 March 2018) [2018] 3 WLUK 623................................................................... 24.39 Financial Services Compensation Scheme v Abbey National Treasury Services plc (2009) Bus LR 465............................................................................................................. 22.80 Finlayson v Turnbull (No 1) 1997 SLT 613.....................................................8.11, 11.13, 11.17, 11.32, 12.14 Finley v Connell Associates [1999] Lloyd’s Rep PN 895................................................. 20.9 Finnegan (Rosemary) & McAreavey (Patrick), In the matter of the arbitration between (2002) NI QB 24...............................................................................................18.34, 18.37 Fiona Trust & Holding Corpn v Privalov [2007] EWCA Civ 20, [2007] Bus LR 686, [2007] 1 All ER (Comm) 891.................................................................................. 15.23 Firmin & Sons Ltd v International Club (1889) 5 TLR 612............................................ 2.48 First Bespoke Ltd Partnership v Hadjigeorgiou [2015] 6 WLUK 403.............................. 25.70 First County Garages Ltd v Fiat Auto (UK) Ltd [1997] Eu LR 712................................. 4.10 First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194, [1993] BCC 533, [1993] BCLC 1409...................................................................... 19.3 First National Finance Corpn Ltd v Goodman [1983] BCLC 203, [1983] Com LR 184. 8.7, 8.8 Firth v Amslake (1964) 108 SJ 198...........................................................................2.1, 2.8, 7.8, 7.24, 16.26 Fisher v Bridges (1854) 3 E & B 642, 118 ER 1283........................................................ 4.21 Fisher v Brooker [2009] UKHL 41, [2009] 1 WLR 1764, [2009] Bus LR 1334.............. 15.61

lxv

Table of Cases para Fisher v Melles (1874) LR 18 Eq 268n............................................................................ 17.10 Fisher v Tayler (1843) 2 Hare 218, 67 ER 91; on appeal (1843) 2 LTOS 205................. 19.16 Fisher & Sons, Re [1912] 2 KB 491...............................................................................2.19, 3.9, 10.20, 23.57 Fitch v Dewes [1921] 2 AC 158................................................................................18.73, 18.76 Fivegrange v Customs & Excise Comrs (LON/89/1631Y) (VAT Tribunal)............2.2, 2.19, 2.31, 2.34, 2.39 Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch), [2015] Bus LR 1172, [2016] 1 BCLC 177....................................................................14.12, 25.41, 25.72, 25.78, 25.79 Flavell, Re; Murray v Flavell (1883) LR 25 Ch D 89....................................................... 7.25 Fletcher v Ashburner (1779) 1 Bro CC 497, 28 ER 1259................................................ 8.37 Fleming v Mckechnie & McMillan (1906) 25 NZLR 216 (New Zealand)...................... 11.38 Flemyng v Hector Esq MP (1836) 2 M & W 172, 150 ER 716....................................... 2.47 Fliway-AFA International Pty Ltd, Re (1992) 39 FCR 446...................................2.20, 2.31, 2.42 Flockton v Bunning (1868) 8 Ch App 323n.................................................................... 19.71 Flogas Britain Ltd v Calor Gas Ltd [2013] EWHC 3060 (Ch), [2014] FSR 34................ 14.51 Flowers & Co, Re (1897) 65 LJQB 679.......................................................................... 21.27 Floydd v Cheney [1970] Ch 602, [1970] 2 WLR 314, [1970] 1 All ER 446..........2.2, 8.68, 11.1, 11.13, 11.25, 15.32, 15.40, 15.43 Flude Ltd v Goldberg [1916] 1 KB 662........................................................................... 21.41 Flynn v Robin Thompson & Partners (2000) 97(6) LSG 36, (2000) 144 SJLB 102....15.3, 19.45, 19.54 Flynn (decs’d), Re (No 2) [1969] 2 Ch 403, [1969] 2 WLR 1148................................... 15.58 Footman Bower & Co Ltd, Re [1961] Ch 443, [1961] 2 WLR 667, [1961] 2 All ER 161......................................................................................................................... 15.59 Forbes v Marshall (1855) 11 Exch 166, 156 ER 788....................................................19.2, 19.3 Force India Formula One Team Ltd v 1 Malaysia Racing Team Sdn Bhd [2013] EWCA Civ 780, [2013] RPC 36......................................................................................... 14.51 Ford v Foster (1871–72) LR 7 Ch App 611..................................................................... 18.66 Ford v Whitmarsh (1840) H & W 53.............................................................................. 5.5 Fore Street Warehouse Co Ltd v Durrant & Co (1882–83) LR 10 QBD 471.................. 21.26 Foreman v Chambers (2007) 284 DLR (4th) 210............................................................ 2.41 Foreman v King [2008] EWHC 592 (Ch), [2008] 3 WLUK 574..................................... 11.30 Forensic Telecommunications Services Ltd v Chief Constable of West Yorkshire [2011] EWHC 2892 (Ch), [2012] FSR 15.......................................................................... 8.68 Forman & Co Pty v The Liddesdale [1900] AC 190....................................................... 19.7 Forman v Homfray (1813) 2 Ves & B 329, 35 ER 344................................................... 15.6 Forrester v Robson’s Trustees (1875) 2 R 775.................................................................8.9, 8.23 Forster v Hale (1800) 5 Ves Jr 308, 31 ER 603.............................................................8.20, 8.35 Forster v Mackreth (1866–67) LR 2 Exch 163..........................................................19.16, 19.43 Fort, ex p Schofield, Re [1897] 2 QB 495........................................................................ 23.7 Fortress Value Recovery Fund I LLC v Blue Skye Special Opportunities Fund LP [2013] EWCA Civ 367, [2013] 1 WLR 3466, [2013] 2 All ER (Comm) 315..................... 15.23 Fortune v Young 1918 SC 1, 1917 2 SLT 150.............................................................19.1, 19.23 Foskett v McKeown [2001] 1 AC 102, [2000] 2 WLR 1299, [2000] 3 All ER 97........... 19.65 Foss v Harbottle (1843) 2 Hare 461, 67 ER 189, [1843] 3 WLUK 93......................25.46, 25.65 Foster v Driscoll [1929] 1 KB 470...................................................................................4.8, 4.21 Foster v Hodgson (1812) 19 Ves Jr 180, 34 ER 485........................................................ 15.50 Foster v Mitchell (1912) 22 OWR 571 (Canada)............................................................ 9.7 Foster v Stamps Comr [1966] WAR 144......................................................................... 8.52 Foster, ex p Dickin, Re (1875) LR 20 Eq 767.................................................................. 23.17 Foster-down Ltd, Re see Working Project Ltd, Re Fowler v Wyatt (1857) 24 Beav 232, 53 ER 347............................................................. 14.35 Fox v Clifton, Wickey, Levi, Green, Hartley, Plummer & Fennell (1830) 6 Bing 776, 130 ER 1479.................................................................................................................. 5.2 Fox v Cliftons (1812) 9 Bing 115, 131 ER 558, [1832] 1 WLUK 287............................. 10.23

lxvi

Table of Cases para Fox, Re; Brunker v Fox (1915) 49 ILT 224..................................................................... 8.29 France v Dutton [1891] 2 QB 208................................................................................... 19.42 France & Hill v White & Williams (1839) 6 Bing NC 33, 133 ER 13............................. 21.10 Frank Mills Mining Co, Re (1883) 23 Ch D 52, [1883] 1 WLUK 50.............................. 7.22 Frankland v M’Gusty (1830) 1 Knapp 274..................................................................... 19.17 Franklin & Swathling’s Arbitration, Re [1929] 1 Ch 238............................................7.25, 15.21 Fraser v Kershaw (1856) 2 K & J 496, 69 ER 878.......................................................... 18.2 Fraser v Thames Television Ltd [1984] QB 44, [1983] 2 WLR 917, [1983] 2 All ER 101......................................................................................................................... 8.68 Fraser Trenholm, Re sub nom English & American Bank, Re (1868–69) 4 Ch App 49... 23.15 Fraser, ex p , Re [1892] 2 QB 633.............................................................................5.1, 5.6, 5.7, 20.26, 20.29 Fraser Edmiston Pty Ltd v AGT (Qld) Pty [1988] 2 Qd R1 (Australia)..........11.12, 11.29, 11.43 Frawley v Neill [2000] CP Rep 20, (1999) 96(12) LSG 33, (1999) 143 SJLB 98............. 15.61 Freedlander v Bateman 1953 SLT (Sh Ct) 105, (1953) 69 Sh Ct Rep 311.....................4.22, 8.54 Freeland v Stansfeld (1854) 2 Sm & G 479, 65 ER 490.................................................. 15.43 Freeman v Cooke (1848) 2 Exch 654, 154 ER 652......................................................... 5.6 Freeman, Jefcock, Tranter, Tranter & Butt v Fairlie (1817) 3 Mer 24, 36 ER 10.......10.17, 11.23 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, [1964] 2 WLR 618, [1964] 1 All ER 630........................................................................... 19.3 Freeth v Burr (1873–74) LR 9 CP 208............................................................................ 14.14 French v Andrade (1796) 6 Term Rep 582, 101 ER 715................................................. 21.11 French v Styring (1857) 2 CBNS 357...................................................................2.30, 2.39, 8.26 Fried v National Australia Bank (2001) FCA 907........................................................... 19.10 Friend v Young (1897) 2 Ch 421..............................................................................15.50, 15.59, 20.19, 20.23 Friends’ Provident Life & Pensions Ltd v Evans [2006] EWCA Civ 581...................19.49, 20.19 Friends’ Provident Life Office v Hillier Parker May & Rowden [1997] QB 85, [1996] 2 WLR 123, [1995] 4 All ER 260........................................................................14.60, 14.61 Fromont v Coupland (1824) 2 Bing 170, 130 ER 271..........................................2.39, 8.26, 10.4 Frost v Moulton (1856) 21 Beav 596, 25 ER 990........................................................... 6.5 Frowde v Williams (1886) 56 LJQB 62.........................................................................2.20, 2.35 Fry v Oddy [1999] 1 VR 557....................................................................................18.11, 18.17 Fryer v Ewart [1902] AC 187.......................................................................................... 16.30 Fryer, Re (1857) 3 K & J 317, 69 ER 1129.................................................................19.9, 19.59 Fuld (decs’d) (No 4), in the estate of, Re [1968] P 727, [1967] 3 WLR 314, [1967] 2 All ER 649.................................................................................................................... 10.9 Fulham Football Club (1987) v Richards [2010] EWHC 3111 (Ch), [2011] Ch 208, [2011] 2 WLR 1055...............................................................................15.23, 15.27, 25.42 Fuller’s Contract, Re [1933] Ch 652......................................................................8.1, 8.36, 18.2 Fullston v Dignan (1999) 75 SASR 367........................................................................... 18.34 Fulwell v Bragg (1982) 127 SJ 171.................................................................14.12, 14.15, 14.16 Furnival v Weston (1822) 7 Moore CP 356..................................................................... 19.19 Fyson v Miller (1833) 2 LJ Ch 158................................................................................. 15.43 G GE Capital Corporate Finance Group Ltd v Bankers Trust Co [1995] 1 WLR 172, [1995] 2 All ER 993, (1994) 91(37) LSG 50........................................................... 15.12 GHLM Trading Ltd v Maroo [2012] EWHC 61 (Ch), [2012] 2 BCLC 369................11.1, 11.17 Gabriel v Evill (1842) 9 M & W 297, 152 ER 125.........................................................7.4, 7.25 Gadd v Gadd [2002] EWCH Civ 838............................................................................. 18.35 Gaiman v National Association for Mental Health [1971] Ch 317, [1970] 3 WLR 42, [1970] 2 All ER 362................................................................................................ 16.43 Galbraith v McDougall (1913) 24 OWR 234 (Canada).................................................. 12.29 Gallagher v Schultz [1988] 2 NZBLC 103 (New Zealand)............................................5.4, 14.53 Galmerrow Securities Ltd v National Westminster Bank (unreported, 20 December 1990)... 19.75

lxvii

Table of Cases para Galt Ltd v Cronsberry (1914) 27 WLR 44 (Canada)....................................................... 20.15 Gander v Murray (1907) 5 CLR 575.............................................................................. 10.4 Garbett v Veale & Lowe (1843) 5 QB 408, 114 ER 1303............................................... 10.1 Gardiner v Moore [1969] 1 QB 55, [1966] 3 WLR 786, [1966] 1 All ER 365................ 20.9 Gardner v M’Cutcheon (1842) 4 Beav 543...............................................................11.31, 11.39 Gardner (John) & Bowring, Hardy & Co Ltd v IRC (1930) 15 TC 602......................... 2.18 Garland v Jacomb (1872–73) LR 8 Exch 216................................................................. 19.17 Garner v Murray [1904] 1 Ch 57..............................................................................12.31, 18.61 Garwood v Garwood (1911) 105 LT 231......................................................12.19, 14.24, 18.16 Garwood’s Trusts, Re; Garwood v Paynter [1903] 1 Ch 236.......................................... 10.11 Gates v R Bill & Son [1902] 2 KB 38.............................................................................. 19.48 Gaunt v Taylor (1843) 2 Hare 413, 67 ER 170............................................................... 19.16 Gavaghan v Edwards [1961] 2 QB 220, [1961] 2 WLR 948, [1961] 2 All ER 477......... 19.42 Gay v Perry (1905) 25 NZLR 285 (New Zealand)......................................................15.19, 17.7 Geddes v Wallace (1820) 2 Bligh 270.........................................................2.30, 2.32, 2.33, 7.22, 12.31, 12.37 Gedge v Royal Exchange Assurance Corpn [1900] 2 QB 214......................................... 4.16 Geisel v Geisel (1990) 72 DLR (4th) 245........................................................................ 14.53 Geller & Honischer, ex p , Re (1817) 2 Madd 262, 56 ER 331....................................... 23.42 General Billposting Co Ltd v Atkinson [1909] AC 118................................................... 14.16 General Mediterranean Holdings SA v Patel [2000] 1 WLR 272, [1999] 3 All ER 673, [1999] CPLR 425.................................................................................................... 8.69 Generale Bank Nederland NV v Export Credits Guarantee Department see Crédit Lyonnaise Bank Nederland NV (formerly Generale Bank Nederland NV) v Export Credits Guarantee Department [1998] 1 Lloyd’s Rep 19, [1997] 6 Bank LR 355, (1997) 94(34) LSG 29 Geraghty v Minter (1979) 26 ALR 141.......................................................................8.52, 18.72 German Date Coffee Co, Re (1881–82) LR 20 Ch D 169............................................... 17.24 German Mining Co, ex p Chippendale, Re (1853) 4 De GM & G 19, 43 ER 415....12.34, 12.35 Gerson (Leasing) Ltd v Greatsunny Ltd [2010] All ER (D) 154 (Jun), [2010] EWHC 1887 (Ch), [2010] Ch 558...................................................................................... 16.24 Gething v Keighly (1878) LR 9 Ch D 547................................................................14.29, 14.45, 14.46, 14.49 Gharavi-Nakhjavani v Pelagias [2014] EWCA Civ 1699................................................. 14.25 Gibb Australia Pty Ltd v Cremar Pty Ltd (1992) 108 FLR 129...................................8.20, 11.29 Gibson v Lupton (1832) 9 Bing 297, 131 ER 626........................................................... 2.18 Gibson v Tyree (1900) 20 NZLR 278............................................................................. 11.38 Gieve, ex p Shaw, Re [1899] WN 41....................................................................2.28, 23.6, 23.7 Gifford v Nash (unreported, 9 June 2009)............................................................8.5, 8.55, 18.42 Gilbert Rowe, The see Rowan Companies Inc v Lambert Eggink Offshore Transport Consultants VOF (The Gilbert Rowe) (No 1) (1997) 2 Lloyd’s Rep 218 Gilchrist v Douglas [1924] 1 DLR 38.............................................................................. 19.11 Gilchrist Manufacturing Co Ltd v International Junk Co [1931] 1 DLR 595 (Canada).. 2.19 Giles v Rhind [2008] EWCA Civ 118, [2009] Ch 191, [2008] 3 WLR 1233................... 15.60 Giles v Thompson [1994] 1 AC 142, [1993] 2 WLR 908, [1993] 3 All ER 321.............. 4.4 Gillan v Morrison (1847) 1 De G & Sm 421, 63 ER 1131.............................................. 12.37 Gillespie, executor of Crawford, decs’d v Hamilton (1818) 3 Madd 251, 56 ER 501..... 16.28 Gillet v Thornton (1874–75) LR 19 Eq 599................................................................7.10, 15.23 Gillingham v Beddow [1900] 2 Ch 242.....................................................................15.32, 18.66 Ginesi v Cooper & Co (1880) LR 14 Ch D 596.............................................................. 8.52 Gisborne v Burton [1989] QB 390, [1988] 3 WLR 921, [1988] 3 All ER 760................. 2.5 Gissing v Gissing [1971] AC 886, [1970] 3 WLR 255, [1970] 2 All ER 780...............8.23, 12.33 Glasdir Copper Mines Ltd, Re [1906] 1 Ch 365............................................................. 15.47 Glasscott, ex p Gurney, Re (1842) 2 Mont D & De G 541, 59 ER 892.......................... 20.22 Glassington v Thwaites (1823) 1 Sim & St 124..........................................................8.68, 11.35, 11.38, 11.40 Gleadow v Hull Glass Co (1849) 13 Jur 1020, 15 ER 513, (1852) 15 Beav 200.......12.34, 12.36 Glyn v Hood (1859) 1 Giff 328; aff’d (1860) 1 De GF & J 334................................10.10, 10.12

lxviii

Table of Cases para Gnitrow Ltd v Cape plc [2000] 1 WLR 2327, [2000] 3 All ER 763, [2001] CP Rep 21.. 15.13 Goddard v Mills (The Times, 16 February 1929)............................................................2.1, 2.46 Goldcorp Exchange Ltd (in receivership), Re [1995] 1 AC 74, [1994] 3 WLR 199, [1994] 2 All ER 806............................................................................................11.2, 19.66 Golder v Le Quesne & Thacker (unreported, 1993)........................................................ 1.12 Goldfarb v Bartlett & Kremer (a firm) [1920] 1 KB 639..........................................20.19, 20.20, 20.24, 21.15 Goldup v Cobb [2017] EWHC 526 (Ch), [2017] 3 WLUK 464.........................8.11, 8.23, 11.31 Golstein v Bishop [2014] EWCA Civ 10, [2014] Ch 455, [2014] 2 WLR 1448, [2014] 3 All ER 397............................................................................................14.12, 14.14, 14.17, 14.50, 15.61, 16.42 Good v Parry [1963] 2 QB 418, [1963] 2 WLR 846, [1963] 2 All ER 59....................... 15.58 Goodchild v Taylor [2018] EWHC 2946 (Ch), [2018] 7 WLUK 795........................18.34, 18.41 Goodchilds & Co, ex p Sillitoe, Re (1824) 1 Gl & J 374..........................................23.39, 23.48 Goode & Bennion v Harrison (1821) 5 B & Ald 147, 106 ER 1147............................... 3.23 Goodman v Sinclair (The Times, 24 January 1951)......................................................... 17.19 Goodman v Whitcomb (1820) 1 Jac & W 589, 37 ER 492.......................................15.42, 17.21 Goodwin v Parton & Page (1880) 42 LT 568................................................15.59, 19.26, 21.19 Goodwin v Robarts (1874–75) LR 10 Exch 337............................................................. 1.2 Goodwood Recoveries v Breen [2005] EWCA Civ 414, [2006] 1 WLR 2723, [2006] 2 All ER 533.............................................................................................................. 21.50 Gordan v Gonda [1955] 1 WLR 885, [1955] 2 All ER 762, (1955) 99 SJ 525............11.36, 18.6 Gordon v Ellis (1846) 2 CB 821................................................................................21.10, 21.11 Gordon v Holland (1913) 108 LT 385.....................................................................11.27, 11.28, 14.24, 14.55 Gorne v Scales [2006] EWCA Civ 311.....................................................................11.33, 11.35, 11.42, 14.51 Gouthwaite v Duckworth, Browne & Powell (1810) 12 East 421, 104 ER 164............2.16, 2.19 Gover v BLN Lincoln & Nolan [1973] IR 388................................................................ 16.43 Gover (T) & Sons v Property Care [2005] UKEAT 0458 05 2211.................................. 14.17 Governor of the Company of the Bank of Ireland v Colliers International (UK) plc (Administration) see Bank of Ireland v Colliers Gow v Forster (1884) LR 26 Ch D 672....................................................................10.20, 12.29, 18.2, 18.16 Grace v Biagioli [2005] EWCA Civ 1222, [2006] BCC 85, [2006] 2 BCLC 70............... 25.44 Graham & Co v United Turkey Red Co 1922 SC 533, 1922 SLT 406............................ 16.25 Grainger v Nicholson [2010] IRLR 5.............................................................................. 13.7 Grant v Anderson & Co [1892] 1 QB 108................................................................21.23, 22.20 Grant v Creelman (1856) (Canada)................................................................................. 14.50 Grant v Jackson (1793) Peake 203.................................................................................. 19.14 Grant v Mathewson (1843) 1 LTOS 625......................................................................... 19.54 Grant v Matsubayashi [1922] 3 WWR 697..................................................................... 18.32 Grason, ex p Taylor, Re (1879) LR 12 Ch D 366..........................................................23.7, 23.9 Gray v Barr [1971] 2 QB 554, [1971] 2 WLR 1334, [1971] 2 All ER 949...................... 12.34 Gray v Sladden & Stewart [1935] NZLR 35................................................................... 18.65 Gray v Smith (1889) 43 Ch D 208.........................................................8.30, 8.35, 12.33, 16.37, 18.34, 18.64, 18.66 Gray, Re (1835) 2 Mont & A 283.................................................................................. 22.12 Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407, [2003] QB 679, [2002] 3 WLR 1617............................................................ 14.43 Great Western Rly Co v Rushout (1852) 5 De G & Sm 290, 64 ER 1121....................... 12.10 Greatrex v Greatrex (1847) 1 De G & Sm 692, 63 ER 1254.....................................15.32, 15.34 Gregory v Patchett (1864) 33 Beav 595, 55 ER 499....................................................12.2, 12.10 Grazebrook, Re (1865) 4 De GJ & Sm 655..................................................................... 4.8 Greek Taverna, Re [1999] BCC 153..........................................................................22.41, 22.48 Green v Beesley (1835) 2 Bing NC 108................................................................2.20, 2.31, 10.4 Green v Briggs (1848) 6 Hare 395, 67 ER 1219.............................................................. 8.26 Green v Frew [2016] EWHC 1521 (Ch), [2016] 5 WLUK 417....................................... 18.42

lxix

Table of Cases para Green v Gaul see Loftus (decs’d), Re Green v Hertzog [1954] 1 WLR 1309, (1954) 98 SJ 733.........................................14.18, 14.22, 15.5, 18.53 Green v Howell [1910] 1 Ch 495...................................................................12.13, 16.42, 16.43 Green v Moran (unreported, 10 May 2002).................................................................... 8.1 Green v Sutton (1840) 2 Mood & R 269, 174 ER 285................................................... 19.11 Green & Sons (Northampton) Ltd v Morris [1914] 1 Ch 562......................................... 18.66 Greenaway v Greenaway (1939) 84 SJ 43....................................................................... 17.20 Greenbanks v Pickles [2001] 1 EGLR 1, [2001] 09 EG 230, [2000] NPC 107............8.43, 18.39 Greenberg v Cooperstein [1926] Ch 657.............................................................4.12, 4.18, 4.19, 4.21, 4.24 Greenham v Gray (1855) 4 ICLR 501.............................................................14.4, 14.12, 14.14, 14.16, 14.50 Greenwood v Bennett [1973] QB 195, [1972] 3 WLR 691, [1972] 3 All ER 586............ 14.9 Greenwood v Kanter (1966) 110 SJ 54........................................................................... 21.39 Gresham Life Assurance Society v Styles (Surveyor of Taxes) [1892] AC 309................. 12.26 Greville v Venables [2007] EWCA Civ 878, (2007) 104(37) LSG 36.....................2.1, 2.12, 2.15 Griffin, ex p Board of Trade, Re (1890) 60 LJQB 235..................................................... 2.40 Griffith v Hughes (1847) 9 LTOS 147.........................................................................19.12, 21.8 Griffith v Paget (1877) LR 6 Ch D 511........................................................................... 18.59 Griffiths v Bracewell (1865) 35 Beav 43, 55 ER 810....................................................... 16.13 Griffiths v Hicks (1850) 15 LTOS 349......................................................................15.59, 21.19 Grossman v Granville Club (1884) 28 SJ 513................................................................. 2.47 Group Seven Ltd v Ali Nasir [2017] EWHC 2466 (Ch), [2017] 10 WLUK 171, [2018] PNLR 6................................................................................................................... 19.53 Groux’s Improved Soap Co Ltd v Cooper (1860) 8 CBNS 800....................................... 8.8 Groves v Groves (1828) 3 Y & J 163.............................................................................. 4.23 G-Tech Construction Ltd, Re (2007) BPIR 1275............................................................. 22.55 Guardian Ocean Cargoes Ltd v Banco do Brasil SA (The Golden Med) (No 2) [1992] 2 Lloyd’s Rep 201n.................................................................................................... 12.32 Guardian Ocean Cargoes Ltd v Banco do Brasil SA (The Golden Med) (No 3) [1992] 2 Lloyd’s Rep 193...................................................................................................... 15.18 Guinness v Saunders [1990] 2 AC 663, [1990] 2 WLR 324, [1990] 1 All ER 652......4.21, 14.28 Gunton v Richmond-upon-Thames London Borough Council [1981] Ch 448, [1980] 3 WLR 714, [1980] ICR 755..................................................................................... 14.17 Gurney v Evans (1858) 3 H & N 122............................................................................. 5.3 Guthrie & Co, Re (1884) 2 NZLR (SC) 425................................................................... 18.32 Gwembe Valley Development Co v Koshy [1998] 2 BCLC 613................................15.52, 15.60 H HF Pension Trustees Ltd v Ellison [1999] Lloyd’s Rep PN 489, [1999] PNLR 894, [1999] OPLR 67...............................................................................................20.13, 20.15 HSS Hire Services Group plc v BNB Builders’ Merchants Ltd (Costs) [2005] EWCA Civ 626, [2005] 1 WLR 3158, [2005] 3 All ER 486...................................................... 15.19 Habas Sinai Ve Tibbi Gazlar Isthisal Endustri As v Sometal SAL [2010] EWHC 29 (Comm), [2010] Bus LR 880, [2010] 1 All ER (Comm) 1143................................. 15.21 Habershon v Blurton (1847) 1 De G & Sm 121, 63 ER 998........................................... 11.22 Hackney v Knight (1891) 7 TLR 254.............................................................................. 19.51 Hackston v Hackston (Partnership dissolution) 1956 SLT (Notes) 38............................. 15.23 Hadlee v CIR (1989) 2 NZLR 447.................................................................................. 16.1 Hadlee & Sydney Bridge Nominees v IRC [1993] AC 524, [1993] 2 WLR 696, [1993] NPC 40..............................................................................................10.1, 10.4, 10.6, 10.9, 10.11, 10.14, 10.24 Hagarty v Goetz [1921] 3 WWR 517 (Canada).............................................................. 15.5 Hague v Dandeson (1848) 2 Exch 741, 154 ER 689....................................................... 10.8 Haig v Gray (1850) 3 De G & Sm 741, 64 ER 685......................................................... 21.5

lxx

Table of Cases para Haig v Kaye (1871–72) LR 7 Ch App 469...................................................................... 4.18 Halborg v EMW Law LLP [2017] EWCA Civ 793, [2018] 1 WLR 52, [2017] 6 WLUK 507.....................................................................................................................21.51, 25.4 Hale (Reverend John) v Hale (1841) 4 Beav 369, 49 ER 382.............................4.22, 4.23, 15.40 Hale v People’s Bank of Halifax (1903) 23 CLT 157 (Canada)....................................... 18.2 Hale, Re; Lilley v Foad [1899] 2 Ch 107...................................................................15.39, 15.58 Halifax Mortgage Services Ltd (formerly BNP Mortgages Ltd) v Stepsky [1996] Ch 1, [1995] 3 WLR 701, [1995] 4 All ER 656.........................................................19.75, 20.35, 20.36, 20.38 Halke Shipping Corpn v Sopex Oils Ltd [1998] 1 WLR 726, [1998] 2 All ER 23, [1998] 1 Lloyd’s Rep 465.............................................................................................15.23, 15.27 Hall v Barrows (1863) 4 De GJ & Sm 150, 46 ER 873................................................8.52, 8.53, 18.37, 18.63 Hall v Hall (1850) 12 Beav 414, 50 ER 1119.................................................................. 15.32 Hall v Hall (1850) 3 Mac & G 79, 41 ER 191................................................................ 15.47 Hall v Hall (1855) 20 Beav 139, 52 ER 555.................................................................... 16.24 Hall v Woolston Hall Leisure Ltd [2001] 1 WLR 225, [2000] 4 All ER 787, [2001] ICR 99..................................................................................................................4.3, 4.22, 13.1 Hall (George) & Sons v Platt (1954) 35 TC 440...........................................................2.35, 2.62 Hall (JP) & Co Ltd v IRC [1921] 3 KB 152.................................................................... 12.21 Halett & Co, ex p Cocks, Biddulph & Co, Re [1894] 2 QB 256..................................... 23.17 Hallett Gooden Clarke Allan & Hatfield v Dowdall (1852) 18 QB 2, 118 ER 1.........12.31, 19.3 Hallet’s Estate, Re (1879–80) LR 13 Ch D 696.........................................................19.63, 19.65 Halpern v Halpern (Nos 1 & 2) [2007] EWCA Civ 291, [2008] QB 195, [2007] 3 WLR 849.......................................................................................................................7.12, 14.8 Halton International Inc (Holdings) Sarl v Guernroy Ltd [2005] EWHC 1968 (Ch), [2006] 1 BCLC 78................................................................................................2.41, 11.1 Haly v Barry (1867–68) LR 3 Ch App 452..................................................................... 10.15 Ham v Bell [2016] EWHC 1791 (Ch), [2016] 4 WLUK 174........................................... 8.22 Ham v Ham [2013] EWCA Civ 1301, [2014] WTLR 255....................................7.11, 8.22, 9.3, 18.35, 18.59 Hambridge v De Law Crouée (1846) 3 CB 742.........................................................19.19, 21.17 Hambro v Burnand [1904] 2 KB 10................................................................................ 19.4 Hameed v Packe [2018] EWHC 3061 (Ch), [2018] 11 WLUK 224................................. 14.27 Hamer v Giles (1879) LR 11 Ch D 942.....................................................................15.19, 18.58 Hamerhaven Pty Ltd v Ogge [1996] 2 VR 488 (Victoria SC)........................................5.6, 20.28 Hamil v Stokes (1817) Dan 20........................................................................................ 18.62 Hamilton & Kinneil (Archerfield) Ltd v R & C Comrs [2014] UKFTT 350 (TC), [2014] SFTD 1008, [2014] STI 2234.................................................................................. 25.59 Hamilton v Grainger (1859) 5 H & N 40....................................................................... 4.6 Hamilton v Smith (1859) 5 Jur NS 32............................................................................. 2.4 Hamilton v Smith (1859) 28 LJ Ch 404.......................................................................... 2.7 Hamilton v Vaughan-Sherrin Electrical Engineering Co [1894] 3 Ch 589....................... 3.23 Hamlyn v John Houston & Co [1903] 1 KB 81.......................................................19.43, 19.44, 19.51, 20.4 Hammersmith & Fulham London Borough Council v Monk [1992] 1 AC 478, [1991] 3 WLR 1144, [1992] 1 All ER 1.................................................................8.46, 18.50, 19.29 Hammond v Brearly (unreported, 10 December 1992)...............................................7.10, 16.24, 18.42, 18.47 Hammond v Douglas (1800) 5 Ves Jr 539, 31 ER 726.................................................... 8.52 Hammonds (a firm) v David Jones [2009] EWCA Civ 1400, (2010) 154(1) SJLB 29, [2010] Bus LR D85............................................................................................7.11, 14.34, 14.42, 18.35 Hamper, ex p (1811) 17 Ves 403, 34 ER 156.................................................................. 2.32 Hampshire Land Co (No 2), Re [1896] 2 Ch 743....................................................20.34, 20.35, 20.36, 20.38 Hampton v Minns [2002] 1 WLR 1, [2002] 1 All ER (Comm) 481, (2001) 98(20) lSG 41........................................................................................................................... 14.60

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Table of Cases para Hanak v Green [1958] 2 QB 9, [1958] 2 WLR 755, [1958] 2 All ER 141...................14.64, 15.5 Hanchett-Stamford v A-G [2008] EWHC 330 (Ch), [2009] Ch 173, [2009] 2 WLR 405......................................................................................................................... 2.46 Hancock v Heaton (1874) 30 LT 592............................................................................. 12.24 Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216............ 8.1 Hand v Blow [1901] 2 Ch 721........................................................................................ 15.39 Handyside v Campbell (1901) 17 TLR 623...............................................................17.23, 18.62 Hang Seng Finance Ltd v Chan Kwok Yim (2002) HKEC 519.................................19.46, 19.49 Hankey v Clavering [1942] 2 KB 326............................................................................. 16.24 Hanlon v Brookes (1996) ATPR 49-523 (Victoria SC)..................................11.17, 12.10, 16.40, 16.42, 16.43 Haque v Haque (No 2) (1965) 114 CLR 98 (Sup Ct Australia)....................................... 8.37 Harborne Road Nominees Ltd v Karvaski [2011] EWHC 2214 (Ch).............................. 25.44 Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1993] QB 701, [1993] 3 WLR 42, [1993] 3 All ER 897.................................................... 15.23 Harcus Sinclair LLP v Your Lawyers Ltd [2017] EWHC 2900 (Ch), [2018] 1 WLR 2479, [2017] 11 WLUK 370................................................................................... 25.71 Hardie’s Executrix v Wales & Wales (unreported, 26 May 2003)...................................8.9, 8.22 Harding v Glover (1810) 18 Ves Jr 281, 34 ER 323........................................................ 15.43 Hardman v Booth (1863) 1 H & C 803.......................................................................... 5.1 Hardoon v Belillos [1901] AC 118............................................................................10.14, 12.34 Hardy v Hardy (1917) 62 SJ 142.................................................................................... 15.40 Haribhau v Ardesir Ukadji (1875) ILR 4 Bom 229n (India)............................................ 10.15 Harman v Johnson (1853) 2 E & B 61, 118 ER 691...................................................19.9, 19.61 Harnam Singh v Kapoor Singh (1932) 46 BCR 195........................................................ 10.4 Harper v Godsell (1870) LR 5 QB 422, [1870] 6 WLUK 75........................................... 10.24 Harper v Marten (1895) 11 TLR 368............................................................................. 23.38 Harper (Julius) Ltd v FW Hagedom & Sons Ltd [1991] 1 NZLR 530............................ 19.9 Harper (Ross) & Murphy v Banks 2000 SC 500, 2000 SLT 699, 2000 SCLR 736......... 14.53 Harrington v Churchward (1860) 29 LJ Ch 521............................................................. 2.33 Harris v Amery (1865) LR 1 CP 148............................................................................... 2.16 Harris v Beauchamp Bros [1893] 2 QB 534.......................................................3.24, 21.5, 21.13 Harris v Black (1983) 46 P & CR 366............................................................................ 12.6 Harris v Farwell (1846) 15 Beav 31, 51 ER 447.............................................................. 20.21 Harris v Harris (1844) 3 Hare 450, 67 ER 458............................................................... 15.12 Harris v Microfusion 2003-2 LLP [2016] EWCA Civ 1212, [2016] 12 WLUK 132, [2017] CPP Rep 15...........................................................................................25.46, 25.65 Harris v Petherick (1878) 39 LT 543............................................................................... 2.8 Harris v Sleep [1897] 2 Ch 80..........................................................................12.24, 15.46, 18.9 Harris, ex p Davies, Re (1863) 4 De GJ & Sm 523......................................................... 2.6 Harris (John) Partnership v Groveworld Ltd [1999] PNLR 697, 75 Con LR 7...........21.3, 21.10 Harrison v Jackson (1797) 7 Term Rep 207, 101 ER 935.........................................19.17, 19.20 Harrison v Povey (1956) 168 Estates Gazette 613.......................................................8.45, 17.26 Harrison v Tennant (1856) 21 Beav 482, 52 ER 945...............................................17.16, 17.20, 17.25, 17.26 Harrison-Broadley v Smith [1964] 1 WLR 456, [1964] 1 All ER 867, [2008] BTC 7085............................................................................................................8.43, 8.48, 18.4 Harrison (JJ) (Properties) Ltd v Harrison [2001] EWCA Civ 1467, [2002] BCC 729, [2002] 1 BCLC 162...............................................................................11.18, 11.28, 11.32 Harrods Ltd v Harrodian School Ltd [1996] RPC 697.................................................... 8.57 Harrods Ltd v Harrods (Buenos Aires) Ltd (No 1) [1997] FSR 420, (1997) 20(6) IPD 20058..................................................................................................................... 14.50 Harse v Pearl Life Assurance Co [1904] 1 KB 558.......................................................... 4.23 Hart Esq v Alexander Esq (1837) 2 M & W 484, 150 ER 848....................................... 20.28 Hart v Clarke (1854) 6 De GM & G 232, 43 ER 1222.............................................12.32, 14.32 Hart v O’Connor [1985] AC 1000, [1985] 3 WLR 214, [1985] 2 All ER 880................ 3.25 Hart, Re (1884) LR 25 Ch D 716................................................................................... 23.15 Hartin v Hunter (1996) AILR 4376 (NSW SC)............................................................... 12.8

lxxii

Table of Cases para Hartz v Schrader (1803) 8 Ves Jr 317, 32 ER 376........................................................... 15.32 Harvey v Crickett (1816) 5 M & S 336........................................................................... 10.8 Harvey v Hart [1894] WN 72......................................................................................... 4.7 Harvey v Harvey (1970) 120 CLR 529 (New Zealand)........................................8.20, 8.23, 8.26 Harwood v Harwood [1991] 2 FLR 274, [1992] FCR 1, [1991] Fam Law 418.............. 10.4 Hasleham v Young (1844) 5 QB 833, 114 ER 1463..........................................19.2, 19.3, 19.11, 19.43, 19.72 Hathurani v Jassat [2010] EWHC 2077 (Ch).................................................................. 15.6 Hatton v Royle (1858) 3 H & N 500.................................................................21.7, 21.9, 21.17 Haughey v Synnott [2011] IEHC 467............................................................................. 15.44 Hawken v Bourne (1841) 8 M & W 703, 151 ER 1223.................................................. 19.3 Hawkes v Cuddy see Neath Rugby Ltd, Re Hawkins v Duché [1921] 3 KB 226................................................................................. 3.22 Hawkins v Parsons (1862) 31 LJ Ch 479........................................................................ 17.20 Hawkins v Rogers [1951] IR 48...................................................................................... 14.63 Hawkins v Tyler (2001) Lloyd’s Rep PNI........................................................................ 14.60 Hawkins, Re (1913) 109 LT 969..................................................................................... 10.23 Hawkshaw v Parkins & Thompson (1819) 2 Swan 539, 36 ER 723............................... 19.19 Hawksley v Outram [1892] 3 Ch 359........................................................................2.28, 18.66, 19.31, 19.32 Hawthorn v Smallcorn [1998] STC 591, [1998] BTC 5083, [1998] BVC 101................ 18.34 Hay, ex p Smith, Re (1821) 6 Madd 2, 56 ER 988.......................................................... 11.22 Hay (James) Pension Trustees Ltd v Hird [2005] EWHC 1093 (Ch)............................... 7.1 Hayes (Sir James) v Kingdome (1681) 1 Vern 33, 23 ER 288.......................................... 10.4 Haynes v Doman [1899] 2 Ch 13..............................................................................18.67, 18.72 Hays Specialist Recruitment (Holdings) Ltd v Ions [2008] EWHC 745 (Ch), [2008] IRLR 904................................................................................................................ 15.11 Head, Re [1893] 3 Ch 426........................................................................................20.15, 20.21 Head, ex p Head, Re [1894] 1 QB 638.....................................................................22.12, 23.47 Head, Re [1894] 2 Ch 236.............................................................................................. 18.32 Head, Re; Head v Head (No 2) (1894) 63 LJ Ch 549..................................................... 20.21 Head Estate, Re (1932) 40 Man LR 570 (Canada).......................................................... 7.9 Healy v Healy Homes Ltd [1973] IR 309........................................................................ 11.24 Heap v Dobson (1863) 15 CBNS 460...........................................................................2.16, 2.19 Heastie (Inspector of Taxes) v Veitch & Co (1934) 1 KB 535......................................... 24.13 Heard v Pilley (1868–69) LR 4 Ch App 548................................................................... 8.35 Heath v Fisher (1868) 38 LJ Ch 14................................................................................. 18.42 Heath v Sansom [1907] 1 KB 235; revs’d [1908] 1 KB 302............................................. 10.4 Heath v Tang [1993] 1 WLR 1421, [1993] 4 All ER 694................................................ 23.17 Heather Capital Ltd (in liquidation) v Levy & McRae [2015] CSOH 115, [2015] 8 WLUK 184, 2015 GWD 28-475............................................................................. 20.13 Heaton v Axa [2002] UKHL 15, [2002] 2 AC 329, [2002] 2 WLR 1081........................ 20.9 Hedley v Bainbridge (1842) 3 QB 316, (1842) 3 QB 316..........................................19.11, 19.43 Heilbut v Nevill (1869) LR 4 C 354 aff’d (1869–70) LR 5 CP 478................................. 19.4 Heinnemann & Co v Hale & Co [1891] 2 QB 83........................................................... 21.23 Hellenic Mutual War Risks Association v Harrison (The Sagheera) [1997] 1 Lloyd’s Rep 160......................................................................................................................... 19.75 Helmet Integrated Systems Ltd v Tunnard [2006] EWCA Civ 1735, [2007] IRLR 126, [2007] FSR 16......................................................................................................... 11.13 Helmore v Smith (No 1) (1886) LR 35 Ch D 436.........................................................8.23, 10.4 Helmore v Smith (No 2) (1886) LR 35 Ch D 449........................................................... 15.48 Helsby v Mears (1826) 5 B & C 504, 108 ER 188.......................................................... 20.15 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, [1967] 3 WLR 1408, [1967] 3 All ER 98..................................................................................................................19.3, 19.18 Henderson v Merrett Syndicates Ltd (No 1) [1995] 2 AC 145, [1994] 3 WLR 761, [1994] 3 All ER 506............................................................................................11.2, 24.17 Henderson & Smith v Wild (1811) 2 Camp 561, 170 ER 1252...................................... 21.37 Hendry v Turner (1886) LR 32 Ch D 355....................................................................... 16.21

lxxiii

Table of Cases para Henriques v General Privileged Dutch Co Trading to West Indies (1728) 2 Ld Raym 1532....................................................................................................................... 1.10 Hensman v Traill (1980) 124 SJ 776...........................................................................7.10, 18.77 Hepburn, ex p Smith, Re (1884–85) LR 14 QBD 394..................................................... 23.47 Hercy v Birch (1804) 9 Ves Jr 357, 32 ER 640................................................................ 14.2 Herman v Jeuchner (1884–85) LR 15 QBD 561............................................................. 4.24 Herring v Walround (1682) 2 Cas in Ch 110.................................................................. 4.6 Hewitt v Court (1949) CLR 639 (Australia)................................................................... 10.9 Heyhoe v Bunge (1850) 9 CB 431................................................................................... 2.8 Heyl Dia v Edwards (1899) 81 LT 579........................................................................... 2.39 Heyman v Darwins Ltd [1942] AC 356, [1942] 1 All ER 337, (1942) 72 Ll L Rep 65.... 15.23 Hibernian Dance Club v Murray [1997] PIQR P46....................................................2.47, 21.21 Hichens v Congreve (1831) 1 Russ & M 150, 39 ER 58................................................. 2.41 Hickman Motors v Canada [1997] 2 SCR 336....................................................2.16, 2.18, 2.19 Hicks v Lockwood [1883] WN 48.................................................................................. 15.44 Hickson Collier (Oswald) & Co v Carter-Ruck [1984] AC 720, [1984] 2 WLR 847, [1984] 2 All ER 15.................................................................................................. 18.76 Highly v Walker (1910) 26 TLR 685.............................................................................. 12.9 Higgins v Beauchamp [1914] 3 KB 1192......................................................................... 19.13 Higginson, ex p Hinds, Re (1850) 3 De G & Sm 613, 64 ER 629................................... 8.22 Higginson v Simpson (1877) 2 CPD 76........................................................................... 4.21 Hildesheim, Re [1893] 2 QB 357.................................................................................... 23.7 Hill v Bellhouse, Dartling & Bellhouse (1860) 10 CP 122 (Canada)............................... 2.6 Hill v Clifford [1907] 2 Ch 236....................................................................................... 4.11 Hill v Fearis [1905] 1 Ch 466......................................................................................8.52, 18.41 Hill v Hill [1947] Ch 231, [1947] 1 All ER 54, 176 LT 216............................................ 18.34 Hill v King (1863) 3 De GJ & Sm 418, 46 ER 697......................................................... 9.7 Hill v Manchester & Salford Water Works Co (1833) 5 B & Ad 866, 110 ER 1011....... 21.37 Hill v Parsons (CA) & Co Ltd [1972] Ch 305, [1971] 3 WLR 995, [1971] 3 All ER 1345....................................................................................................................... 15.34 Hill v Wylie (1865) 3 M (Ct of Sess) 561........................................................................ 16.28 Hill, ex p Holt & Co, Re [1921] 2 KB 831........................................................18.2, 21.6, 21.41 Hill, Re [1934] Ch 623................................................................................................... 12.14 Hill (W) & Son v Tannerhill [1944] 1 KB 472................................................................ 21.3 Hill, Re; Claremont v Hill [1934] Ch 623....................................................................... 19.74 Hills v Nash (1845) 1 Ph 594, 41 ER 759....................................................................... 15.7 Hills v Parker (1861) 7 Jur NS 833................................................................................. 8.22 Hilton v Barker, Booth & Eastwood [2005] UKHL 8, [2005] 1 WLR 567, [2005] 1 All ER 651.................................................................................................................... 19.75 Hilton v D IV LLP [2015] EWHC 2 (Ch).......................................................11.23, 11.25, 25.37 Hind, ex p Hind, Re (1890) 62 LT 327........................................................................... 23.33 Hine v Beddome (1859) 8 CP 381................................................................................... 20.13 Hines v Willan (unreported, 28 February 1997).............................................................. 8.70 Hirschfield v London Brighton & South Coast Rly Co (1876–77) LR 2 QBD 1.............. 14.35 Hirst v Etherington [1999] Lloyd’s Rep PN 938, (1999) 96(31) LSG 42, (1999) 149 NLJ 1110..................................................................................................................19.9, 19.10, 19.72, 19.73 Hitch v Stone (Inspector of Taxes) [2001] EWCA Civ 63, [2001] STC 214, 73 TC 600. 2.5 Hitchens v Congreve (1828) 1 Russ & M 150................................................................ 11.12 Hitchins v Hitchins (1987) 7 NSWLR 35..........................................................2.19, 2.39, 12.30, 12.31, 18.54 Hitchman v Crouch Butler Savage Associates (1983) 127 SJ 441....................7.11, 14.12, 14.15, 14.16, 16.7, 16.40 Hoad & Taylor v Delves [2012] EWHC 1426 (QB)........................................................ 15.36 Hoare v Dawes (1780) 1 Doug KB 371, 99 ER 239........................................................2.16, 5.1 Hobbs v Australian Press Association [1933] 1 KB 1................................................21.14, 21.28 Hobbs v Wayet (1887) LR 36 Ch D 256......................................................................... 18.40 Hobson v Cowley (1858) 27 LJ Ex 205....................................................................18.23, 18.25

lxxiv

Table of Cases para Hocking v West Australia Bank (1909) 9 CLR 749......................................................... 6.2 Hodgkinson, ex p (1815) 19 Ves Jr 291, 34 ER 525....................................................... 20.4 Hodgson, Re; Beckett v Ramsdale (1885) LR 31 Ch D 177.....................................20.22, 20.28, 20.30, 20.33 Hodson v Cashmore (1972) 226 Estates Gazette 1203..................................................8.23, 8.44 Hodson v Hodson [2009] EWHC 430 (Ch), [2009] PNLR 23.........................................2.1, 2.2, 2.4, 2.20 Hodson v Hodson [2009] EWCA Civ 1042, [2009] 10 WLUK 437, [2010] PNLR 8...... 7.22 Hoey v Macewen & Auld (1867) 5 M (Ct of Sess) 814................................................... 18.25 Hoffman v Duncan (1853) 18 Jur 69.............................................................................. 15.41 Hogar Estates Ltd in Trust v Shebron Holdings Ltd (1979) 25 OR (2d) 543................3.2, 11.13, 11.44, 11.45 Hogarth v Latham & Co (1877–78) LR 3 QBD 643...................................................19.4, 19.17 Hogg v Hogg (1876) 35 LT 792...................................................................................... 7.10 Hogg v Skeen (1865) 18 CBNS 426................................................................................ 19.17 Hoiles v Hood [2007] EWHC 1616 (Ch).................................................................25.30, 25.44, 25.81, 25.83 Holder v Holder [1968] Ch 353, [1968] 2 WLR 237, [1968] 1 All ER 665...11.27, 15.63, 18.20 Holderness, Assignees of Foxton v Shackels (1828) 8 B & C 612, 108 ER 1170  10.1, 10.9, 10.12, 12.37, 23.50 Holdgate v Holdgate [2002] 3 NZLR 609................................................................16.14, 18.53 Hole v Garnsey [1930] AC 472.....................................................................................7.21, 12.3 Holgate v Shutt (No 1) (1884) LR 27 Ch D 111............................................................. 14.42 Holiday Inns Inc v Broadhead (1970) 232 Estates Gazette 951....................................... 2.41 Holland, Re; Brettell v Holland [1907] 2 Ch 88..........................................................10.1, 10.23 Holland v King (1848) 6 CB 727..................................................................................7.25, 19.5 Hollis v Burton [1892] 3 Ch 226..................................................................................... 21.37 Hollister Inc v Medik Ostomy Supplies Ltd 20/12/2011.................................................. 14.21 Hollom v Whichelow (1895) 64 LJQB 170...................................................................2.19, 2.35 Holman v Johnson (1775) 1 Cowp 341, 98 ER 1120........................................4.21, 4.22, 19.24, 19.43, 19.51 Holme v Hammond (1871–72) LR 7 Exch 218.......................................................2.1, 2.19, 3.9, 10.19, 20.31 Holmes v Higgins (1822) 1 B & C 74, 107 ER 28........................................................2.7, 12.25 Holroys v Griffiths (1856) 3 Drew 428, 61 ER 966........................................................ 12.37 Home & Overseas Insurance Co Ltd v Mentor Insurance Co (UK) Ltd [1990] 1 WLR 153, [1989] 3 All ER 74, [1989] 1 Lloyd’s Rep 473................................................ 15.23 Home Counties Dairies Ltd v Skilton [1970] 1 WLR 526, [1970] 1 All ER 1227, 8 KIR 691......................................................................................................................... 18.72 Homer v Chief Constable of West Yorkshire [2012] UKSC 15, [2012] 3 All ER 1287, [2012] ICR 704....................................................................................................... 13.9 Homfray v Fothergill (1865–66) LR 1 Eq 567................................................................ 18.34 Hookham v Pottage (1872–73) 8 Ch App 91.................................................................. 18.66 Hoon v Maloff (1964) 46 WWR 445, 42 DLR (2d) 770................................................. 21.49 Hooper, ex p Broome, Re (1811) 1 Rose 69.................................................................... 14.9 Hooper v Keay (1875–76) LR 1 QBD 178...................................................................... 18.32 Hope & Vickerman, Assignees of Dunbar, a bankrupt v Meek (1855) 10 Exch 829, 156 ER 676.................................................................................................................... 22.12 Hopkins, Re (1881–82) LR 19 Ch D 61.......................................................................... 22.17 Hopper v Hopper [2008] EWHC 228 (Ch), [2008] 1 FCR 557, [2009] WTLR 805; [2008] EWCA Civ 1417............................................................................2.14, 15.54, 18.7, 18.11, 18.15 Hopton v Miller [2010] EWHC 2232 (Ch)..................................................................... 18.14 Horcal Ltd v Gatland [1984] BCLC 549......................................................................... 11.36 Hordem v Hordem [1910] AC 465...............................................................14.46, 14.49, 16.20, 18.17, 18.20, 18.34, 18.35, 18.41

lxxv

Table of Cases para Horgan (dec’sd), Re [1971] P 50, [1970] 2 WLR 393, [1969] 3 All ER 1570.................. 8.55 Horkulak v Cantor Fitzgerald see Cantor Fitzgerald v Horkulak Horlick v Taylor [2018] EWHC 4034 (Ch), [2018] 2 WLUK 845.................................. 15.37 Hornabrook v Parsons (unreported, 3 February 1995).....................................7.11, 12.31, 18.54 Horner v Hasted (Inspector of Taxes) [1995] STC 766, 67 TC 439.............................2.33, 2.34, 4.11, 6.4 Hornsby v Clark Kenneth Leventhal [1998] 3 WLUK 421, [1998] PNLR 635..............2.20, 2.22 Horst v Horst (1901) 45 SJ 754...................................................................................... 18.66 Hoskings v Marathon Asset Management LLP [2016] EWHC 2418 (Ch), [2017] Ch 157, [2017] 2 WLR 746............................................................................11.2, 11.3, 11.11, 14.52, 25.72 Hospital Products Ltd v United States Surgical Corpn (1984) 156 CLR 41.........2.41, 11.2, 11.4, 11.44, 16.19 Houghton (JC) & Co v Nothard, Low & Wills Ltd [1928] AC 1, (1927–28) 29 Ll L Rep 63..............................................................................................................19.5, 19.7, 20.36 Houldsworth v Evans (1868) LR 3 HL 263.................................................................... 12.12 Hounslow London Borough Council v Pilling [1993] 1 WLR 1242, [1994] 1 All ER 432, [1993] 2 FLR 49...................................................................................................8.47, 8.48 Hovenden v Millhoff 83 LT 41........................................................................................ 11.37 How v Earl Winterton (1896) 2 Ch 626....................................................................14.18, 15.61 Howard v Danner (1901) 17 TLR 548............................................................................ 18.74 Howard, ex p Tennant, Re (1877) 6 Ch D 303.............................................................2.20, 2.35 Howe v Oliver (1908) 24 TLR 781.............................................................................19.19, 20.9 Howlett, Re [1949] Ch 767, [1949] 2 All ER 490, 65 TLR 569...................................... 15.64 Howson v Buxton (1928) 97 LJKB 749.......................................................................... 8.48 Hudgell, Yeates & Co v Watson [1978] QB 451, [1978] 2 WLR 661, [1978] 2 All ER 363......................................................................................................2.10, 2.14, 4.8, 4.11, 4.20, 5.6, 7.8, 17.17 Hudson v Hudson (1860) 1 LT 433................................................................................ 18.34 Huffman v Ross (1925) 57 OLR 329.............................................................................. 2.12 Hughes v Kingston upon Hull City Council [1999] QB 1193, [1999] 2 WLR 1229, [1999] 2 All ER 49.................................................................................................. 4.4 Hughes v Statham (1825) 4 B & C 187, 107 ER 1029.................................................... 4.5 Hughes-Hallett v Indian Mannoth Gold Mines (1882) LR 22 Ch D 561........................ 18.40 Hughes & Co, Re [1911] 1 Ch 342...........................................................................24.11, 24.47 Hulme v Rowbotham [1907] WN 162............................................................................ 15.40 Hulton, Re; Hulton v Lister (1890) 62 LT 200.....................................................2.39, 8.22, 8.26 Hunt v Hunt, Stabb, Preston & Co (1821) 1 Nfld LR 234 (Canada).............................. 19.14 Hunter v Belcher (1864) 2 De GJ & Sm 194, 46 ER 349................................................ 14.42 Hunter v Dowling (No 2) [1895] 2 Ch 223.................................................................8.53, 18.35 Hunter v Wylie 1993 SLT 1091n..................................................................................... 16.25 Hurst v Bennett (No 1) [2001] EWCA Civ 182, [2001] 2 BCLC 290, [2001] BPIR 287......12.33, 14.64, 23.10 Hurst v Bryk (unreported, 11 April 1995)..............................................7.22, 12.2, 12.10, 12.12, 14.12, 14.14, 14.16, 14.16, 14.18, 14.39, 14.50, 14.53, 15.3, 15.5, 15.6, 16.7, 20.19, 20.25 Hurstanger Ltd v Wilson [2007] EWCA Civ 299, [2007] 1 WLR 2351, [2008] Bus LR 216........................................................................................................11.14, 11.36, 11.39 Hussain v Iqbal [2013] EWHC 458 (Ch)........................................................................ 15.36 Hustler v Watson (1841) 3 D 600................................................................................... 21.3 Huston v Burns [1955] Tas SR 3..................................................................................... 14.54 Hutcheon & Partners v Hutcheon 1979 SLT (Sh Ct) 61................................................21.7, 21.9 Hutcheson v Smith (1842) 5 I Eq R 117 (Ireland).....................................................12.24, 12.25 Hutchinson v Bowes, McDonnell & Cotton (1857) 15 UCR 156 (Canada)..............24.12, 24.14 Hutchinson v Whitfield (1830) Hayes 78........................................................................ 16.13

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Table of Cases para Huyton SA v Distribuidora Internacional de Productos Agricolas SA [2003] EWCA Civ 1104, [2004] 1 All ER (Comm) 402, [2003] 2 Lloyd’s Rep 780..........................2.41, 11.17 Hyams v Stuart King (a firm) [1908] 2 KB 696............................................................... 4.7 Hydra plc v Anastasi [2005] EWHC 1559 (QB), (2005) 102(33) LSG 23....................... 11.17 I ICS Ltd v West Bromwich Building Society [1988] 1 WLR 898...................................... 7.11 IRC v Aken [1988] STC 69...........................................................................................2.16, 4.14 IRC v Gibbs [1942] AC 401............................................................................................ 16.1 IRC v Graham’s Trustees 1971 SC 46..........................................................................8.43, 18.2, 18.4, 18.30 IRC v Hashmi [2002] EWCA Civ 981, [2002] BCC 943, [2002] 2 BCLC 489................ 11.19 IRC v Muller & Co’s Margarine Ltd [1901] AC 217...................................................... 8.52 IRC v Williamson (1928) 14 TC 335.............................................................................. 2.1 Ide, ex p Ide, Re (1886) LR 17 QBD 755........................................................................ 21.40 Ideal Films Ltd v Richards [1927] 1 KB 374................................................................... 15.10 Iggesunds Bruk Akt v Von Dadelszen (1887) 3 TLR 517................................................ 2.35 Ilott v Williams [2013] EWCA Civ 645.........................................................................2.7, 14.42 Imageview Management Ltd v Jack [2009] EWCA Civ 63, [2009] 2 All ER 666, [2009] Bus LR 1034.......................................................................................................11.3, 14.52 Imperial Loan Co v Stone [1892] 1 QB 599.................................................................... 3.25 Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589, [1991] 2 All ER 597, [1991] ICR 524...............................................................................11.1, 11.10 India, President of v La Pintada Cia Navigacion SA (The La Pintada) [1985] AC 104, [1984] 3 WLR 10, [1984] 2 All ER 773.................................................................. 15.18 Indigo Co v Ogilvy [1891] 2 Ch 31...........................................................................21.14, 21.23 Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443, [1972] 2 All ER 162, (1972) 116 SJ 255.......................................................................................11.4, 11.34 Inertia Partnership LLP, Re [2007] All ER (D) 316 (Feb)..........................................22.79, 22.88 Infante v Charman (unreported, 31 July 1996)............................................................... 19.12 Infund LLP, Re [2018] EWHC 1306 (Ch), [2018] Bus LR 1863, [2018] 5 WLUK 520... 25.90 Ingenious Games LLP v R & C Comrs [2019] UKUT 226 (TCC), [2019] STC 1851, [2019] 7 WLUK 509..........................................................................................2.16, 12.26, 25.7, 25.18 Ingot Capital Investments v Macquarie Equity Capital Markets (No 6) [2007] NSWSC 124)........................................................................................................................ 19.45 Ingram v Keeling [2006] All ER (D) 253 (Oct)................................................................ 18.41 Insight Group Ltd v Kingston Smith (A Firm) [2012] EWHC 3644 (QB), [2014] 1 WLR.1448, [2013] 3 All ER 518......................................................................15.9, 25.107 Intelsec Systems Ltd v Grech-Cini [2000] 1 WLR 1190, [1999] 4 All ER 11, [1999] Masons CLR 296...................................................................................11.36, 11.38, 15.36 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433, [1988] 2 WLR 615, [1988] 1 All ER 348.............................................................................. 7.17 International Airport Industrial Park Ltd v Tanenbaum (1976) 69 DLR (3d) 1 (Canada)................................................................................................................. 6.2 International Bulk Commodities Ltd [1993] Ch 77, [1992] 3 WLR 238, [1993] 1 All ER 361......................................................................................................................... 22.42 Inversiones Frieira SL v Colyzeo Investors II LP [2012] EWHC 1450 (Ch), [2012] Bus LR 1136................................................................................................11.23, 11.25, 24.11, 24.12, 24.17 Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2018] UKPC 7, [2019] AC 271, [2018] 2 WLR 1465................................................................................................ 1.14 Investment & Pensions Advisory Service Ltd v Gray [1990] BCLC 38, (1989) 139 NLJ 1415....................................................................................................................... 22.23 Investors’ Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896, [1998] 1 All ER 98, [1998] 1 BCLC 531..........................................7.1, 18.34

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Table of Cases para Irish Bank Resolution Corpn v Cambourne Investments Inc [2012] IEHC 262............... 2.35 Irish, Re (1888) LR 40 Ch D 49...................................................................................... 15.47 Irish Shipping Ltd v Commercial Union Assurance Co plc (The Irish Rowan) [1991] 2 QB 206, [1990] 2 WLR 117, [1989] 3 All ER 853.................................................. 15.10 Irvine v Hervey (1913) 13 ELR 297................................................................................ 15.48 Irvine v Irvine [2006] EWHC 406 (Ch), [2007] 1 BCLC 349.......................................... 2.61 Irvine v Young (1823) 1 Sim & St 333............................................................................ 14.42 Irvine v Irvine [2006] EWHC 583 (Ch), [2006] 4 All ER 102, [2007] 1 BCLC 445........ 25.44 Isaacs v Evans [1899] WN 261............................................................................8.20, 8.31, 8.35 Isaacs, Partnership of (in administration), Re [2017] EWHC 2405 (Ch), [2017] 8 WLUK 324, [2018] BCC 551.............................................................................................. 22.50 Island Export Finance Co Ltd v Umunna [1986] BCLC 460........................................... 11.13 Island Records Ltd v Tring International plc [1996] 1 WLR 1256, [1995] 3 All ER 444, [1995] FSR 560.................................................................................................14.21, 14.51 Item Software (UK) Ltd v Fassihi sub nom Kouroush Fassihi v Mandy Liddiard [2004] EWCA Civ 1244, [2004] BCC 994, [2005] 2 BCLC 91....................................11.10, 11.17 J J v S (Dissolution of Partnership) [1894] 3 Ch 72.......................................................3.27, 17.15 JP Morgan Chase Bank NA v Berliner Verkehrsbetriebe BVG Anstalt des Offentlichen Rechts [2009] EWHC 1627 (Comm), [2011] QB 276, [2010] 2 WLR 690............. 21.1 JP Morgan Bank (formerly Chase Manhattan Bank) v Springwell Navigation Corpn [2008] EWHC 1186 (Comm)..............................................................................15.4, 24.20 Jacaud & Gordon v French & Borrowes (1810) 12 East 317, 104 ER 124..................... 19.34 Jack v Bell (1892) 36 SJ 76.............................................................................................. 15.43 Jackson v Dickinson [1903] 1 Ch 947............................................................................. 12.34 Jack v Jack [2016] CSIH 75, [2016] 10 WLUK 295, 2016 Fam LR 177......................... 8.22 Jackson v Jackson (1804) 9 Ves Jr 591, 32 ER 732.......................................................8.26, 8.27 Jackson v Litchfield (1881–82) LR 8 QBD 474.........................................................21.38, 21.39 Jackson v Ogg (1859) John 397, 70 ER 476................................................................... 19.18 Jackson v Royal Bank of Scotland [2005] UKHL 3, [2005] 1 WLR 377, [2005] 2 All ER 71........................................................................................................................... 11.27 Jackson v Sedgwick (1818) 1 Swan 460, 36 ER 465....................................................7.11, 7.22, 12.19, 14.24 Jackson v Stopherd (1834) 2 Cr & M 361, 149 ER 800................................................. 14.33 Jackson v Yeats [1912] 1 IR 267..................................................................................... 23.12 Jacky v Butler (1703) 2 Ld Raym 871............................................................................. 10.15 Jacob (Walter L) & Co Ltd, Re (1989) 5 BCC 244, [1989] BCLC 345, [1989] PCC 47......22.79, 22.88 Jacobs v Chaudhuri [1968] 2 QB 470, [1968] 2 WLR 1098, [1968] 2 All ER 124.......... 8.44 Jacobs v Morris [1902] 1 Ch 816...................................................................19.18, 19.32, 20.40 Jacobsen v Hennekenuis (1714) 5 Bro Parl Cas 482........................................................ 2.2 Jacoby v Whitmore (1883) 49 LT 335............................................................................. 18.70 Jaenicke v Schultz [1924] 4 DLR 488 (Canada).............................................................. 2.39 Jaggard v Sawyer [1995] 1 WLR 269, [1995] 2 All ER 189, [1995] 1 EGLR 146........... 18.68 Jai Dayal Madan Gopal, Re (1932) ILR 54 All 846 (India)............................................. 3.17 Jameson v Central Electricity Generating Board [2000] 1 AC 455, [1999] 2 WLR 141, [1999] 1 All ER 193................................................................................................ 20.9 Jameson & Sandys, ex p Cresswell & Jameson, Re (1891) 8 Morr 278.......................... 15.48 Jamey v Oxley (1939) 61 CLR 433................................................................................. 19.62 Jamieson v Comrs Customs & Excise (unreported, 14 June 2001).................................. 20.4 Jane, ex p Trustee, Re (1914) 110 LT 556....................................................................... 21.10 Janes v Whitbread (1851) 11 CB 406.............................................................................. 2.19 Janvier v Sweeney [1919] 2 KB 316................................................................................ 19.51 Jardine v Hope (1872) 19 Gr 76 (Canada)...................................................................... 9.7 Jardine-Paterson v Fraser 1974 SLT 93........................................................................... 1.11

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Table of Cases para Jarrott v Ackerley (1915) 85 LJ Ch 135........................................................................8.36, 8.40 Jarvis (decs’d), Re [1958] 1 WLR 815, [1958] 2 All ER 336, (1958) 102 SJ 546............ 15.63 Jauncey v Knowles (1859) 29 LJ Ch 95.......................................................................14.9, 18.62 Jebson v East & West India Dock Co (1874–75) LR 10 CP 300..................................... 21.10 Jeetle v Elster [1985] ICR 389, [1985] IRLR 227, (1985) 82 LSG 600............................ 18.24 Jeffereys v Small (1683) 1 Vern 217, 23 ER 424............................................................8.38, 10.3 Jefferys v Smith (1820) 1 Jac & W 298, 37 ER 389...........................................2.39, 8.26, 16.11 Jefferys v Smith (1827) 3 Russ 158, 38 ER 535.........................................................10.10, 10.13 Jeffery, ex p Honey, Re (1871–72) LR 7 Ch App 178..................................................... 23.37 Jeffrey v Bamford [1921] 2 KB 351.................................................................................4.7, 4.21 Jenkins v Bennett [1965] WAR 42....................................................................11.4, 11.40, 17.24 Jenkins v Blizard (1816) 1 Stark 418, 171 ER 515.......................................................... 20.28 Jenkins v Deane (1933) 10 LT 314.................................................................................. 18.28 Jenkins v JCP Solicitors Ltd [2019] EWHC 852 (QB), [2019] 4 WLUK 78, [2019] PNLR 21.. 25.106 Jenkins v Morris (1880) LR14 Ch D 674........................................................................ 3.25 Jenkins v Young Bros Transport Ltd [2006] EWHC 151 (QB), [2006] 1 WLR 3189, [2006] 2 All ER 798..........................................................................................8.10, 25.110 Jennings v Baddeley (1856) 3 K & J 78, 69 ER 1029...................................................... 17.23 Jennings v Hammond (1882) 9 QBD 224............................................................2.57, 4.12, 4.19 Jennings v Jennings [1898] 1 Ch 378.........................................................................8.52, 18.41, 18.66, 18.70 Jervis v Wolferstan (1874) LR 18 Eq 18.......................................................................... 12.36 Jesner v Jarrad Properties Ltd 1993 SC 34, 1994 SLT 83, [1992] BCC 807.................... 17.26 Jobson v Johnson [1989] 1 WLR 1026, [1989] 1 All ER 621, (1988) 4 BCC 488........... 7.15 Jockey Club v Buffham [2002] EWHC 1866 (QB), [2003] QB 462, [2003] 2 WLR 178.8.68 John (Elton) v James [1991] FSR 397........................................................................15.61, 19.69 Johnson v Agnew [1980] AC 367, [1979] 2 WLR 487, [1979] 1 All ER 883.................. 14.16 Johnson v Davies [1997] 1 WLR 1511, [1997] 1 All ER 921, [1997] 1 BCLC 580......... 20.11 Johnson v Helleley (1864) 34 Beav 63, 55 ER 556; aff’d (1897) 11 LT 581...18.41, 18.51, 18.66 Johnson v Moreton [1980] AC 37, [1978] 3 WLR 538, [1978] 3 All ER 37.................8.48, 11.8 Johnson v Murray (1951) 2 WWRNS 447 (Canada)....................................................... 2.39 Johnson v Robarts (1875) 44 LJ Ch 678......................................................................... 8.28 Johnson v Snaddon (unreported, 769 of 1997) (Victoria SC).......................................... 14.12 Johnson v Stephens & Cartier Ltd & Guiding [1923] 2 KB 857..........................21.4, 21.7, 21.9 Johnson v Weber 803 P 2d 939 (1990)............................................................................ 14.53 Johnson, ex p Royle, Re (1875) LR 20 Eq 780................................................................ 15.46 Johnson Matthey & Wallace Ltd v Ahmad Alloush (1984) 135 NLJ 1012..................... 1.14 Johnstone v Pedlar [1921] 2 AC 262............................................................................... 3.5 Jones v NHS Commissioning Board [2017] EWHC 3457 (QB), [2017] 12 WLUK 213.. 18.30 Jones v Jones [1968] 1 NSWR 206.................................................................................. 2.26 Jones v Lloyd (1874) LR 18 Eq 265..................................................................3.27, 17.8, 16.27, 16.36, 17.15 Jones v North Vancouver Land & Improvement Co [1910] AC 317............................... 15.63 Jones v Noy (1833) 2 My & K 125, 39 ER 892...............................................3.25, 17.10, 17.15 Jones v Secretary of State for Wales (1974) 28 P & CR 280, 72 LGR 583...................... 3.7 Jones v Welch (1855) 1 K & J 765, 69 ER 668...........................................................17.9, 17.12 Jones, ex p Harper, Re (1857) 1 De G & J 180, 44 ER 692..........................................2.38, 18.7 Jones, ex p Jones, Re (1880–81) 18 Ch D 109................................................................ 3.22 Joplin v Postlethwaite (1889) 61 LT 629......................................................................... 15.27 Jorgensen v Boyce (1896) 22 VLR 408 (Canada)............................................................ 16.17 Joy v Campbell (1804) 1 Sch & Lef 328......................................................................... 4.22 Joyce v Morrissey [1998] 47 LS Gaz R 29.........................................................7.17, 7.22, 12.25, 12.28, 20.21 K K v P [1993] Ch 140, [1992] 3 WLR 1015, [1993] 1 All ER 521.................................... 14.60

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Table of Cases para Kao Lee Lip v Edwards [1993] 1 HKC 314..................................................................... 18.72 Kao Lee Lip v Koo (2003) WTLR 1283........................................................11.13, 11.17, 11.33, 11.35, 11.38, 14.21, 14.51 Kao Lee & Yip v Koo Hoi Tan (2003) 1 HKLRD 125.................................................... 21.2 Karfoal Pty Ltd v Lorence [2002] NSWSC 284............................................................... 18.2 Karmali Abdulla Allarkhia v Vora Karimji Jiwani (1914) LR 42 Ind App 48.....2.16, 19.1, 20.13 Katsch v Schenck (1849) 18 LJ Ch 386........................................................................... 2.34 Kaupthing Capital Partners II Master LP Inc, Re [2010] EWHC 836 (Ch), [2011] BCC 338..................................................................................................................22.20, 22.21, 22.55, 22.90 Kay v Johnston (1856) 21 Beav 536, 52 ER 967............................................................. 2.39 Kaye v Massbetter Ltd (1992) 24 HLR 28, (1990) 62 P & CR 558, [1991] 2 EGLR 97.2.5 Keech v Sandford (1726) Cel Cas 2.............................................................................11.4, 11.29 Keegan v Fitzgerald (Dep Master Mathews) Ch D 3/11//2011........................................ 14.56 Keen v Mear [1920] 2 Ch 574......................................................................................... 19.42 Keen v Price [1914] 2 Ch 98........................................................................................... 4.7 Keever, Re [1967] Ch 182, [1966] 3 WLR 779, [1966] 3 All ER 631.............................. 10.9 Kell v Nainby (1829) 10 B & C 20, 109 ER 358............................................................. 5.5 Kelly v Cooper [1993] AC 205, [1992] 3 WLR 936, [1994] 1 BCLC 395......19.75, 20.34, 24.19 Kelly v Denman & Wade (unreported, 15 May 1996)..................................................... 16.42 Kelly v Hutton (1867–68) LR 3 Ch App 703.............................................................10.8, 10.11, 10.13, 23.18 Kelly v Scotto (1880) 49 LJ Ch 383..............................................................................2.21, 2.35 Kelly’s Directories Ltd v Gavin & Lloyds [1902] 1 Ch 631...........................................2.19, 2.30 Kelsey v Kelsey (1922) 91 LJ Ch 382.............................................................................. 18.34 Kemble v Mills (1840) 9 Dowl 446, 133 ER 456..........................................................9.8, 14.50 Kemptner, Re (1869) LR 8 Eq 286.................................................................................. 8.29 Kendal v Wood (1870–71) LR 6 Exch 243.................................................................19.4, 19.19, 19.33, 20.40 Kendall v Hamilton (1878–79) LR 4 App Cas 504.........................................20.4, 20.11, 20.12, 21.3, 23.54 Kendall, ex p Dodgson, Re (1830) Mont & M 445......................................................... 6.2 Kennedy v Dodson [1895] 1 Ch 334............................................................................... 15.12 Kennedy v Erikson (1910) 13 WLR 602 (Canada).......................................................... 17.23 Kennedy v Lee (1817) 3 Mer 441, 36 ER 170................................................................. 18.66 Kennedy, Ross & Velano & Herrington v City of Hamilton [1964] SCR 274 (Canada)...21.3, 21.7 Kenny’s Patent Button-Holeing Co Ltd v Somervell & Lutwyche (1878) 38 LT 878....8.11, 8.27, 10.1 Kent v British Railways Board [1995] PIQR Q42..........................................12.21, 12.28, 12.29 Kent County Gas Light & Coke Co Ltd, Re [1913] 1 Ch 92........................................... 20.5 Keppel v Wheeler [1927] 1 KB 577, [1926] 7 WLUK 74................................................. 14.52 Kerr v Morris [1987] Ch 90, [1986] 3 WLR 662, [1986] 3 All ER 217.....7.10, 8.54, 11.1, 11.7, 15.63, 18.73, 18.77 Kershaw v Matthews (1826) 2 Russ 62, 38 ER 259........................................................ 7.25 Kewney v Attrill (1886) LR 34 Ch D 345.................................................................15.49, 21.45 Keydon Estates v Customs & Excise Comrs (LON/88/1225X) (VAT (Tribunal)...2.2, 2.19, 2.31, 2.34, 2.39 Khan v Miah [2000] 1 WLR 2123, [2001] 1 All ER 20, [2001] 1 All ER (Comm) 282....2.4, 2.7, 7.4 Kidd v Paull & Williamsons LLP [2017] CSOH 16, 2018 SC 193, [2017] 2 WLUK 111......................................................................................................................... 25.69 Kidsons (HLB) (a firm) v Lloyds Underwriters [2008] EWHC 2415 (Comm), [2009] 1 All ER (Comm) 760..............................................................................................16.1, 21.9 Kilcarne Holdings Ltd v Targetfellow (Birmingham) Ltd [2004] EWHC 2547 (Ch), [2005] 2 P & CR 8, [2004] NPC 167..................................................................... 8.35 Kilshaw v Jukes, Till & Wynn (1863) 3 B & S 847, 122 ER 317.................2.1, 2.16, 2.19, 2.21, 2.31, 2.36

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Table of Cases para King v Accumulative Life Fund & General Assurance Co (1857) 3 CBNS 151...............  7.6, 7.8 King v Chuck (1853) 17 Beav 325, 51 ER 1059..............................................................7.8, 7.10 King v Dopson (1911) 56 SJ 51....................................................................................... 15.48 King v Hoare (1844) 13 M & W 494, 153 ER 206......................................................... 20.11 King & Co v Whichelow (1895) 64 LJQB 801................................................................ 2.12 King, ex p (1810) 1 Rose 212, 17 Ves Jr 115, 34 ER 45...................................10.8, 23.18, 23.53 King (Don) Productions v Warren (No 1) [2000] Ch 291, [1999] 3 WLR 276, [1999] 2 All ER 218.......................................................................................8.1, 8.11, 11.29, 11.30, 11.34, 11.35, 18.2 King (Don) Productions v Warren (No 1) [1998] 2 All ER 608, [1998] 2 Lloyd’s Rep 176, [1998] 2 BCLC 132........................................................................................ 15.32 King (Don) Productions v Warren (No 3) [1999] 2 Lloyd’s Rep 392, [2000] BCC 263... 15.43 King, ex p Unity Joint Stock Mutual Banking Association, Re (1858) 3 De G & J 63..... 3.22 King’s Leasehold Estates, Re (1873) LR 16 Eq 521......................................................... 19.68 Kingscroft Insurance Co Ltd v HS Weavers (Underwritings) Agencies Ltd [1993] 1 Lloyd’ s Rep 187..................................................................................................... 11.2 Kingsley v Kingsley; Kingsley Bros (a firm), Re [2019] EWHC 1073 (Ch), [2019] 4 WLUK 445.........................................................................................................18.9, 18.43 Kingston, Miller & Co Ltd v Thomas Kingston & Co Ltd [1912] 1 Ch 575...............8.57, 18.66 Kintrea v Charles (1865) 12 Gr 123 (Canada)................................................................ 12.33 Kirby v Carr (1838) 3 Y & C Ex 184, 160 ER 666.....................................................17.9, 17.15 Kirby (Inspector of Taxes) v Thorn EMI plc [1988] 1 WLR 445, [1998] 2 All ER 947, [1987] STC 621...................................................................................................... 8.52 Kiriri Cotton Co Ltd v Dewani [1960] AC 192, [1960] 2 WLR 127, [1960] 1 All ER 177......................................................................................................................... 4.22 Kirk & Randall Ltd v Dunn (1924) 8 TC 663................................................................. 2.7 Kirkham v Williams [1997] 2 SCR 336........................................................................... 2.16 Kirkintilloch Equitable Co-operative Society Ltd v Livingstone 1972 SC 111, 1972 SLT 154......................................................................................................................... 19.48 Kirkwood v Cheetham (1862) 10 WR 670...................................................................... 5.7 Kirwan v Goodman (1841) 9 Dowl 330.........................................................19.24, 19.43, 19.51 Kiwak v Chaim Reiner [2017] EWHC 3018 (Ch), [2017] 11 WLUK 717....................... 2.50 Klaue v Bennett (1889) 62 DLR (4th) 369...................................................................... 12.23 Klaus v NZ Guardian Trust Co Ltd (1989) 3 BCR 307................................................... 9.7 Knight v Bell (1887) 13 VLR 878 (Australia).................................................................. 17.20 Knight v Marjoribanks (1848) 11 Beav 322, 50 ER 841................................11.43, 11.45, 16.19 Knowles v Haughton (1805) 11 Ves Jr 168, 32 ER 1052................................................ 4.21 Knox v Gye (1871–72) LR 5 HL 656.......................................................8.2, 11.2, 15.50, 15.52, 15.53, 15.55, 18.18 Knox v Mackinnon (1888) LR 13 App Cas 753.............................................................. 14.53 Koch Shipping Inc v Richards Butler (a firm) [2002] All ER (D) 316 (Jul)....................... 19.75 Koeller v Coleg Elidyr (Camphill Communities Wales) Ltd [2005] EWCA Civ 856, [2005] 2 BCLC 379, [2005] NPC 90...................................................................... 16.43 Koh v Chan (1997) 139 FCR 410................................................................................... 2.1 Kohnke v Karger [1951] 2 KB 670, [1951] 2 All ER 179, [1951] 2 TLR 40................... 20.9 Kommalage v Sayanthakumar (2014) CA................................................................20.13, 21.20, 21.42, 21.43 Kommunar, The (Lloyd’s Law Reports 1997).................................................................. 24.8 Konigsberg (a bankrupt), Re [1989] 1 WLR 1257, [1989] 3 All ER 289, [1990] Fam Law 94.....................................................................................................8.71, 15.13, 21.36 Konski v Peet [1915] 1 Ch 530....................................................................................... 18.74 Kooragang Investments Pty v Richardson & Wrench (1982) AC 462, [1981] 3 WLR 493, [1981] 3 All ER 65.......................................................................................... 19.43 Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd [1959] Ch 108, [1958] 2 WLR 858, [1958] 2 All ER 65................................................................................ 18.74 Korman v Korman (1968) 63 WWR 759 (Canada).....................................................2.39, 15.13 Korz v St Pierre (1987) 43 DLR (4th) 528....................................................................... 11.19 Kotak v Kotak [2014] EWHC 3121 (Ch)..................................................................18.43, 18.44

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Table of Cases para Kotak v Kotak [2017] EWHC 1821 (Ch), [2017] 7 WLUK 373.................................19.1, 19.10 Kotecha v Kotecha [2018] EWHC 247 (Ch), [2018] 2 WLUK 405................................. 14.27 Kouroush Fassihi v Mandy Liddiard see Item Software (UK) Ltd v Fassihi Kovats v TYO Management LLP [2009] ICR 1140, (2009) 106(18) LSG 18.................. 25.75 Krist-Janson v Manitoba Co-op Fisheries Ltd [1931] 3 WWR 743 (Canada).................. 8.1 Krizaic v Ravinder Rohini Pty Ltd (1990) 102 FLR 8...................................................7.4, 18.59 Krys v KBC Partners LP [2015] UKPC 46, [2015] 11 WLUK 482................................... 24.7 Kucor Construction & Developments & Associates v Canada Life Assurance Co (1998) 167 DLR (4th) 272 (Ontario CA)........................................................................... 24.3 Kupfer v Kupfer (1915) 60 SJ 221................................................................................... 14.26 Kwan v Lo Wai Kit (2007) HKLRD 365......................................................................... 19.61 Kwei Tek Chao (t/a Zung Fu Co) v British Traders & Shippers Ltd [1954] 2 QB 459, [1954] 2 WLR 365, [1954] 1 All ER 779................................................................ 20.36 Kyrris (No 1), Re [1998] BPIR 103................................................................................. 22.43 Kyrris (No 2), Re [1998] BPIR 111............................................................................8.36, 15.48, 22.50, 22.51 L LAC (Minerals) Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14, [1990] FSR 441 (Can SC)......................................................................................2.8, 8.68, 11.12, 11.46 LC Services Ltd v Brown [2003] EWHC 3024 (QB).................................................11.15, 14.51, 18.68, 18.71 LCC v Agricultural Food Products [1955] 2 QB 218, [1955] 2 WLR 925, [1955] 2 All ER 229.................................................................................................................... 19.42 Labouchere v Tupper (1857) 11 Moo PCC 198, 14 ER 670........................................... 1.12 Lacey v Hill (1876) 4 Ch D 537 aff’d sub nom Read v Bailey (1877–78) LR 3 App Cas 94... 12.32, 19.7, 20.32, 20.36, 20.38, 20.41, 23.39 Lacey v Walrond (1837) 6 LJCP 290............................................................................... 19.5 Ladup Ltd v Shaikh [1983] QB 225, [1982] 3 WLR 172, (1982) 126 SJ 327.................. 4.16 Laing v Campbell (1865) 36 Beav 3, 55 ER 1057........................................................... 14.42 Lake v Craddock (1723) 3 P Wms 58...........................................................................8.38, 10.3 Lake v Duke of Argyll (1844) 6 QB 477, 115 ER 178.....................................................  5.2, 5.3 Lalbhai Vallabhbhai v Kavaski Nanabhai (1871) 8 Bom OC 209 (India)........................ 17.1 La Motte Garages v Morgan [1989] JLR 312................................................................. 1.12 La Roche v Armstrong [1922] 1 KB 485......................................................................... 19.68 Lam Kee Ying Sdn Bhd v Lam Shes Tong (t/a Lian Joo Co) [1975] AC 247, [1974] 3 WLR 784, [1974] 3 All ER 137..........................................................................8.45, 18.22 Lam Tai Kwan v Lo Wai Kit [2007] HKLRD 365..........................................14.18, 18.41, 18.54 Lamphir v Creed (1803) 8 Ves Jr 599, 32 ER 488........................................................... 3.10 Lamplugh Iron Ore Co Ltd, Re [1927] 1 Ch 308............................................................ 23.31 Lancaster v Allsup (1887) 57 LT 53............................................................................7.25, 16.28 Lancefield v Lancefield [2002] BPIR 1108....................................................................... 22.89 Lane v Bushby (2000) 50 NSWLR 404 (NSW SC).......................................................... 14.53 Lane v Taylor (1866) 5 NSWSCR (L) 84......................................................................... 21.3 Lane v Williams (1692) 2 Vern 277, 23 ER 779.............................................................. 19.13 Land v Burton (1935) 79 SJ 180..................................................................................... 19.22 Land Credit Co of Ireland, Re (Weikersheim’s Case) (1872–73) LR 8 Ch App 831......... 19.25 Landford Greens v 746370 Ontario Inc (1994) 12 BLR (2d) 196................................... 17.23 Landmark Brickwork Ltd v Sutcliffe [2011] EWHC 1239 (QB).....................15.31, 15.36, 18.67 Langmead’s Trusts, Re (1855) 20 Beav 20, 52 ER 509; aff’d 7 De G & M G 353.......10.8, 12.37 Langston v AUEW (No 2) [1974] ICR 510..................................................................... 12.13 Lanyon, Re (1957) SASR 135......................................................................................... 10.23 Larkin v Long [1915] AC 814......................................................................................... 18.71

lxxxii

Table of Cases para Last, ex p Butterell, Re (1994) 124 ALR 219.................................................................. 23.13 Latcham v Martin (1984) 134 NLJ 745.........................................................11.33, 15.63, 18.42 Latchman v Pickard [2005] All ER (D) 169 (May).......................................................... 18.4 Lau Cheong, Re [2011] 4 HKLRD 382........................................................................... 10.1 Laurence, ex p M’Kenna, Re (Bank of England Case) (1861) 3 De GF & J 645............8.23, 8.26 Lauritzencool AB v Lady Navigation [2005] 1 LR 3868................................................. 15.34 Law v Dearnley [1950] 1 KB 400, [1950] 1 All ER 124, 66 TLR (Pt 1) 156........4.7, 4.21, 14.32 Law v Garrett (1878) LR 8 Ch D 26............................................................................... 15.44 Law v Law [1905] 1 Ch 140.........................................................................11.14, 11.18, 11.39, 11.44, 11.45, 14.8 Law (Samuel) v Law (John) (1845) 2 Coll 41, 62 ER 627............................................... 10.17 Lawes v Lawes (1878) LR 9 Ch D 98...............................................................7.22, 14.42, 18.35 Lawes-Wittewronge, Re [1915] 1 Ch 408....................................................................... 10.23 Lawfund Australia Pty Ltd v Lawfund Leasing [2008] NSWSC 66, ACSR 1................... 2.41 Lawless v Mansfield (1841) 1 Dr & War 557.................................................................. 14.46 Lawrence David Ltd v Ashton [1991] 1 All ER 385, [1989] ICR 123, [1989] IRLR 22.. 15.36 Lawrence v Farndon (unreported, 23 January 1998)....................................................... 18.72 Lawson (Inspector of Taxes) v Hosemaster Machine Co Ltd [1966] 1 WLR 1300, [1966] 2 All ER 944, (1966) 110 SJ 407............................................................................ 22.52 Laycock v Bulmer (1844) 13 LJ Ex 156....................................................................16.24, 16.27 Lazard Bros & Co v Midland Bank Ltd [1933] AC 289, (1932) 44 Ll L Rep 159........... 1.10 Lead Co Workmen’s Funds Society, Re [1904] 2 Ch 196................................................ 2.55 Leader v Moody (1875) LR 20 Eq 145........................................................................... 15.32 Leaf v Coles see Coles, Re Leary v Shout (1864) 33 Beav 582, 55 ER 494............................................................... 17.20 Leather Cloth Co v American Leather Cloth Co (1865) 11 HL Cas 523, 11 ER 1435, [1865] 4 WLUK 5................................................................................................... 8.52 Leathley v Spyer (1870) LR 6 CP 595............................................................................. 8.7 Lederberger v Mediterranean Olives Pty [2012] 38 VR 509............................................ 19.3 Ledgard, Re [1922] WN 105........................................................................................... 18.40 Lee v Crawford (1912) 46 ILT 81................................................................................... 8.43 Lee v Page (1861) 30 LJ Ch 857...................................................................................... 18.62 Lee (David) & Co (Lincoln) Ltd v Coward Chance (a firm) [1991] Ch 259, [1990] 3 WLR 1278, [1991] 1 All ER 668............................................................................ 19.75 Lee (George) & Sons (Builders) Ltd v Olink [1972] 1 WLR 214, [1972] 1 All ER 359, (1971) 116 SJ 102................................................................................................... 21.49 Lee Ting Sang v Chung Chi Keung [1990] 2 WLR 1173, [1990] 2 WLR 1173, [1990] ICR 409.................................................................................................................. 5.10 Lees & Smith, Re (1836) 1 Deac 705.............................................................................. 3.22 Leeson v Holt NP (1816) 1 Stark 186, 171 ER 441........................................................ 20.28 Leeson v Moses (1915) 31 WLR 817 (Canada)............................................................... 21.3 Le Fanu v Malcolmson (1848) 1 HL Cas 637, 9 ER 910................................................. 21.3 Leggott v Barrett (1880) LR 15 Ch D 306....................................................................... 18.66 Leicestershire County Council v Michael Faraday & Partners Ltd [1941] 2 KB 205....... 8.11 Leiden v Lawrence (1863) 2 New Rep 283..................................................................... 19.40 Leighton v Wales (1838) 3 M & W 545, 150 ER 1262................................................... 18.67 Leman v Berger (1876) 34 LT 235.................................................................................. 15.32 Lemenda Trading Co Ltd v African Middle East Petroleum Co Ltd [1988] QB 448, [1988] 2 WLR 735, [1988] 1 All ER 513................................................................ 4.8 Lemprière v Lange (1879) LR 12 Ch D 675.................................................................... 3.22 Leng (Sir WC) & Co v Andrews (1909) 1 Ch 763........................................................... 18.72 Le Roy v Herrenschmidt (1876) 2 VLR (Eq) 189 (Australia).......................................... 17.24 Leung Wing Yiu v Siu King Yuen (2003) 2 HKLRD........................................................ 15.5 Leslie (R) Ltd v Sheill [1914] 3 KB 607........................................................................... 3.22 Leveck v Shaftoe (1796) 2 Esp 468, 170 ER 422............................................................. 21.3 Leverson v Lane (1862) 13 CBNS 278......................................................................19.17, 20.40 Levey, ex p Topping, Re (1865) 4 De GJ & Sm 551..................................................23.33, 23.47 Levy v Davis [1900] WN 174.......................................................................................... 15.47

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Table of Cases para Levy v Walker (1878–79) 10 Ch D 436, [1874–80] All ER Rep 1173, (1879) 127 WR 370.....................................................................................................................8.55, 18.66 Lewin v Morrison (1867) 2 Agra 351 (India).................................................................. 14.5 Lewis v Bright (1855) 4 E & B 917................................................................................. 3.14 Lewis v Daily Telegraph Ltd (No 2) [1964] 2 QB 601, [1964] 2 WLR 736, [1964] 1 All ER 705.................................................................................................................... 21.2 Lewis v Langdon (1835) 7 Sim 421, 58 ER 899.............................................................. 18.66 Lewis v Narayanasamy (t/a Dotcom Solicitors) [2017] EWCA Civ 229, [2017] 4 WLUK 160......................................................................................................................... 2.33 Lewis v Reilly (1841) 4 Per & Dav 629........................................................................... 18.2 Lewis v Sturge (NZ Case Law Dig 1990–92).................................................................. 8.10 Lewis v White (1863) 2 New Rep 81.............................................................................. 18.2 Lewthwaite v Stimson (1966) 110 SJ 188........................................................................ 15.11 Lexi Holdings plc (in administration) v Luqman [2007] EWHC 2652 (Ch).................... 21.27 Liddle v Liddle [2017] EWHC 2261 (Ch), [2017] 9 WLUK 194, [2017] BPIR 1538 16.37, 18.34, 18.46 Lie v Mohile [2014] EWCA Civ 728, [2014] 2 P & CR 13............................................. 8.44 Lie v Mohile [2014] EWHC 3709 (Ch), [2014] 11 WLUK 248.....................................18.2, 18.4 Lie v Mohile [2015] EWHC 200 (Ch)......................................................................14.13, 14.15, 14.16, 16.42 Liggett v Hamilton (1895) 24 SCR 665........................................................................... 18.2 Lightoller, ex p Peake, Re (1816) 1 Madd 346, 56 ER 128............................................. 10.4 Lim Hsi-Wei-Marc v Orix Capital [2010] 3 SLR 1189, (2011) 3 LRC 695 (HK CA)......5.7, 19.3 Lindem Trawler Managers v WHJ Trawlers (1949–50) 83 Ll L Rep 131.......16.11, 16.18, 19.13 Linden Gardens Trust Ltd v Lenesta Sludge Disposals [1994] 1 AC 85, [1993] 3 WLR 408, [1993] 3 All ER 417....................................................................................8.11, 20.21 Lindsay v Crawford & Lindsays (1911) 45 ILT 52......................................................... 21.42 Lindsay Petroleum Co v Hurd (1873–74) LR 5 PC 221.................................................. 15.61 Lindsay, Woodward & Hiscox v IRC 1933 SC 33, 1933 SLT 57, 18 TC 43................... 4.14 Lingen v Simpson (1824) 1 Sim & St 600, 57 ER 236.................................................10.8, 18.34 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, [1991] 3 WLR 10, [1992] 4 All ER 512................................................................................................4.18, 15.19, 18.27, 19.5, 19.16, 19.69, 20.40 Lipton v Powell [1921] 2 KB 51...................................................................................... 4.21 Liquidator of West Mercia Safetyware v Dodd (1988) 4 BCC 30, [1988] BCLC 250, [1988] PCC 212...................................................................................................... 19.9 Lisle v Reeve [1902] 1 Ch 53; aff’d AC 461.................................................................... 7.25 Lister v Hesley Hall [2001] UKHL 22, [2002] 1 AC 215, [2001] 2 WLR 1311........14.50, 19.43, 19.45, 19.51 Lister v Romford Ice & Cold Storage [1957] AC 555, [1957] 2 WLR 158, [1957] 1 All ER 125.................................................................................................................... 14.53 Lister & Co v Stubbs (1890) LR 45 Ch D 1.................................................................... 11.36 Littlewood v Caldwell (1822) 11 Price 97, 147 ER 413.................................................. 15.32 Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472, [1978] 1 All ER 1026, (1977) 121 SJ 727................................................................................................... 18.67 Livanos, Re (1955) QSR 362..........................................................................................8.4, 8.33 Liverpool Borough Bank v Walker (1859) 4 De G & J 24, 45 ER 10.............................. 20.12 Lloyd v Dimmack (1877–78) LR 7 Ch D 398................................................................. 18.40 Lloyd v Grace, Smith & Co [1912] AC 716.............................................................19.43, 19.45, 19.51, 19.55 Lloyd v Wright [1983] QB 1065, [1983] 3 WLR 223, [1983] 2 All ER 969.................... 15.27 Lloyds v Harper (1880–81) 16 Ch D 290........................................................................ 21.3 Lloyds Bank Ltd v Bundy [1975] QB 326, [1974] 3 WLR 501, [1974] 3 All ER 757...... 7.18 Lloyds Bank plc v Rosset [1991] 1 AC 107, [1990] 2 WLR 867, [1990] 1 All ER 1111. 2.58 Lloyds Bank Ltd v Swiss Bankverein (1912) 107 LT 309................................................ 19.4 Lobb (Alec) (Garages) Ltd v Total Oil GB Ltd [1983] 1 WLR 87, [1983] 1 All ER 944, (1983) 133 NLJ 401; [1985] 1 WLR 173, [1985] 1 All ER 303, [1985] 1 EGLR 33, CA......................................................................................................................7.19, 18.75

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Table of Cases para Lockett v Lockett (1868–69) LR 4 Ch App 336.............................................................. 14.34 Locubail (UK) Ltd v Bayfield Properties Ltd (Leave to Appeal) [2000] QB 451, [2000] 2 WLR 870, [2000] 1 All ER 65................................................................................ 19.75 Lodge v Prichard (1853) 3 De GM & G 906, 43 ER 354, (1853) 1 Sm & G 8............... 11.22 Loftus (decs’d), Re sub nom Green v Gaul [2006] EWCA Civ 1124, [2007] 1 WLR 591, [2006] 4 All ER 1110........................................................................................15.61, 21.19 Logicrose Ltd v Southend United Football Club Ltd (No 2) [1988] 1 WLR 1256, [1988] EG 114 (CS)............................................................................................................ 11.36 Lo-Line Electric Motors Ltd, Re [1988] Ch 477, [1988] 3 WLR 26, [1988] 2 All ER 692.................................................................................................................22.86, 25.104 Lomas v Bradshaw (1850) 9 CB 620............................................................................... 14.33 Lomax Leisure, Re [1999] 1 BCLC 126.......................................................................... 22.49 Lon Eagle Industrial Ltd v Realy Trading Co [1999] 4 HKC 675..............................20.25, 20.27 London & Eastern Banking Corpn (1859) 1 De GF & J 17............................................ 4.21 London & North Western Rly Co v M’Michael (1850) 5 Exch 855, 155 ER 374.........3.22, 3.23 London & Regional Investments v TBI plc [2002] EWCA Civ 355................................. 2.40 London Association for Protection of Trade v Greenlands Ltd [1916] 2 AC 15.............. 15.10 London, Chatham & Dover Rly Co v South Eastern Rly Co (1892) 1 Ch 120................ 14.20 London County Freehold & Leasehold Properties Ltd v Berkeley Property & Investment Co Ltd [1936] 2 All ER 1039.................................................................................. 19.51 London International Trust v Barclays Bank (1980) 1 LIR 241....................................... 19.5 London Scottish Benefits Society v Chorley (1884) 12 QBD 451, (1884) 13 QBD 872... 21.51 London Sewers Comrs v Gellatly (1876) LR 3 Ch D 610................................................ 15.10 London Syndicate v Lord (1878) LR 8 Ch D 84........................................................14.30, 21.37 Lonergan, ex p Sheil, Re (1876–77) LR 4 Ch D 789....................................................... 23.9 Longman v Pole (1828) Mood & M 223, 173 ER 1139..............................................19.45, 21.3 Longmore v Calvert (1859) 32 LTOS 310....................................................................... 18.32 Longstaff v Birtles [2001] EWCA Civ 1219, [2002] 1 WLR 470, [2001] 34 EG 98 (CS).14.51 Lord Gallway v Matthew & Smithson (1808) 10 East 264, 103 ER 775........................ 19.4 Loscombe v Russell (1830) 4 Sim 8, 58 ER 4.................................................................. 17.21 Lovegrove v Nelson (1834) 3 My & K 1, 40 ER 1.......................................................... 7.25 Lovell & Christmas v Beauchamp sub nom Beauchamp Bros, Re [1894] AC 607........3.22, 3.24, 10.1, 21.13, 21.22, 21.38, 21.41, 21.43, 21.47 Lowe v Dixon (1885–86) LR 16 QBD 455..................................................................... 14.61 Loxton v Wassall (unreported, 1 February 2002)............................................................ 22.55 Loyd v Freshfield & Kaye (1826) 2 C & P 325............................................................... 19.3 Lucas v Beach (1840) 4 Jur 631...................................................................................... 12.25 Lucas (T) v Mitchell [1974] Ch 129, [1972] 3 WLR 934, [1972] 3 All ER 689.............. 18.67 Luchmeechund v Mull (1860) 3 LT 603.......................................................................... 1.14 Luckie v Forsyth (1846) 3 Jo & Lat 388......................................................................... 14.33 Ludgater v Love (1881) 44 LT 694...........................................................................19.44, 19.51 Lumley v Wagner (1852) 1 De GM & G 604, 42 ER 687............................................... 15.34 Lyne-Pirkis v Jones [1969] 1 WLR 1293, [1969] 3 All ER 738, (1969) 113 SJ 568...18.72, 18.73, 18.74, 18.77 Lynch v Stiff (1943) 68 CLR 428.................................................................................... 5.7 Lyon v Coward (1846) 15 Sim 287, 60 ER 628.............................................................. 16.27 Lyon v Knowles (1864) 5 B & S 751, 122 ER 1010........................................................ 2.30 Lyon v Tweddle (1881) 17 Ch D 170.............................................................................. 18.62 Lysaght Ltd v Clark & Co [1891] 1 QB 552.............................................................21.30, 21.39 M MCA Records v Chorley Records (No 5) [2001] EWCA Ci 1441, [2002] BCC 650, [2003] 1 BCLC 93.................................................................................................. 25.70 MMI General Insurance v Baktoo [2000] NSWCA 70 (NSW Sup Ct CA)...................... 19.51

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Table of Cases para MS Fashions Ltd v Bank of Credit & Commerce International SA (in liquidation) [1993] Ch 425, [1993] 3 WLR 220, [1993] 3 All ER 769.................................................. 23.13 MT Realisations, Re [2003] EWHC 2895 (Ch), [2004] 1 WLR 1678, [2004] 1 All ER 577......................................................................................................................... 23.23 M Young Legal see Young McAleenan v AIG (2010) IEHC 128............................................................................... 2.11 Macalister Todd Phillips Bodkins v AMP General Assurance Ltd (2006) NZSC 105...... 14.53 MacCarthaigh v Daly [1986] IRLM 116.............................................................2.5, 24.5, 24.24, 24.25, 24.31 McCarthy Surfing Ltd, Re [2006] EWHC 882................................................................ 10.22 McCarthy v Bence [1990] 1 EGLR 1.............................................................................2.62, 8.48 McClean v Kennard (1873–74) LR 9 Ch App 336.........................................7.6, 7.7, 8.11, 18.2, 18.11, 18.31, 18.42, 18.50, 21.6, 23.47 McClelland v Hyde [1942] NI 1...................................................................................... 9.2 McComb v McCaig [1920] 1 WWR 508 (Canada)......................................................... 17.6 McCraney v McCool (1890) 19 OR 470; aff’d (1890) 18 AR 217 (Canada).................. 18.31 MacDonald v Costello [2011] EWCA Civ 930, [2012] QB 244, [2011] 3 WLR 1341.... 25.63 Macdonald v Richardson (1858) 1 Giff 81, 65 ER 833..................................10.17, 10.19, 19.62 Macdonald v Tacquah Gold Mines Co (1884) 13 QBD 535.....................................21.49, 25.52 McDowie v Hetherington (1997) 142 DLR (4th) 648 (Canada)..................................19.9, 19.61 McEllistrim v Ballymacelligott Co-operative Agricultural & Dairy Society Ltd [1919] AC 548, [1919] 3 WLUK 49...................................................................................4.9, 4.14 McEwan v Crombie (1883) LR 25 Ch D 175.................................................................. 21.10 McFadgen v Stewart (1865) 11 Gr 272 (Canada)............................................................ 15.61 Macfarlane v Falfield Investments Ltd 1996 SCLR 826, 1997 SLT 518.........................2.5, 8.48, 24.4, 24.25 McGillivray v Simson (1826) 2 C & P 320..................................................................... 21.10 McGowan & Co Ltd v Dyer (1872–73) LR 8 QB 141.................................................... 19.45 M’Gown v Henderson 1914 SC 839, 1914 2 SLT 66...................................................... 7.10 McIlreath v Margetson (1785) 4 Doug KB 278, 99 ER 880............................................ 12.36 McInroy v Hargrove (1867) 16 LT 609.........................................................................2.20, 2.31 McIntyre & Edwards, ex p Gillard (1895) 13 NZLR 735............................................... 19.1 M’Iver v Humble (1812) 16 East 169, 104 ER 1053....................................................... 5.3 McKellar v Wallace (1853) 8 Moo PCC 378................................................................... 14.42 Macken v Revenue Comrs [1962] IR 302....................................................................... 2.7 McKenzie v McKenzie [1921] NZLR 319....................................................................... 2.12 McKersey v Hewitt (1997) NSW Lexis 1367 (NSW SC)................................................. 14.51 McKie v Luck (1925) 9 TC 511...................................................................................... 2.39 MacKinlay (Inspector of Taxes) v Aurthur Young McClelland Moores & Co [1990] 2 AC 239, [1989] 3 WLR 1245, [1990] 1 All ER 45..............................................2.32, 24.13 MacKissock v Brown (1913) 23 WLR 782...................................................................... 8.31 MacLaren v Stainton (1861) 3 De GF & J 202............................................................... 12.21 McLaren v McMillan (1907) 16 Man LR 604 (Canada)................................................. 21.7 McLaughlin v Duffill [208] EWCA Civ 1627, [2010] Ch 1, [2009] 3 WLR 1139........... 8.35 McLean v Clark (1893) 20 AR 660 (Canada)................................................................. 5.6 McLean v Kennard (1873–74) LR 9 Ch App 336........................................................... 8.2 McLeod v Dowling (1927) 43 TLR 655...........................................................7.10, 16.26, 16.28 M’Lure v Ripley (1850) 2 Mac & G 274, 42 ER 105.....................................11.13, 14.12, 15.64 Macnee v Persian Investment Corpn (1890) LR 44 Ch D 306......................................... 4.2 M’Neill v Reid (1832) 9 Bing 68, 131 ER 540................................................................ 7.25 McPhail v Bourne [2008] EWHC 1235 (Admin)............................................................. 2.15 McVeagh (Russell) v Tower Corpn [1998] 3 NZLR 641................................................. 20.34 McWhirter v Creber [1931] 1 DLR 642 (Canada).......................................................... 20.21 Machin v Bennet [1900] WN 146................................................................................... 15.44 Macquarie Internationale Investments Ltd v Glencore UK Ltd [2010] EWCA Civ 697, [2011] 1 BCLC 561, [2010] 1 CLC 1035................................................................ 12.21

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Table of Cases para Maddeford v Austwick (1826) 1 Sim 89, 57 ER 512....................................................... 11.44 Maddison v Alderson (1882–83) LR 8 App Cas 467....................................................... 8.31 Madgwick v Wimble (1843) 6 Beav 495, 49 ER 917..................................................7.25, 15.43 Madsen v Canada 196/332 (FCA, Canada)..................................................................... 24.1 Magdalena Steam Navigation Co, Re (1860) John 690, 70 ER 597................................ 12.23 Ma’Har v O’Keeffe (CA 26/11/2014)........................................................................15.19, 18.58 Mahesan v Malaysia Government Officers’ Co-operative Housing Society Ltd [1979] AC 374, [1978] 2 WLR 444, [1978] 2 All ER 405............................................11.36, 14.21 Mah Kong Doon v Mah Cap Doon (1918) 1 WWR 610................................................ 11.29 Mahmoud & Ispahani, Re [1921] 2 KB 716, (1921) 6 Ll L Rep 344.............................. 4.2 Mahmud v Bank of Credit & Commerce International SA (in liquidation) [1998] AC 20, [1997] 3 WLR 95, [1997] 3 All ER 1...................................................................... 14.62 Maillie v Swaney 2000 SLT 464, 2000 GWD 6-233..............................................7.7, 7.10, 16.1 Mainwaring v Goldtech Investments (No 2) [1999] 1 WLR 745, [1999] 1 All ER 456, [1999] 1 Costs LR 96............................................................................................20.7, 20.9 Mair v Wood 1948 SC 83, 1948 SLT 326, 1948 SLT (Notes) 4....................................... 14.54 Major (Inspector of Taxes) v Brodie [1998] STC 491, 70 TC 576, [1998] BTC 141.......1.11, 6.3 Majrowski (William) v Guy’s & St Thomas’ NHS Trust [2005] EWCA Civ 251, [2005] QB 848, [2005] 2 WLR 1503................................................................19.45, 19.51, 19.54 Malik v Bank of Credit & Commerce International SA (in liquidation) [1998] AC 20, [1997] 3 WLR 95, [1997] 3 All ER 1..................................................................2.32, 11.10 Malkinson v Trim [2002] EWCA Civ 1273, [2003] 1 WLR 463, [2003] 2 All ER 356... 21.51 Mallesons Stephen Jacques v KPMG Peat Marwick (1990) 4 WAR 357...................19.75, 20.34 Mallon v Craig [1852] 2 OR 541 (Canada).................................................................... 2.31 Manches v Trimborn (1946) 115 LJKB 305.................................................................... 3.25 Manchester & Milford Rly Co, ex p Cambrian Rly Co, Re (1880) LR 14 Ch D 645...... 15.47 Mandelberg v Adams (1931) 31 SRNSW 50................................................................... 19.17 Manley v Sartori [1927] 1 Ch 157.......................................................................8.1, 18.9, 18.17 Manley, ex p Wilson, Re (1842) 3 Mont D & De G 57.................................................. 20.4 Mann v D’Arcy [1968] 1 WLR 893, [1968] 2 All ER 172, (1968) 112 SJ 310...6.5, 19.11, 19.31 Mann v Nash (Inspector of Taxes) [1932] 1 KB 752....................................................... 2.16 Mann v Sinclair (1879) 6 R 1078.................................................................................... 20.28 Mannai Investment Co Ltd v Eagle Star Assurance Co Ltd [1997] AC 749, [1997] 2 WLR 945, [1997] 3 All ER 352..........................................................................7.25, 16.24 Mannigel v Aitken (1985) 9 FCR 1 (Australia)............................................................... 16.29 Manning v English [2010] EWHC 153 (Ch), [2010] Bus LR D89.................14.18, 14.22, 15.52, 15.55, 15.58, 18.53 Mansell v Feeney (1861) 2 John & H 313, 70 ER 1076.................................................. 15.12 Mantovani v Carapelli SpA [1980] 1 Lloyd’s Rep 375, (1979) 123 SJ 568...................... 15.23 Mara v Browne [1896] 1 Ch 199....................................................................19.9, 19.53, 19.58, 19.61, 19.62 March Cabaret Club & Casino Ltd v London Assurance Ltd [1975] 1 Lloyd’s Rep 169.18.28 Marchant v Morton, Down & Co [1901] 2 KB 829.................................................19.11, 19.20 Marconi’s Wireless Telegraph Co Ltd v Newman [1930] 2 KB 292................................. 2.19 Marene Knitting Mills Pty Ltd v Greater Pacific General Insurance Ltd [1976] 2 Lloyd’s Rep 631.................................................................................................................. 18.28 Mark Lawler Architects Pty Ltd v Rod Seymour Pty Ltd (No 2) [2014] NSWSC 1418... 14.28 Marks & Spencer plc v Freshfields Bruckhaus Deringer [2004] EWHC 1337 (Ch), [2004] 1 WLR 2331, [2004] 3 All ER 773.............................................................. 19.75 Marlborough Harbour Board v Goulden [1985] 2 NZLR 78.......................................... 16.43 Marley v Rawlings [2014] UKSC 2................................................................................. 7.11 Marquise de Ribeyre v Barclay (1857) 23 Beav 107, 53 ER 42........................19.60, 20.5, 20.34 Marsden v Guide Dogs for the Blind [2004] EWHC 593 (Ch), [2004] 3 All ER 222, [2004] 3 Costs LR 378...........................................................................20.13, 20.15, 20.21 Marsh v Joseph [1897] 1 Ch 213.....................................................................19.5, 19.43, 19.51 Marsh v Keating (1834) 2 Cl & Fin 250......................................................................... 19.62 Marsh v Stacey (1963) 107 SJ 512, 113 LJ 625..................................................2.20, 2.32, 12.29 Marshall, Re [1920] 1 Ch 284......................................................................................3.25, 3.26

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Table of Cases para Marshall v Bullock [1998] EWCA Civ 561...................................................14.18, 14.22, 14.39, 14.56, 14.60, 15.52, 15.53, 15.55, 15.58 Marshall v Colman (1820) 2 Jac & W 266, 37 ER 629............................................15.35, 17.20 Marshall v Mclure (1884–85) LR 10 App Cas 325......................................................... 10.1 Marshall v Marshall (1999) 1 Qd R 173.......................................................................2.19, 2.21 Marshall v NM Financial Management Ltd [1997] 1 WLR 1527, [1997] ICR 1065, [1997] IRLR 449.................................................................................................... 18.75 Marshall & Murray Ltd v Jones (1913) 29 TLR 351...................................................... 8.52 Martin v Davies (1983) 7 HLR 119, 159 EG 191, [1952] CPL 189................................ 2.5 Martin v Sherry [1905] 2 IR 62....................................................................................... 4.11 Martin’s Bank Ltd v Trustee see Barnard, Re Martindale, Re (1832) 1 Deac & Ch 464........................................................................ 11.23 Martin-Smith v Williams [1998] EMLR 334................................................................... 2.42 Martyn v Gray (1863) 14 CBNS 824..............................................................................  5.2, 5.5 Marx v Marx [1964] SCR 653 (Canada)......................................................................2.26, 2.58 Mascall v Smith (1676) Reg Lib 1676...........................................................................11.1, 19.1 Masecar v McKenzie & Sons [1924] 2 DLR 1242.......................................................... 19.36 Mason v Cooper (1893) 15 PR 418 (Canada)................................................................. 21.30 Mason, ex p Bing, Re [1899] 1 QB 810........................................................................23.7, 23.9 Mason & Son v Mogridge (1892) 8 TLR 805................................................................. 21.21 Masri v Consolidated Contractors (Oil & Gas) Co SAL [2009] EWCA Civ 36, [2009] 1 CLC 82................................................................................................................... 15.27 Mathurdas Canji Matani v Ebrahim Fazalbhoy (1927) ILT 51 Bom 986 (India)............. 21.15 Matthews v Baxter (1872–73) LR 8 Exch 132................................................................ 3.25 Matthews v Hodgson (1886) 2 TLR 899........................................................................ 18.66 Matthews v Ruggles-Brise [1911] 1 Ch 194...................................................12.34, 12.37, 20.19 Matthews v Saurin (1893) 31 LR Ir 181......................................................................... 18.40 Mattis v Pollock (t/a Flamingoes Nightclub) [2003] EWCA Civ 887, [2003] 1 WLR 2158, [2004] 4 All ER 85..................................................................................19.45, 19.54 Matz v Matz [1984] Fam Law 178................................................................................. 17.2 Maunder v Lloyd (1862) 2 John & H 718, 70 ER 1248.............................................14.24, 15.4 Mawman v Gillett (1809) 2 Taunt 325n......................................................................... 20.13 Maxwell v Price [1959] 2 Lloyd’s Rep 352...................................................................... 18.28 Mayfield v Sankey (1890) 6 TLR 185............................................................................. 19.23 Mayhew v Herrick (1849) 7 CB 229............................................................................... 10.2 Meagher v Meagher [1961] IR 96.............................................................................18.16, 18.18 Medcalf v Mardell [2000] EWCA Civ 63...................................................................2.49, 12.24, 12.25, 12.34 Medforth v Blake [2000] Ch 86, [1999] 3 WLR 922, [1999] 3 All ER 97....................... 11.1 Medwin v Ditcham (1882) 47 LT 250.......................................................................15.42, 15.47 Meekins v Henson [1964] 1 QB 472, [1962] 3 WLR 299, [1962] 1 All ER 899  19.44, 19.45, 19.51, 19.54, 20.5 Megevand, ex p Delhasse, Re (1877–78) LR 7 Ch D 511................................................2.1, 2.35 Mehra v Shah [2004] EWCA Civ 632, [2004] 5 WLUK 447........................................... 2.35 Mellersh v Keen (1859) 27 Beav 236, 54 ER 92.......................................................16.24, 16.27, 17.9, 18.9 Mellor v Mellor [1992] 1 WLR 517, [1992] 4 All ER 10, [1992] BCC 513..............15.46, 15.47 Mellors v Shaw (1861) 25 JP 806.................................................................................... 19.48 Memec plc v IRC [1998] STC 754, 71 TC 77, [1998] BTC 251..........................1.11, 1.13, 2.19, 24.3, 24.8 Mendieta v Nolan & Evison (1958) 11 DLR (2d) 779 (Canada)..................................... 19.43 Menzies’ Trustees v Blach’s Trustees 1909 SC 239, (1908) 16 SLT 580........................... 18.32 Mephistopheles Debt Collection Service v Lotay [1994] 1 WLR 1064, (1994) 138 SJLB 119, [1995] 1 BCLC 41........................................................................................21.5, 24.3 Mercantile Bank of Sydney v Taylor [1893] AC 317....................................................... 20.20 Mercantile Credit Association v Coleman (1870–71) LR 6 Ch App 558......................... 11.14

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Table of Cases para Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103..............................19.3, 19.10, 19.43, 19.51, 20.5 Mercer v Graves (1871–72) LR 7 QB 499....................................................................... 10.9 Merchant Banking Co of London v Merchant’s Joint Stock Bank (1878) LR 9 Ch D 560......................................................................................................................... 8.57 Meridian Global Funds v Securities Commission [1995] 2 AC 500, [1995] 3 WLR 413, [1995] 3 All ER 918............................................................................................19.1, 25.70 Merrett v Babb [2001] EWCA Civ 214, [2001] QB 1174, [2001] 3 WLR 1.................... 25.70 Mertens v Haigh (1860) John 735; aff’d (1863) 3 De GJ & Sm 528.........................15.11, 15.32 Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, [1989] 3 WLR 563, [1989] 3 All ER 14................................................................................ 14.21 Metcalf (Sir Theophilus) v Bruin (1810) 12 East 400, 104 ER 156................................. 20.24 Metlej v Kavanagh [1981] 2 NSWLR 339.......................................................11.8, 11.13, 11.29, 18.42, 22.17 Metropolitan Bank v Heiron (1880) 5 Ex D 319............................................................. 11.36 Mexican & South American Mining Co, Re (1858) 26 Beav 177, 53 ER 865................. 4.21 Meyer v Dreyfus (Louis) & Cie [1940] 4 All ER 157...................................................... 21.28 Meyer v Schacher (1878) 38 LT 97........................................................................2.6, 2.35, 7.25 Meyer & Co v Faber (No 2) [1923] 2 Ch 421..........................................1.1, 8.17, 14.22, 14.28, 14.63, 15.5, 15.8, 15.9, 21.1, 22.12 Meymott v Meymott (1862) 31 Beav 445, 54 ER 1211.................................................. 12.32 Midland Bank Trust Co Ltd v Green (No 1) [1981] AC 513, [1981] 2 WLR 28, [1981] 1 All ER 153........................................................................................................... 23.4 Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1978] Ch 384........................19.48, 20.19 Midland Bank Trustee (Jersey) Ltd v Federated Pension Services (1996) PLR 179 (Jersey CA)......................................................................................................................... 14.53 Miah v Islam [2010] EWHC 1569 (Ch)........................................................................4.3, 12.34 Michel v Michel [2019] EWHC 1378 (Ch), [2019] 5 WLUK 501, [2020] 1 BCLC 54.... 25.44 Milburn v Codd (1827) 7 B & C 419, 108 ER 779......................................................... 12.25 Miles v Clarke [1953] 1 WLR 537, [1953] 1 All ER 779, (1953) 97 SJ 209..........2.20, 8.5, 8.21, 8.22, 8.32, 8.52, 12.21, 12.26 Miles v Thomas (1839) 9 Sim 606, 59 ER 492..........................................................15.35, 16.23 Millar v Craig (1843) 6 Beav 433, 49 ER 893....................................................9.7, 14.35, 14.49 Miller v Mackay (No 2) (1865) 34 Beav 295, 55 ER 649..........................................11.38, 12.24 Miller v MacLeod (John Finlay) 1973 SC 172, 1974 SLT 99.......................................... 20.15 Miller v Miller (1869) LR 8 Eq 499..........................................................................14.18, 15.53 Miller v White (1889) 16 SCR 445 (Canada).................................................................. 21.37 Millington v Holland (1869) 18 WR 184........................................................................ 15.53 Mills v Boyd (1842) 6 Jur 943......................................................................................... 20.21 Mills v United Counties Bank Ltd [1912] 1 Ch 231........................................................ 10.12 Mills, Bloom & Burton v HSBC Trustee [2011] UKSC 48.............................................. 23.12 Milne v Bartley (1839) 3 Jur 358.................................................................................... 17.15 Mingaye v Wilkins (1848) 11 LTOS 41........................................................................... 16.39 Minister of Finance v Smith [1927] AC 193.................................................................... 4.14 Ministry of Health v Simpson see Diplock, Re Ministry of National Revenue v Shields (1963) Ex C R V91........................................... 2.5 Minnit v Whinery (1721) 5 Bro Parl Cas 489, 2 ER 815................................................. 20.27 Minter v Minter (2000) 10 BPR 18 (NSW Sup Ct).......................................................... 2.26 Minwalla v Minwalla (2006) WTLR 311........................................................................ 2.5 Mirco Bros Pty v Palermo Nominees (2005) WASC 190................................................. 14.53 Mireskandari v Law Society [2009] EWHC 2224 (Ch), [2011] Costs LR Online 125, (2009) 106(36) LSG 17........................................................................................... 19.75 Mistry Goa Petha v NH Moos (1931) ILR 10 Pat 782.................................................... 10.10 Mitchell v Brown (1881) 7 VLR (Eq) 55......................................................................... 8.26 Mitchell v Cockburn (1794) 2 Hy Bl 380........................................................................ 4.21 Mitchell v Weise [1892] WN 139.................................................................................... 15.49

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Table of Cases para Moffat v Longmuir 2001 SC 137, 2001 SLT 108, [2000] 8 WLUK 34............................ 18.34 Mogford v Courtenay (1881) 45 LT 303......................................................................... 18.66 Mohamed v Alaga & Co [2000] 1 WLR 1815, [1999] 3 All ER 699, [2000] CP Rep 87.........4.2, 4.21 Mohamud v Wm Morrison Supermarkets plc [2016] UKSC 11, [2016] AC 677, [2016] 2 WLR 821...........................................................................................19.43, 19.45, 19.50, 19.51, 19.53, 19.54 Moir v Moir (NZ High Ct, CHCH, CIV 2004-409-2510).............................................. 14.42 Mollwo, March & Co v Court of Wards (1871–73) LR 4 PC 419, 17 ER 495, (1872) 9 Moo PCNS 214.....................................................................................................2.2, 2.20, 2.35, 8.20 Moloney v Piochiarzki (2004) 51 ACSR 564.................................................................. 15.43 Molton v Camroux (1848) 2 Exch 487; aff’d (1849) 4 Exch 17, 154 ER 1107............... 3.25 Momentum Productions Pty Ltd v Lewarne (2009) FCAFC 30, (2009) 174 FCR 268 (Fed Ct Aus)..........................................................................................................2.19, 2.34 Montefiore v Lloyd (1863) 15 CBNS 203....................................................................... 8.7 Montgomery, Jones & Co v Libenthal & Co [1898] 1 QB 487, (1898) 78 LT 406......... 21.29 Moore v Clarke [1942] 4 DLR 560................................................................................. 8.23 Moore v Davis (1879) LR 11 Ch D 261................................................................2.1, 2.21, 2.31, 2.33, 2.39 Moore v Knight [1891] 1 Ch 547....................................................................19.9, 19.51, 21.19, 21.37, 23.39 Moore v Smith (1851) 14 Beav 393, 51 ER 338.............................................................. 19.34 Moquin v Dadd [1944] Que PR 73 (Canada).................................................................. 2.33 Morden Rigg & Co v Monks (1923) 8 TC 450............................................................... 2.19 Morehouse v Newton (1849) 3 De G & Sm 307............................................................. 14.29 Moreton v Handem (1825) 4 B & C 223........................................................................ 19.48 Morgan v Ashcroft [1938] 1 KB 49................................................................................. 4.7 Morgan v Forster (1976) 69 DLR (3d) 28 (Canada)....................................................... 18.66 Morgan Crucible Co v Hill Samuel [1991] Ch 300......................................................... 25.70 Morice v Hubbard (1909) 10 WLR 703.......................................................................... 11.32 Morison v London County & Westminster Bank Ltd [1914] 3 KB 356.......................... 19.7 Morris v Barrett (1829) 3 Y & J 384...................................................................8.23, 8.25, 8.26 Morris v Colman (1812) 18 Ves Jr 437, 34 ER 382........................................................ 15.32 Morris v Morris (1993) 9 WAR 150.........................................................................10.10, 10.21 Morris v Wentworth-Stanley [1999] QB 1004, [1999] 2 WLR 470, [1999] 1 FLR 83.20.8, 20.9, 20.11 Morris Angel & Son Ltd v Hollande [1993] 3 All ER 569, [1993] ICR 71, [1993] IRLR 169...................................................................................................................18.23, 18.70 Morris (Herbert) Ltd v Saxelby [1916] 1 AC 688........................................................... 18.72 Morrison v Barking Chemicals Co Ltd [1919] 2 Ch 325................................................. 18.40 Morrison (Shona) v Aberdein Considine & Co [2018] 7 WLUK 427, [2019] IRLR 10... 2.11 Mortgage Corpn Ltd v Shaire [2001] Ch 743, [2001] 3 WLR 639, [2001] 4 All ER 364.18.46 Mortgage Express Ltd v Dunsmore Reid & Smith (unreported, 6 December 1996)...3.8, 6.2, 6.3 Mortimer v Beckett [1920] 1 Ch 571.............................................................................. 15.32 Mosaic Oil NL v Angari Pty Ltd (1990) 20 NSWLR 280................................................ 7.14 Moschi v Lep Air Services [1973] AC 331, [1972] 2 WLR 1175, [1972] 2 All ER 393... 14.17 Moser v Cotton (No 1) (1990) 134 SJ 1190.................................................................... 11.21 Moss v Elphick [1910] 1 KB 846......................................................................7.7, 16.10, 16.11, 16.15, 16.23 Mosse v Salt (1863) 32 Beav 269, 55 ER 106................................................................. 15.64 Moulton v Roberts [1977] Qd R 135.............................................................................. 18.40 Moung Tha Huyin v Thein Myah (1900) ILR 28 Calc 53 (India)................................... 15.63 Muckleston v Brown (1801) 6 Ves Jr 52, 31 ER 934....................................................... 4.23 Muggeridge’s v Smith & Co (1884) 1 TLR 166.............................................................. 21.11 Muir v City of Glasgow Bank (in liquidation) (1878–79) LR 4 App Cas 337.................. 3.9 Mukerjee v Sen [2013] EWHC 1997 (Ch)................................................................. 14.42, 15.6, 15.61

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Table of Cases para Mulcaire v News Group Newspapers Ltd [2011] EWHC 3469 (Ch), [2012] Ch 435, [2012] 2 WLR 831.................................................................................................. 4.21 Mulford v Griffin (1858) 1 F & F 145............................................................................ 5.3 Mullins v Laughton [2002] EWHC 2761 (Ch), [2003] Ch 250, [2003] 2 WLR 1006....7.2, 11.1, 12.10, 14.9, 14.12, 14.17, 14.50, 14.51, 14.62, 14.63, 16.42, 16.43, 17.20, 17.26, 18.46, 18.50 Munro v Stein 1961 SC 362..........................................................................................8.20, 8.35 Munster v Cox (1884–85) LR 10 App Cas 680.........................................................19.19, 21.38 Murad v Al-Saraj [2005] EWCA Civ 959, [2005] WTLR 1573...............2.40, 2.31, 11.4, 11.36, 14.51, 18.17 Murphy (Keith) Pty Ltd v Custom Credit Corpn Ltd (1992) 6 WAR 332........................ 2.39 Murray v Hogarth & Co (1835) 13 Sh (Ct of Sess) 453.................................................. 12.33 Murray v King [1986] FSR 116..........................................................................8.11, 8.72, 15.48 Murray v Pinkett see Pinkett v Wright Murray v Somerville (1809) 2 Camp 98n Murray v Yorkshire Fund Managers Ltd [1998] 1 WLR 951, [1998] 2 All ER 1015, [1998] FSR 372..............................................................................................2.7, 2.39, 2.41 Murray v Zobel (1907) 8 SRNSW 482 (Canada)............................................................ 10.4 Murtagh v Costello (1881) 7 LR Ir 428.......................................................................... 8.23 Musurus Bey v Gadban [1894] 2 QB 352....................................................................... 3.4 Mutter v Eastern & Midlands Rly Co (1888) LR 38 Ch D 92........................................ 11.25 Mycock v Beatson (1879–80) LR 13 Ch D 384....................................................10.7, 10.9, 14.9 Myers v Design Inc (International) Ltd [2003] EWHC 103 (Ch), [2003] 1 WLR 1642, [2003] 1 All ER 1168.............................................................................................. 14.30 Myers v Myers (1889) 61 LT 757................................................................................... 18.2 Myers v Myers (1891) 60 LJ Ch 311...........................................................................7.10, 18.34 N Nadeem v Rafiq [2007] EWHC 2959 (Ch), [2007] 12 WLUK 354................................. 8.23 Nadreph Ltd v Willmett & Co [1978] 1 WLR 1537, [1978] 1 All ER 746, (1978) 122 SJ 744......................................................................................................................... 21.10 Naish v Bhardwaj [2001] All ER (D) 421 (Mar)...........................................................15.3, 15.5 Naish v Ody (1897) 41 SJ 726........................................................................................ 15.43 Nanson v Gordon (1875–76) LR 1 App Cas 195........................................................23.2, 23.46 National Bolivian Navigation Co v Wilson (1879–80) LR 5 App Cas 176...................... 17.23 National Coal Board v Galley [1958] 1 WLR 16, [1958] 1 All ER 91, (1958) 102 SJ 31.14.6 National Commercial Banking Corpn of Australia v Batty (1986) 60 ALJR 379 (Australia HC)...................................................................................................19.9, 19.10, 19.61, 19.62 National Westminster Bank plc v Halesowen Presswork & Assemblies Ltd [1972] AC 785, [1972] 2 WLR 455, [1972] 1 All ER 641........................................................ 23.10 National Westminster Bank plc v Jones [2001] 1 BCLC 98, [2000] BPIR 1092, [2000] EG 82 (CS)............................................................................................................2.49, 8.49 National Westminster Bank plc v King [2008] EWHC 280 (Ch), [2008] 2 WLR 1279, [2008] CP Rep 23................................................................................................... 15.1 Nationwide Building Society v Lewis [1998] Ch 482, [1998] 2 WLR 915, [1998] 3 All ER 143..............................................................................................................5.1, 5.6, 5.7, 12.14, 25.68 Nationwide Building Society v Various Solicitors [1998] 06 LS Gaz R 24....................... 8.69 Natusch v Irving (1824) 2 Coop temp Cott 358..................................................7.22, 12.2, 12.3, 12.5, 12.10 Naughton v O’Callaghan [1990] 3 All ER 191............................................................... 14.10 Naval Colliery Co (1897) Ltd v IRC (1928) 138 LT 593............................................2.16, 12.26

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Table of Cases para Neath Rugby Ltd, Re sub nom Hawkes v Cuddy [2007] EWHC 2999 (Ch), [2008] BCC 390......................................................................................................................... 25.44 Neilson v Mossend Iron Co (1886) LR 11 App Cas 298......................................7.8, 7.10, 16.41 Nelson v Moorcraft (2014) WASCA 212........................................................................ 7.7 Nelson v Rye [1996] 1 WLR 1378, [1996] 2 All ER 186, [1996] EMLR 37.............15.52, 15.61 Ness Training Ltd v Triage Central Ltd 2002 SLT 675, 2001 GWD 27-1075.................. 2.7 New Brunswick & Canada Rly & Land Co v Muggeridge (1859) 4 Drew 686, 62 ER 263......................................................................................................................... 2.49 Newcastle upon Tyne Hospitals NHS Foundation Trust v Haywood [2018] UKSC 22, [2018] 1 WLR 2073, [2018] 4 All ER 467.............................................................. 16.26 Newcombe v Chappel (3 BPR Butterworth’s Property Reports, Australia 97201).........8.33, 8.38 Newgate Stud Co v Penfold [2004] EWHC 2993 (Ch), [2008] 1 BCLC 46...............11.32, 15.60 New Hampshire Insurance Co v MGN Ltd [1997] IRLR 24........................................... 19.1 Newland v Simons & Willer (Hairdressers) Ltd [1981] ICR 521, [1981] IRLR 359....... 4.17 Newman v Keedwell (1977) 35 P & CR 393, (1977) 244 EG 469.................................. 8.48 Newman (IN) Ltd v Richard T Adlem [2005] EWCA Civ 741, [2006] FSR 16, (2005) 28(8) IPD 28059............................................................................................... 8.59, 11.33, 18.66 New Mining & Exploring Syndicate Ltd v Chalmers & Hunter 1912 SC 126, 1911 SLT 386..........................................................................................................19.10, 19.60, 20.5 Newport v Pougher [1937] Ch 214...........................................................................15.49, 21.45 New Quebrada Co v Carr (1868–69) LR 4 CP 651........................................................ 23.11 Newsome v Coles (1811) 2 Camp 617, 170 ER 1271..................................................... 20.29 Newstead (Inspector of Taxes) v Frost [1979] 2 All ER 129; aff’d [1980] 1 WLR 135, [1980] 1 All ER 363................................................................................................  2.5, 3.2 Newton v Belcher (1848) 12 QB 921, 116 ER 1115....................................................... 20.13 Newton v Doran (1850) 1 Gr 590 (Canada)................................................................... 17.20 Newton Chemical Ltd v Arsenis [1989] 1 WLR 1297, (1989) 86(42) LSG 42, (1989) 133 SJ 1578............................................................................................................ 14.25 Newtons Coaches Ltd [2016] EWHC 3068 (Ch), [2016] 11 WLUK 730, [2017] BCC 34........................................................................................................................... 25.51 New Zealand Guardian Trust Co Ltd v Brooks [1995] 1 WLR 96, [1995] BCC 407, [1995] 2 BCLC 242............................................................................................19.45, 20.9 Nicholls v Stretton (1847) 10 QB 346, 116 ER 134........................................................ 18.74 Nicholson v Ricketts (1860) 2 E & E 497, 121 ER 187..............................................19.2, 19.10 Niemann v Niemann (1889) LR 43 Ch D 198..............................................15.30, 15.47, 19.11, 19.36, 21.17 Nilsen v Murcott (2007) 2 NZLR 750......................................................................11.13, 18.59 Nilsen v Murcott [2008] NZLR 759............................................................................... 11.13 Nixon v Nixon [1969] 1 WLR 1676, [1969] 3 All ER 1133, (1969) 20 P & CR 1043.........2.18, 2.58 Nixon v Wood [1987] 2 WGLR 26................................................................................. 15.32 Noakes v Barlow (1872) 26 LT 136..............................................................................2.21, 2.31 Noble v Maddison (1912) 12 SRNSW 435..................................................................... 4.5 Noble v Noble 1965 SLT 415..................................................................................12.19, 12.21, 14.24, 18.35 Noble Earth Technologies [2017] NSWSC 502............................................................... 11.12 Noble, Lowndes & Partners v Hadfields Ltd [1939] Ch 569.......................................21.3, 21.21 Nocton v Lord Ashburton [1914] AC 932, [1914–15] All ER Rep 45......................11.27, 19.51 Noel v Poland [2001] 2 BCLC 645, [2002] Lloyd’s Rep IR 30........................................ 25.70 Nokes v Doncaster Amalgamated Collieries [1940] AC 1014......................................... 8.11 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535.............. 18.72 Norfolk, ex p (1815) 19 Ves Jr 455, 34 ER 585.............................................................. 20.4 North American Land & Timber v Watkins [1904] 1 Ch 242......................................... 15.51 North Cheshire & Manchester Brewery Co v Manchester Brewery Co [1899] AC 83.... 8.57 North Shore Ventures Ltd v Anstead Holdings [2011] EWCA Civ 230, [2011] 3 WLR 628, [2011] Bus LR 1036........................................................................................ 8.6 Northall (decs’d), Re [2010] EWHC 1448 (Ch)............................................................8.21, 8.24

xcii

Table of Cases para Northampton Regional Livestock Centre Co Ltd v Cowling [2015] EWCA Civ 651, [2015] 6 WLUK 895, [2016] 1 BCLC 431.............................................19.24, 19.45, 19.54 Northern v Tatum 51 So 17 (1909)................................................................................. 14.53 Northern Crown Bank v Elford & Cornish [1917] 2 WWR 109..................................... 20.27 Northern Sales (1963) Ltd v Ministry of National Revenue (1973) 37 DLR (3d) 612 (Canada)........................................................................................................2.1, 2.31, 2.39 Northumberland v Alexander (1984) 8 ACLR 882...................................................20.34, 20.41 Northwestern Autoservices Ltd [1980] 2 NZLR 302...................................................... 16.43 North-Western Salt Co Ltd v Elecrolytic Alkali Co Ltd [1913] 3 KB 422......................4.9, 18.72 North-Western Salt Co Ltd v Elecrolytic Alkali Co Ltd [1914] AC 461.......................... 4.16 Norwich & Lowestoft Navigation, Company of the Proprietors of v Theobald (1828) Mood & M 151, 173 ER 1112............................................................................... 20.28 Notley, Re (1833) 1 Mont & A 46.................................................................................. 22.12 Nottingham Building Society v Peter Bennett & Co (a firm) (The Times, 26 February 1997)...................................................................................................................... 21.29 Nottingham University v Fishel [2000] ICR 1462, [2000] IRLR 471, [2001] RPC 22..... 14.28 Nova (Jersey) Knit Ltd v Kammgam Spinnerei GmbH [1977] 1 WLR 713, [1977] 2 All ER 463, [1977] 1 Lloyd’s Rep 463.......................................................................... 15.23 Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908, [2015] QB 499, [2015] 2 WLR 526................................................................................................................ 14.21 Nowell v Nowell (1868–69) LR 7 Eq 538.................................................................12.28, 12.31 Noyes Crawley (1878–79) LR 10 Ch D 31..................................................................... 15.53 Nutter v Holland [1894] 3 Ch 408.................................................................................. 14.30 Nutting Baldwin [1995] 1 WLR 201, [1995] 2 All ER 321..................................7.15, 7.16, 7.17 Nye v Beale (1852) 18 LTOS 561.................................................................................... 15.63 O OBG v Allan see Douglas v Hello! Ltd O’Brien v Cooke (1871) IR 5 Eq 51................................................................................ 15.32 O’Brien v Komescroff (1982) 150 CLR 310 (Australia H Ct).......................................... 8.11 O’Connor & Ould v Ralston [1920] 3 KB 451............................................................... 4.7 O’Donnell v Shanahan [2009] EWCA Civ 751, [2009] BCC 822, [2009] 2 BCLC 666  11.4, 11.10, 11.29, 11.35 O’Kelly v Darragh (1988) IRLM 309.............................................................................. 2.11 O’Leary v Standen (unreported, 18 June 2010)...........................................................7.11, 15.19 O’Lone v O’Lone (1851) 2 Gr 125 (Canada).................................................................. 18.11 O’Neill v Phillips [1999] 1 WLR 1092, [1999] 2 All ER 961, [1999]] BCC 600........2.49, 12.10, 16.42, 16.43, 17.1, 25.44, 25.90 O’Neill v Whelan (1951) 85 ITLR 111........................................................................... 16.14 O’Sullivan v Management Agency & Music Ltd [1985] QB 428, [1984] 3 WLR 448, [1985] 3 All ER 351............................................................................................12.24, 14.9 Oakeley v Pasheller (1836) 10 Bli NS 548, 6 ER 202...................................................... 12.33 Oakford v European & American Steam Shipping Co Ltd (1863) 1 Hem & M 182, 71 ER 80...................................................................................................................... 20.19 Office Angels Ltd v Rainer-Thomas [1991] IRLR 214..................................................... 18.72 Official Receiver v Hannan [1997] BCC 644, [1997] 2 BCLC 473.................................. 25.105 Official Receiver v Hollens [2007] EWHC 754 (Ch), [2007] Bus LR 1402, [2007] 3 All ER 767...................................................................................................22.10, 22.13, 22.67 Ogle v Sansom (1715) 1 Bro Parl Cas 149, 1 ER 477...................................................... 12.28 Okell v Eaton & Okell (1874) 31 LT 330...................................................................19.3, 19.18 Okura & Co Ltd v Forsbacka Jernverks Aktiebolag [1914] 1 KB 715............................ 21.23 Old v McInnes & Hodgkinson (2011) NSWCA 410....................................................... 8.53 Oldham v Kyrris [2003] EWCA Civ 1506, [2004] BCC 111, [2004] 1 BCLC 305.......... 11.10 Oliehandel Jongkind BV v Coastal International Ltd [1983] 2 Lloyd’s Rep 463.............. 14.14

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Table of Cases para Oliver v Hamilton (1794) 2 Anst 453.......................................................................15.42, 15.47 Oliver, ex p Williams, Re (1843) 3 Mont D & De G 433................................................ 23.46 Olson v Gullo (1994) 113 DLR (4th) 42......................................................................... 11.32 Olver v Hillier [1959] 1 WLR 551, [1959] 2 All ER 220, (1959) 103 SJ 373.................. 15.23 One & All Sickness & Accident Assurance Association, Re (1909) 25 TLR 674.............2.57, 4.2 One Life Ltd (in liquidation) v Roy [1996] 2 BCLC 608................................................. 4.22 Oppenheimer v Frazer & Wyatt [1907] 2 KB 50...........................................................7.7, 20.34 Orion Insurance Co plc v Sphere Drake Insurance plc [1992] 1 Lloyd’s Rep 239............ 2.26 Orton v Melman [1981] 1 NSWLR 583 (Australia)........................................................ 11.38 Osborne v Jullion (1856) 3 Drew 596, 61 ER 1031........................................................2.6, 2.39 Osborne v Williams (1811) 18 Ves Jr 379, 34 ER 360.................................................... 4.5 Osea Camp Sites Ltd, Re sub nom Bamber v Eaton [2004] EWHC 2437 (Ch), [2005] 1 WLR 760, [2005] 1 All ER 820.............................................................................. 25.41 Overbrook Estates Ltd v Glencombe Properties [1974] 1 WLR 1335, [1974] 3 All ER 511, (1974) 118 SJ 775........................................................................................... 19.4 Overseas Containers (Finance) Ltd v Stoker (Inspector of Taxes) [1989] 1 WLR 606, [1989] STC 473...................................................................................................... 2.5 Owen v Homan (1851) 3 Mac & G 378, 42 ER 307...................................................... 20.9 Owen v Rayner (1905) 25 NZLR 168............................................................................ 18.37 Owen v Van Uster (1850) 10 CB 318.............................................................................. 19.17 Owen v Wilkinson (1858) 5 CBNS 526....................................................................21.10, 23.13 Owen & Co v Cronk [1895] 1 QB 265.....................................................................15.39, 15.47 Owen, ex p Owen, Re (1883–84) LR 13 QBD 113......................................................... 21.5 Oxford Legal Group Ltd v Sibbasbridge Services plc [2007] EWHC 2265 (Ch)........11.23, 11.25 Oxnard Financing SA v Rahn & Bodner [1998] 1 WLR 1465, [1998] 3 All ER 19, (1998) 95(19) LSG 23................................................................................1.13, 21.14, 24.8 P P (a barrister) v General Council of the Bar [2005] 1 WLR 3019, [2005] PNLR 32........ 16.43 P & O Nedlloyd BV v Arab Metals Co (The UB Tiger) [2006] EWCA Civ 1717, [2007] 1 WLR 2288, [2007] 2 All ER (Comm) 401........................................................... 15.61 PDC Copyprint v George (1997) SPC 326...................................................................... 12.31 PWA Corpn v Gemini Group Automated Distribution Systems Inc (1993) 103 DLR (4th) 609 (Ontario CA)..................................................................11.6, 11.8, 11.17, 12.10, 17.26, 24.1, 24.11 Pacific & General Insurance v Hazell [1997] LRLR 65, [1997] BCC 400, [1997] 6 Re LR 157...................................................................................................................22.27, 22.52 Padon v Bank of Scotland (1826) 5 Sh (Ct of Sess) 175................................................... 20.27 Padstow Total Loss & Collision Assurance Association, Re (1881–82) LR 20 Ch D 137......................................................................................................................2.57, 4.12, 4.19, 4.20 Page v Cox (1852) 10 Hare 163, 68 ER 882................................................................... 7.25 Page v Hewetts [2011] EWHC 2449 (Ch)....................................................................... 15.51 Page v Mann & Gardiner (1827) 6 LJOSKB 63.............................................................. 18.22 Page v McKensey (SC of NSW, 17/12/1993)................................................................... 8.53 Page v Ratcliffe (1897) 76 LT 63..................................................................................... 18.41 Page v Slade (1885) 54 LJ Ch 1131................................................................................. 18.43 Page One Records Ltd v Britton [1968] 1 WLR 157, [1967] 3 All ER 822, (1967) 111 SJ 944............................................................................................................2.4, 15.32, 15.33 Palaniappa Chettiar v Arunasalam Chettiar [1962] AC 294, [1962] 2 WLR 548, [1962] 1 All ER 494........................................................................................................... 4.18 Pallant v Morgan [1953] Ch 43, [1952] 2 All ER 951, [1952] 2 TLR 813....................2.41, 2.50 Palmer v Mallett (1887) LR 36 Ch D 411....................................................................... 18.67 Palmer v Moore [1900] AC 293...................................................................................... 15.64 Palmer v Young (27 November 1684)............................................................................. 11.4 Palmer, Re (1833) 3 Deac & Ch 244............................................................................... 22.12

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Table of Cases para Palumbo v Styliano [1966] 1 ITR 407...........................................................................2.32, 2.34 Paragon Finance v DB Thakerar [1999] 1 All ER 400, (1998) 95(35) LSG 36, (1998) 142 SJLB 243...................................................................................................14.18, 15.52, 15.61, 19.62 Paramount Powders (UK) Ltd, Re [2019] EWCA Civ 1644, [2019] 10 WLUK 81, [2020] BCC 152................................................................................................................. 17.24 Park v Park 1970 SLT (Notes) 59.............................................................................11.22, 14.18, 14.38, 15.61 Parker v Pistor (1802) 3 Bos & P 288, 127 ER 159........................................................ 10.15 Parker v Walker 1961 SLT 252....................................................................................... 2.34 Parker-Knoll Ltd v Knoll International Ltd [1962] RPC 265........................................... 8.57 Parkin v Alabaster (1998)............................................................................................... 11.27 Parkin v Carruthers (1800) 3 Esp 248, 170 ER 604........................................................ 20.28 Parkinson v Hanbury (1867) LR 2 HL 1...................................................................14.42, 14.49 Parkman v Cumbrian Industrials [2001] EWCA Civ 1621, [2002] BLR 64, (2001) 79 Con LR 112............................................................................................................ 14.60 Parmar (t/a Ace Knitwear) v Woods (Inspector of Taxes) (No 1) [2002] EWHC 1085 (Ch), [2002] STC 846, 74 TC 562.......................................................................... 8.28 Parrington v Parrington [1951] 2 All ER 916, [1951] 2 TLR 918, [1951] WN 534........ 2.58 Parsons v Barnes [1973] Crim LR 537............................................................................ 19.50 Parsons v Benn (1849) 14 LTOS 171.............................................................................. 16.17 Parsons v Hayward (1862) 4 De GF & J 474, 45 ER 1267..........................7.8, 7.10, 9.7, 16.13, 16.23, 16.24, 18.11 Patching v Jordan (1888) 4 TLR 478.............................................................................. 15.32 Patel v R & C Comrs [2013] UKFTT 84 (TC)................................................................ 8.26 Patel v Mirza [2016] UKSC 42, [2017] AC 467, [2016] 3 WLR 399.............................4.3, 4.21, 4.23, 12.34 Patel v Patel (unreported, 31 January 1996).................................................................... 2.41 Patel v Patel [2019] EWHC 298 (Ch), [2019] Bus LR 1066, [2019] 2 WLUK 246.......... 7.22 Patent File Co, Re (1870–71) LR 6 Ch App 83............................................................... 19.28 Patel v Patel [2000] QB 551, [1999] 3 WLR 322, [1999] 1 All ER (Comm) 923............ 15.27 Patel v Shah [2005] EWCA Civ 157, [2005] WTLR 359, [2005] 8 EG 190 (CS).....15.61, 16.17, 18.49 Patel v Zukrowski [1999] GCCR 2173........................................................................... 19.73 Paterson v Zachariah & Arnold (1815) 1 Stark 71, 171 ER 405..................................... 20.28 Pathirana v Pathirana [1967] 1 AC 233, [1966] 3 WLR 666, (1966) 110 SJ 547.........2.18, 8.11, 11.13, 11.27, 11.32, 11.34, 18.8, 18.17, 18.65 Patley Wood Farm LLP v Brake [2014] EWHC 4499 (Ch).............................................. 15.25 Patten & Edmonton Union Poor Guardians, Re (1883) 52 LJ Ch 787............................ 19.65 Patter v Zeller (1997) 30 OR (3d) 796............................................................................ 2.58 Patterson v Holland (1858) 6 Gr 414 (Canada).............................................................. 24.15 Pauling’s Settlement Trusts (No 1), Re [1964] Ch 303, [1963] 3 WLR 742, [1963] 3 All ER 1..................................................................................................................15.61, 15.64 Pauling’s Settlement Trusts (No 2), Re [1963] Ch 576, [1963] 2 WLR 838, [1963] 1 All ER 857.................................................................................................................... 10.9 Pawsey v Armstrong (1880–81) LR 18 Ch D 698....................................2.20, 2.34, 8.21, 12.21, 12.26, 18.41, 18.44 Payne v Enfield Technical Services [2008] EWCA Civ 393, [2008] ICR 1423, [2008] IRLR 500................................................................................................................4.3, 4.22 Payne (David) & Co Ltd, Re [1904] 2 Ch 608.........................................................20.35, 20.36, 20.38, 20.41 Payne v Hornby (1858) 25 Beav 280, 53 ER 643............................................................ 10.8 Peacock v Peacock (1809) 2 Camp 45, 16 Ves Jr 49, 33 ER 902................................10.2, 12.11, 12.28, 16.23 Peake v Carter [1916] 1 KB 652.....................................................................10.12, 10.15, 21.41 Pearce v Brain [1929] 2 KB 310...................................................................................... 3.23 Pearce v Brooks (1865–66) LR 1 Exch 213..................................................................... 4.6

xcv

Table of Cases para Pearce v Bulteel [1916] 2 Ch 544.................................................................................... 8.29 Pearce v Chamberlain (1750) 2 Ves Sen 33, 28 ER 33..................................................... 17.15 Pearce v Lindsay (1860) 3 De GJ & Sm 139.............................................................16.14, 16.17 Pearson (S) & Son Ltd v Dublin Corpn [1907] AC 351.................................................. 19.51 Pease v Hewitt (1862) 31 Beav 22, 54 ER 1045.............................................................. 18.62 Peat v Smith (1889) 5 TLR 306.....................................................................................7.21, 7.22 Peebles v Crosthwaite (1897) 13 TLR 198...................................................................... 8.45 Peele, ex p (1802) 6 Ves Jr 602, 31 ER 1216.................................................................2.8, 20.15 Peffer v Rigg [1977] 1 WLR 285, [1978] 3 All ER 745, (1977) 33 P & CR 60............... 19.64 Pegram Shopfitters v Tally Weiji (UK) Ltd [2003] EWHC 984 (TCC), [2003] 1 WLR 2990, [2003] 3 All ER 98........................................................................................ 15.23 Pell Frischmann Engineering v Bow Valley Iran [2009] UKPC 45, [2011] 1 WLR 2370, [2010] BLR 73........................................................................................................ 18.68 Pelunsky v Pastoll [1920] WLD 32 (South Africa)........................................................... 17.15 Peninsular Co Ltd v Fleming (1872) 27 LT 93................................................................ 15.52 Pennant & Craigwen Consolidated Lead Mining Co, Re (Mayhew’s Case) (1854) 5 De GM & G 837, 43 ER 1095..................................................................................... 10.10 Pennell v Deffell (1853) 4 De GM & G 372, 43 ER 551, (1853) 18 Jur 273................... 10.8 Pennington & Owen Ltd, Re [1925] Ch 825.............................................................21.10, 23.10 PennWell Publishing (UK) Ltd v Ornstien [2007] EWHC 1570 (QB), [2008] 2 BCLC 246, [2007] IRLR 700........................................................................................8.68, 11.35 Penny v Pickwick (1852) 16 Beav 246, 51 ER 773....................................................15.51, 15.61 Percival v Wright [1902] 2 Ch 421............................................................................11.10, 11.44 Perella Weinberg Partners UK LLP v Codere SA [2016] EWHC 1182 (Comm), [2016] 5 WLUK 367............................................................................................................. 15.4 Perens v Johnson (1857) 3 Sm & G 419, 65 ER 720......................................10.16, 11.44, 23.52 Perpetual Executors & Trustees Association of Australia Ltd v Australia (Commonwealth) Taxation Comr [1954] AC 114, [1954] 2 WLR 171, [1954] 1 All ER 339............. 8.1 Perpetual Executors Trustees & Agency Co (WA) Ltd v Maslen & Commonwealth of Australia [1952] AC 215......................................................................................... 8.27 Perpetual Trustee Co Ltd v BNY Ltd [2009] EWCA Civ 1160, [2010] Ch 347, [2010] 3 WLR 87.................................................................................................................. 16.29 Perrott v Bryabr (1836) 2 Y & C Ex 61, 160 ER 312..................................................... 2.34 Perrott v Perrott (1911) 31 NZLR 6...........................................................................2.41, 12.24 Perry v Smith (1842) 9 M & W 681, 152 ER 288........................................................... 15.13 Perry v Zissis [1977] 1 Lloyd’s Rep 607.......................................................................... 10.4 Peskin v Anderson [2001] BCC 874, [2001] 1 BCLC 372...........................................2.48, 11.10 Peter Pan Manufacturing Corpn v Corsets Silhouette Ltd [1964] 1 WLR 96, [1963] 3 All ER 402, [1963] RPC 45.........................................................................11.35, 11.42, 12.26 Petersen v Gibb (1969) 113 SJ 894.................................................................................. 2.33 Petherbridge, ex p Cook, Re (1831) Mont 228............................................................... 23.49 Petit v Cox (1928) 54 NBR 246 (Canada)....................................................................... 17.20 Petrie v Hannay (1789) 3 Term Rep 418, 100 ER 652.................................................... 4.21 Petrie v Lamont (1841) Car & M 93............................................................................... 19.54 Petrofina (Great Britain) Ltd v Martin [1966] Ch 146, [1966] 2 WLR 318, [1966] 1 All ER 126..................................................................................................................4.9, 16.36 Petromec Inc v Petroleo Brasileiro SA Petrobas (No 4) [2006] EWCA Civ 1038, [2007] 2 Costs LR 212, (2002) 103(31) LSG 25................................................................ 15.24 Peuchen (AG) & Co v City Mutual Fire Insurance Co (1891) 18 AR 446 (Canada)....... 18.28 Peyman v Lanjani [1985] Ch 457, [1985] 2 WLR 154, [1984] 3 All ER 703.................. 11.39 Peyton v Mindham [1972] 1 WLR 8, [1971] 3 All ER 1215, (1971) 115 SJ 912.......16.43, 18.72 Pham v Doan (1877) 5 Ch D 460....................................................................................2.1, 4.21 Pharmed Medical v Univar [2002] EWCA Civ 1569, [2003] 1 All ER (Comm) 321, (2002) 136 SJLB 254.............................................................................................. 19.4 Philips v Atkinson (1797) 2 Bro CC 272......................................................................... 15.43 Phillips v Alhambra Palace Co [1901] 1 KB 59............................................................8.7, 18.25, 18.31, 20.19 Phillips v Melville [1921] NZLR 571 (New Zealand)..................................................... 17.6

xcvi

Table of Cases para Phillips v Phillips (1885) 29 Ch D 673............................................................................ 11.30 Phillips v Symes (Stay of Proceedings) [2002] 1 WLR 853, [2001] CLC 1673, (2001) 98(34) LSG 41........................................................................................................ 2.1 Phillips v Symes (Stay Order) [2006] EWHC 1721 (Ch)..............................................14.39, 15.4 Phillips-Higgins v Harper [1954] 1 QB 411, [1954] 2 WLR 782, [1954] 2 All ER 51 (note)...................................................................................................................... 15.60 Phipps v Boardman [1964] 1 WLR 993, [1964] 2 All ER 187, (1964) 108 SJ 619.......... 11.42 Phoenix v Pope [1974] 1 WLR 719, [1974] 1 All ER 512, (1973) 118 SJ 390................ 15.23 Phoenix General Insurance Co of Greece v Halvanon Insurance Co Ltd [1988] QB 216, [1987] 2 WLR 512, [1987] 2 All ER 152................................................................4.2, 4.17 Phospate of Lime Co Ltd v Green (1871) LR 7 CP 43..................................................... 7.22 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, [1980] 2 WLR 283, [1980] 1 All ER 556................................................................................................ 14.17 Piacentini, Re [2003] EWHC 113 (Admin), [2003] QB 1497, [2003] 3 WLR 354.......... 15.48 Pick v Pick [2007] All ER (D) 318 (Jun).......................................................................... 18.45 Pickering, Re (1883) LR 25 Ch D 247..........................................................10.17, 11.16, 11.23, 15.11, 15.13, 21.35 Pickering v Deacon (The Times, 19 April 2003).............................................................. 4.16 Piddocke v Burt [1894] 1 Ch 343.................................................................................... 14.24 Pienar v Robinson (1893) 12 SC 35................................................................................ 21.3 Piercy v Fynney (1871) LR 12 Eq 69.............................................................19.19, 19.34, 19.35, 21.9, 23.10 Piercy v Young (No 1) (1879) 14 Ch D 200.................................................................... 15.23 Pigott v Bagley (1825) M’Cle & Yo 569......................................................................... 7.25 Pillani v Motilal (1929) 45 TLR 283............................................................................... 20.28 Pilley v Robinson (1887) LR 20 QBD 155...................................................................... 21.3 Pilling v Pilling (1865) 3 De GJ & Sm 162...........................................................7.22, 8.21, 8.22 Pilmer v Duke Group Ltd see Duke Group Ltd v Pilmer Pini v Roncoroni [1892] 1 Ch 633.................................................................15.27, 15.40, 15.44 Pinkett v Wright (1842) 2 Hare 120; aff’d sub nom Murray v Pinkett (1846) 12 Cl & Fin 764......................................................................................................................... 10.10 Pinkey v Sandpiper Drilling Ltd [1989] ICR 389, [1989] IRLR 425................................ 3.2 Pinto Leite & Nephews, ex p Visconde des Olivaes, Re [1929] 1 Ch 221.....................2.35, 23.7 Pirie v Richardson [1927] 1 KB 448..........................................................................20.10, 21.18 Pit v Cholmondeley (1754) 2 Ves Sen 565, 28 ER 360.................................................... 14.49 Pitfield v Oakes (1893) 25 NSR 116............................................................................... 21.17 Pitreavie Golf Club v Penman 1934 SLT 247.................................................................. 2.47 Pitt v Clay (1843) 6 Beav 503, 49 ER 920....................................................................... 14.45 Planetree Nominees Ltd v Howard Kennedy LLP [2016] EWHC 2302 (Ch), [2016] 9 WLUK 46............................................................................................................... 21.27 Plant, ex p Hayward, Re (1881) 45 LT 326.................................................................... 15.48 Player v Isenberg (2002) NSWCA 186..........................................................................2.7, 20.13 Plenderleith, Re [1893] 3 Ch 332.................................................................................... 3.25 Plews v Baker (1873) LR 16 Eq 564................................................................................ 15.23 Plumer v Gregory (1874) LR 18 Eq 621.......................................................................... 19.9 Plus Group Ltd v Pyke [2002] EWCA Civ 370, [2000] All ER (D) 330 (Mar)................ 11.13 Pocock v Carter [1912] 1 Ch 663.................................................................................... 8.43 Pointon v Pointon (1871) LR 12 Eq 547...................................................................10.17, 10.19 Pole v Leask (1862) 33 LJ Ch 155................................................................................... 5.3 Polegoshko v Ibragimov [2014] EWHC 1535 (Ch), [2014] 3 WLUK 648....................... 25.77 Poley v AE Drayton Services (1987) 137 NLJ 109.......................................................... 16.43 Pollexfen v Sibson (1885–86) 16 QBD 792..................................................................... 21.28 Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769, [1992] 2 Lloyd’s Rep 238, BCLC 187....................................................................................................... 19.64 Pomeroy (Mrs) Ltd v Scalé (1906) 22 TLR 795.............................................................. 8.59 Pongola, The (1895) 73 LT 512...............................................................................14.45, 15.51, 15.52, 15.54 Pont v Wilkins (unreported, 26 March 1993).................................................................. 20.27

xcvii

Table of Cases para Ponton v Dunn (1830) 1 Russ & M 402......................................................................... 10.4 Pooley v Driver (1876) 5 Ch D 458.......................................................1.1, 2.1, 2.12, 2.20, 2.35, 12.29 Pooley, Re (1888) 40 Ch D 1.......................................................................................... 19.74 Popat v Schonchhrata [1995] 1 WLR 908; revs’d [1997] 1 WLR 1367, [1997] 3 All ER 800.....................................................................................................2.8, 9.2, 9.3, 9.8, 9.9, 10.1, 11.29, 11.30, 12.26, 18.9, 18.16, 18.17, 18.18, 18.59 Porter v Freudenberg [1915] 1 KB 857............................................................................  3.5, 4.8 Portsmouth Banking Co, Re (1866) LR 2 Eq 167........................................................... 15.52 Postlethwaite, Re (1888) 60 LT 514................................................................................ 11.27 Pott v Eyton & Jones (1846) 3 CB 32............................................................................. 2.34 Potter v Jackson (1879–80) LR 13 Ch D 845............................................................15.19, 18.58 Potton Ltd v Yorkclose Ltd [1990] FSR 11....................................................11.32, 14.21, 18.16 Powell v Brodhurst [1901] 2 Ch 160.........................................................................19.33, 19.34 Powell v Maddock & Dart (1915) 9 WWR 353.............................................................. 11.43 Powles v Page (1846) 3 CB 16......................................................................................... 20.28 Pratt v Mehra [2003] 2 P & CR D63..............................................................................2.1, 2.39 Pratt v Strick (1932) 17 TC 459....................................................................................2.28, 2.33 Precis (521) plc v William M Mercer [2005] EWCA Civ 114, [2005] PNLR 28, [2005] OPLR 89................................................................................................................. 25.70 Premium Nafta Products Ltd v Fili Shipping Co Ltd [2007] UKHL 40, [2007] Bus LR 1719, [2007] 4 All ER 951...................................................................................... 15.23 Prendergast v Turton (1843) 13 LJ Ch 268...............................................................15.62, 15.63 Presentaciones Musicales SA v Secunda [1994] Ch 271, [1994] 2 WLR 660, [1994] 2 All ER 737.................................................................................................................... 19.5 Price v Groom (1848) 2 Exch 542, 154 ER 606.............................................................. 2.19 Price v Saundry [2019] EWCA Civ 2261, 2019] 12 WLUK 241, [2020] 1 P & CR DG19...................................................................................................................... 15.19 Prichard v Westminster Bank Ltd [1969] 1 WLR 547, [1969] 1 All ER 999, (1969) 113 SJ 142..................................................................................................................... 21.49 Prince De Beam v La Compagnie D’Assurances La Federale de Zurich (1937) 42 Com Cas 189................................................................................................................... 20.19 Printers & Finishers Ltd v Holloway [1965] 1 WLR 1, [1964] 3 All ER 731, [1965] RPC 239... 11.13 Prior v Bagster (1887) 57 LT 760.................................................................................... 15.39 Proceedings Comr v Ali Hatem [1999] 1 NZLR 305 (New Zealand CA)........................ 19.45 Procopi v Moschakis (1969) 211 EG 311........................................................................ 18.43 Prole v Masterman (1855) 21 Beav 61, 52 ER 781......................................................... 12.35 Protectacoat Firthglow Ltd v Szilagyi [2009] EWCA Civ 98, [2009 ICR 835, [2009] IRLR 365................................................................................................................ 2.5 Protestant Assurance Association, ex p Letts & Steer, Re (1857) 26 LJ Ch 45..........12.36, 14.53 Protheroe v Protheroe [1968] 1 WLR 519, [1968] 1 All ER 1111, (1968) 19 P & CR 396......................................................................................................................... 11.30 Proudfoot v Bank of New Zealand (1885) 6 LRNSW 170.............................................. 21.7 Proudfoot v Bush (1859) 7 Gr 518 (Canada).................................................................. 12.26 Proudfoot v Montefiore (1866–67) LR 2 QB 511........................................................... 20.32 Prudential Assurance Co v Ayres [2007] EWHC 775 (Ch), [2007] 3 All ER 946, [2007] L & TR 35.............................................................................................................. 20.25 Prudential Assurance Co Ltd v Newman Industries Ltd [1981] Ch 229, [1980] 2 WLR 339, [1979] 3 All ER 507........................................................................................ 15.10 Public Trustee v Elder [1926] Ch 266; aff’d Ch 776......................................10.12, 10.14, 14.24, 15.7, 15.8, 18.53 Public Trustee v Mortimer (1985) 40 OR (2d) 741......................................................... 19.9 Puller v Roe (1793) Peake 260, 170 ER 149................................................................... 21.10 Pulsford, ex p Hayman, Re (1878) LR 8 Ch D 11........................................................... 8.29 Purewall v Purewall 2008 CSOH 147, 2009 SCLR 50, 2008 GWD 36-544.................... 18.12 Putsman v Taylor [1927] 1 KB 637................................................................................. 18.72

xcviii

Table of Cases para Q QBE Management Services (UK) Ltd v Dymoke [2012] EWHC 80 (QB), [2012] IRLR 458, (2012) 162 NLJ 180.................................................................................14.51, 15.36 Queensland Southern Pty v Ough Pty (2000) 2 Qd 12..................................................18.2, 21.9 Quinn Direct Insurance Ltd v Law Society of England & Wales [2010] EWCA Civ 805, [2011] 1 WLR 308, [2010] Lloyd’s Rep IR 655..................................................8.69, 19.75 Quinton v Smith (unreported, 17 June 1938).................................................................. 18.44 R R v Alford (JF) Transport Ltd [1997] 2 Cr App Rep 326, [1999] RTR 51, (1997) 141 SJLB 73................................................................................................................... 19.50 R v Bonner [1970] 1 WLR 838, [1970] 2 All ER 97 (note), (1970) 54 Cr App Rep 257.........8.1, 10.2, 19.50 R v Brockley [1994] BCC 131, [1994] 1 BCLC 606, (1993) 99 Cr App R 385............... 25.105 R v Connor (1906) 10 Exch CR 183...........................................................................12.33, 23.2 R v Doring [2002] EWCA Crim 1695, [2002] BCC 838, [2003] 1 Cr App R 9.............. 8.62 R v Frankland (1863) Le & Ca 276................................................................................ 4.18 R v Gray’s Inn (1780) 1 Doug KB 353, 99 ER 227......................................................... 2.43 R v Holden [1912] 1 KB 483, (1912) 7 Cr App R 93.............................................1.1, 8.55, 21.1 R v Jesse Smith (1870) LR 1 CCR 266............................................................................ 8.1 R v Judge Lailey, ex p Koffman [1932] 1 KB 568..........................................................15.1, 17.2 R v Kupfer [1915] 2 KB 321, (1916) 11 Cr App R 91..................................................... 4.8 R v L (2009) PTSR 119................................................................................................... 19.50 R v Lear (Jonathan), R v Lear (Christine) [2018] EWCA Crim 69, [2018] 1 WLUK 508, [2018] 2 Cr App R 11............................................................................................. 19.50 R v Longnor Inhabitants (1833) 4 B & Ad 647, 110 ER 599.......................................... 19.20 R v M’Donald (1861) Le & Ca 85.................................................................................. 2.34 R v Registrar of Joint Stock Companies, ex p Johnston [1891] 2 QB 598....................... 4.12 R v Whitmarsh (1850) 15 QB 600, 117 ER 586............................................................. 4.2 R v Williams [1942] AC 541........................................................................................... 15.52 R v Wortley (1851) 2 Den 333, 169 ER 527................................................................... 2.34 R (on the application of Factortame) v Secretary of State for Transport (No 2) [2002] EWCA Civ 932, [2003] QB 381, [2002] All ER (D) 41 (Jul)................................... 4.4 R (on the application of Thompson) v Law Society [2004] 1 WLR 252.......................... 16.43 RTS Ltd v Molkerei A Lois Muller GmbH & Co KG [2010] UKSC 14, [2010] 1 WLR 753, [2010] Bus LR 776.......................................................................................... 2.8 Raba & Robles v Ryland (1819) Gow 132, 171 ER 681................................................. 19.4 Rackstraw v Imber (1816) Holt NP 368, 171 ER 274..................................................... 14.33 Radcliffe v Rushworth (1864) 33 Beav 484, 55 ER 456.................................................. 2.2 Radenhurst v Bates (1826) 3 Bing 463, 130 ER 591....................................................... 21.3 Rainham Chemical Works Ltd (in liquidation) v Belvedere Fish Guano Co Ltd see Belvedere Fish Guano v Rainham Chemical Works Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900, [2012] 1 All ER 1137....................................................................................................................... 7.11 Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831...................................................... 19.75 Rakusens Ltd v Baser Ambalaj Plastik Sanayi Ticaret AS [2001] EWCA Civ 1820, [2002] 1 BCLC 104, (2001) 98(42) LSG 37...........................................21.23, 21.27, 21.28 Rama v Miller [1996] 1 NZLR 257....................................................................11.1, 11.8, 11.9, 12.33, 14.21 Ram Singh v Ram Chand (1923) LR 51 Ind App 154...............................................11.22, 14.18 Ramsey & Maclaine v Leonard Curtis (a firm) [2001] BPIR 389.................................... 21.12 Randall v Russell (1817) 3 Mer 190, 36 ER 73............................................................... 11.30 Ranson v Customer Systems plc [2012] EWCA Civ 841................................................. 11.10 Rapp v Latham & Perry (1819) 2 B & Ald 795, 106 ER 555...................................19.43, 19.52 Ratiu v Conway [2005] EWCA Civ 1302, [2006] 1 All ER 571, [2006] 1 EGLR 125.... 25.70

xcix

Table of Cases para Rathwell v Rathwell (1866) 26 UCR 179 (Canada)........................................................ 10.3 Raulfs v Fishy Bite Pty Ltd [2011] NSWSC 105.............................................................. 14.2 Rawlings v General Trading Co [1921] 1 KB 635........................................................... 4.21 Rawlins v Wickham (1858) 3 De G & J 304, 44 ER 1285, (1858) 28 LJ Ch 188  11.12, 14.8, 15.60, 15.62, 20.38 Rawlinson v Clarke (1846) 15 M & W 292, 153 ER 860.............................................2.28, 2.34 Raybould, Re [1900] 1 Ch 199....................................................................................... 10.20 Rayleigh Weir Stadium, Re [1954] 1 WLR 786, [1954] 2 All ER 283, (1954) 98 SJ 336.8.1 Raymond v M’Mackin & Ritche (1860) 9 NBR (4 All) 524........................................... 19.19 Rayner v Pegler (1964) 189 EG 967................................................................................ 18.72 Rayner & Co v Rhodes (1926) 24 Ll L Rep 25..............................................24.25, 24.30, 24.31 Rayner (JH) (Mincing Lane) Ltd v Department of Trade & Industry [1990] 2 AC 418, [1989] 3 WLR 969, [1989] 3 All ER 523....................................................1.10, 1.11, 1.14, 2.49, 24.8 Razaq v Baig [2019] EWHC 3490 (Ch), [2019] 11 WLUK 513....................................18.2, 18.4 Read v Bailey see Lacey v Hill Reading v R [1949] 2 KB 232; aff’d sub nom Reading v A-G [1951] AC 507................. 11.36 Reardon Smith Line Ltd v Yngvar Hansen-Tangen (The Diana Prosperity) [1976] 1 WLR 989, [1976] 3 All ER 570, [1976] 2 Lloyd’s Rep 621..................................... 16.24 Reay, Re (1846) De G 359.............................................................................................. 8.29 Reckitt & Colman Products Ltd v Borden Inc [1990] 1 WLR 491, [1990] 1 All ER 873, [1990] RPC 341....................................................................................................5.9, 18.64 Recover Ltd, Re; Homan v Latif Group SL [2003] EWHC 536 (Ch), [2003] BCC 976, [2003] 2 BCLC 186................................................................................................ 19.75 Recovery Partners GP Ltd v Rukhadze [2018] EWHC 2918 (Comm), [2019] Bus LR 1166, [2018] 11 WLUK 15..............................................................................11.13, 11.33, 11.35, 25.72 Reddaway (Frank) & Co Ltd v George Banham & Co Ltd [1896] AC 199, (1896) 13 RPC 218................................................................................................................. 8.57 Redgrave v Hurd (1881–82) LR 20 Ch D 1.......................................................14.2, 14.8, 14.10 Redmayne v Forster (1866) LR 2 Eq 467........................................................................ 10.10 Redpath v Wigg (1865–66) LR 1 Exch 335..................................................................... 2.19 Redwood v Redwood (1908) 28 NZLR 260.............................................................15.41, 18.50 Redwood Master Fund Ltd v TD Bank Europe [2002] EWHC 2703 (Ch), [2006] 1 BCLC 149............................................................................................................... 7.21 Reed (Inspector of Taxes) v Young [1984] STC 38, (1984) 81 LSG 900, (1983) 127 SJ 858....9.2, 12.26 Reed v Young [1986] 1 WLR 649, [1986] STC 285, 59 TC 196..................................... 24.5 Rees v Duncan (1900) 25 VLR 520 (Australia)............................................................... 8.2 Refuge Assurance Co Ltd v Kettlewell [1909] AC 243.................................................... 19.52 Regal (Hastings) v Gulliver [1967] 2 AC 134, [1942] 1 All ER 378................................ 11.33 Regalian Properties plc v London Docklands Development Corpn [1995] 1 WLR 212, [1965] 1 All ER 1005, 45 Con LR 37...................................................................1.6, 11.46 Regan v Paul Properties Ltd [2006] EWCA Civ 1391, [2007] Ch 135, [2006] 3 WLR 1131....................................................................................................................... 18.68 Reid v Coleman Bros (1890) 19 OR 93........................................................................... 20.28 Reid v Hollinshead (1825) 7 Dow & Ry KB 444.................................................2.16, 2.33, 19.3 Reilly v Walsh (1848) 11 I Eq R 22...........................................................................11.13, 15.61 Reinhard v Ondra LLP [2015] EWHC 26 (Ch).............................................25.29, 25.57, 25.73, 25.75, 25.76 Reinhard v Ondra LLP (No 3) [2015] EWHC 2943 (Ch), [2015] 7 WLUK 913............. 15.16 Rely-a-Bell Burglar & Fire Alarm Co Ltd v Eisler [1926] Ch 609................................... 15.32 Render (Robert) v Grech (unreported, 24 January 1996)...........................................14.18, 15.5, 15.52, 15.53 Rennison (E) & Son v Minister of Social Security (1970) 10 KIR 65, (1970) 114 SJ 952.2.5 Renowden v Hurley [1951] VLR 13................................................................................ 4.21 Resolute Maritime Inc v Nippon Kaiji Kyokai (The Skopas) [1983] 1 WLR 857, [1983] 2 All ER 1, [1983] 1 Lloyd’s Rep 431..................................................................... 19.52

c

Table of Cases para Reuter (RJ) & Co Ltd v Mulhens [1954] Ch 50, [1953] 3 WLR 789, [1953] 2 All ER 1160....................................................................................................................... 8.52 Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443, [2016] 5 WLUK 120, 166 Con LR 79..................................................................... 2.8 Revenue & Customs Comrs v Pal (t/a Tapas Bar Cerveceria) [2006] EWHC 2016 (Ch), [2008] STC 2442, [2007] BTC 5967.......................................................................  1.1, 5.6 Reynell v Lewis (1846) 15 M & W 517, 153 ER 954..................................................... 2.7 Reynolds Bros (Motors) Pty Ltd v Esanda Ltd [1983] 8 ACLR 422................................ 19.9 Reynolds v Bridge (1896) 6 E & B 528, 119 ER 961...................................................... 14.50 Reynolds v Bullock (1878) 47 LJ Ch 773..................................................................8.52, 18.37, 18.63 Rhagg (Deceased), Re [1938] Ch 828, [1938] 3 All ER 314............................................ 10.23 Rhodes v Moules [1895] 1 Ch 236.....................................................................19.2, 19.9, 19.10 Rice v Gordon (1848) 11 Beav 265, 50 ER 818.............................................................. 11.44 Rice v Shute (1770) 5 Burr 2611, 98 ER 374.................................................................. 21.12 Richards v Kidderminster Overseers [1896] 2 Ch 212..................................................... 23.14 Richardson v Bank of England (1838) 4 My & Cr 165.............................................18.53, 18.54 Richardson v Blackmore [2005] EWCA Civ 1356, [2006] BCC 276..................11.1, 11.6, 15.32 Richardson v Finer (unreported, 14 March 1947)........................................................... 18.44 Richardson v Larpent (1843) 2 Y & C Ch Cas 507........................................................ 21.3 Richardson v Norris Smith Real Estate (1977) 1 NZLR 152........................................... 19.52 Richardson, ex p Governors of St Thomas’ Hospital, Re [1911] 2 KB 705...............12.33, 18.40 Richardson, Re [1919] 2 Ch 50....................................................................................... 15.51 Riches & Marshall’s Trust Deed, Re (1865) 4 De GJ & Sm 581...............................19.17, 20.40 Riddel v Smith (1864) 10 LT 561................................................................................14.8, 15.63 Riddell v Botfield [1923] 2 LR 1056 (Canada)................................................................ 10.15 Ridge v Baldwin [1964] AC 40, [1963] 2 WLR 935, [1963] 2 All ER 66........................ 16.43 Rigden v Pierce (1822) 6 Madd 353, 56 ER 1126........................................................... 18.34 Riley v Redditch (unreported, 7 June 2019).................................................................... 25.72 Ringham v Hackett (1980) 124 SJ 201............................................................................ 19.16 Rishton v Grissell (No 1) (1867–68) LR 5 Eq 326........................................................9.7, 12.21 Ritson, Re [1899] 1 Ch 128........................................................................................10.6, 10.23 Riyad Bank v Ahli United Bank (UK) plc [2006] EWCA Civ 780, [2006] 2 All ER (Comm) 777, [2006] 2 Lloyd’s Rep 292.................................................................. 25.70 Roberts v Gill & Co [2010] UKSC 22, [2011] 1 AC 240, [2010] 2 WLR 1227.............. 24.16 Roberts v JW Ward (unreported, 8 February 1985)........................................................ 21.3 Robertson v Armstrong (1860) 28 Beav 123, 54 ER 313................................................ 19.61 Robertson v Brent & Haggitt [1972] NZLR 406........................................................8.10, 18.34 Robertson v Howden (1892) 10 NZLR 609................................................................... 14.53 Robertson v Jones (1880) 20 NBR (4 P & B) 267 (Canada)............................................ 19.18 Robertson v Lockie (1846) 15 Sim 285, 60 ER 627...........................................3.27, 16.27, 17.9 Robertson v Southgate (1848) 6 Hare 536, 67 ER 1276................................................. 12.34 Robertson v Willmott (1909) 25 TLR 681...................................................................... 18.67 Robinson v Anderson (1855) 20 Beav 98, 52 ER 539..................................................2.18, 10.2, 12.24, 12.28 Robinson v Ashton (1875) LR 20 Eq 25..........................................................8.22, 18.16, 18.59 Robinson v Geisel [1894] 2 QB 685................................................................................ 21.12 Robinson v Hofman (1828) 4 Bing 562, 130 ER 885...................................................... 19.21 Robinson v Martin (1844) 3 LTOS 125.......................................................................... 21.3 Robinson v Ward & Son (1892) 36 SJ 415..................................................................... 21.30 Robinson & Farrand, ex p Holdsworth, Re (1841) 1 Mont D & De G 475..............12.11, 19.17 Robinson, ex p Holdsworth, Re (1841) 1 Mont D & De G 475..................................... 10.20 Robley v Brooke (1833) 7 Bli NS 90, 5 ER 705..........................................................10.2, 18.34 Robson v Drummond (1831) 2 B & Ad 303, 109 ER 1156........................................18.25, 19.1 Roche v Investex Bank [2015] IEHC 356........................................................................ 2.35 Rochefoucauld v Boustead [1898] 1 Ch 550................................................................... 19.75 Rock Refrigeration Ltd v Jones [1997] 1 All ER 1, [1997] ICR 938, [1996] IRLR 675.......14.16, 18.70

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Table of Cases para Rodgers v Maw (1846) 15 M & W 444.......................................................................... 10.14 Rodriguez v Speyer Bros [1919] AC 59..........................................................................4.8, 4.14, 8.1, 21.3 Rodway v Landy [2001] EWCA Civ 471, [2001] Ch 703, [2001] 2 WLR 1775........8.54, 18.41, 18.45, 18.50 Roedde v News-Advertiser Publishing Co (1894) 4 BCR 7.........................................2.40, 15.40 Rogers v Maddocks [1892] 3 Ch 346.............................................................................. 18.72 Rogers (Edith Lilian) Deceased, Re [2006] EWHC 753 (Ch), [2006] 1 WLR 1577, [2006] 2 All ER 792........................................................................................25.75, 25.108 Rolfe & Bank of Australasia v Flower, Salting & Co (1865) LR 1 PC 27.......20.15, 20.21, 23.15 Rolls v Miller (1884) LR 27 Ch D 71.............................................................................. 2.16 Romersa v Bush [1917] TPD 266 (South Africa).......................................................11.23, 11.25 Ronan v ANZ Banking Group Ltd (2000) VSCA 77 (Victoria SC)...........................20.25, 20.31 Rooke v Nisbet (1881) 50 LJ Ch 588.............................................................................. 18.62 Rooke, Re [1953] Ch 716, [1953] 2 WLR 1176, [1953] 2 All ER 110............................ 10.20 Roscoe (James) (Bolton) Ltd v Winder [1915] 1 Ch 62................................................... 19.66 Rose v Dodd (formerly t/a Reynolds & Dodds Solicitors) [2005] EWCA Civ 957, [2006] 1 All ER 464, [2005] ICR 1776...............................................................4.11, 18.23, 18.25 Rose v Lynx Express Ltd [2004] EWHC 454 (Ch), [2004] 2 BCLC 397......................... 24.39 Rosenberg v Nazarov [2008] EWHC 812 (Ch).........................................................14.18, 14.39 Rosher v Crannis (1890) 63 LT 272..............................................................15.19, 18.56, 18.58, 18.63, 18.64 Rosher v Young (1901) 17 TLR 347............................................................................... 5.5 Ross River Ltd v Waveley Commercial Ltd [2012] EWHC 81 (Ch)................................ 2.41 Ross v Noble (1869) LR 8 Eq 522.................................................................................. 15.13 Ross v Parkyns (1875) LR 20 Eq 331..............................................................................2.1, 2.33 Ross v White [1894] 3 Ch 326.................................................................................15.19, 18.54, 18.56, 18.58 Rossetti Marketing Ltd v Diamond Sofa Co Ltd [2012] EWCA Civ 1021, [2013] 1 All ER (Comm) 308, [2013] Bus LR 543...................................................................... 11.38 Rossland Cycle Co v M’Creadie 1907 SC 1208, (1907) 15 SLT 271............................... 19.17 Rotsart de Hertaing v J Benoit SA (Case C-305/94) [1996] ECR I-5927......................... 18.24 Roughead v White 1913 SC 162, 1913 1 SLT 23............................................................ 20.19 Rouse v Bradford Banking Co [1894] 2 Ch 32..............................................12.33, 18.32, 20.20, 20.21, 20.22 Routh v Jones [1947] 1 All ER 758, [1947] WN 205, (1947) 91 SJ 354......................... 18.72 Routh v Webster (1847) 10 Beav 561, 50 ER 698........................................................... 5.9 Rowan Companies Inc v Lambert Eggink Offshore Transport Consultants VOF (The Gilbert Rowe) (No 1) [1997] 2 Lloyd’s Rep 218..................................................... 24.8 Rowan Companies Inc v Lambert Eggink Offshore Transport Consultants VOF [1999] 2 Lloyd’s Rep 443................................................................................................... 21.19 Rowan Dann (1991) 64 P & CR 202, [1991] EG 138 (CS), [1992] NPC 3............4.3, 4.18, 4.24 Rowden v Parker (1905) 50 SJ 140................................................................................. 15.63 Rowe v Wood (1822) 2 Jac & W 553, 37 ER 740.................................................. 11.22, 12.11, 15.42 Rowella Pty Ltd v Abfam Nominees Pty Ltd (1989) 168 CLR 301 (Australia HC).... 18.16, 18.59, 24.7 Rowland & Crankshaw, Re (1865–66) LR 1 Ch App 421.............................................. 8.29 Rowlands v Evans (1861) 30 Beav 302, 54 ER 905.................................................17.10, 17.15, 18.34, 18.44 Rowlands v Evans (1866) 14 WR 882............................................................................ 17.7 Rowlands v Hodson [2009] EWCA Civ 1042, [2010] PNLR 8........................................2.1, 2.2, 2.4, 2.20 Rowlands v MacDonald [2002] NSWSC 282................................................................. 7.6 Royal Bank of Australia, Re; Robinson’s Executor’s Case (1856) 6 De GM & G 572, 43 ER 1356.................................................................................................................. 12.35 Royal Bank of Canada v Appleton (1987) 17 CPC (2d) 209........................................... 19.75 Royal Bank of Scotland v Christie (1841) 8 Cl & Fin 214............................................8.8, 18.29

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Table of Cases para Royal Boskalis Westminster v Mountain [1999] QB 674, [1998] 2 WLR 538, [1997] 2 All ER 929..............................................................................................................4.2, 4.21 Royal Brompton Hospital NHS Trust v Hammons [2002] UKHL 14, [2002] 1 WLR 1397, [2002] 2 All ER 801...................................................................................... 14.60 Royal Brunei Airlines v Tan [1995] 2 AC 378, [1995] 3 WLR 64, [1995] 3 All ER 97.......19.53, 19.62 Royal Norwegian Government v Constant [1960] 2 Lloyd’s Rep 431............................. 23.47 Royscott Trust Ltd v Rogerson [1991] 2 QB 297, [1991] 3 WLR 57, [1991] 3 All ER 294...................................................................................................................14.10, 19.52 Rudd & Son Ltd, Re [1983] Ch 237............................................................................... 23.33 Ruffin, ex p (1801) 6 Ves Jr 119, 31 ER 970................................................................... 8.28 Rule v Jewell (1880–81) 18 Ch D 660............................................................................. 15.63 Rummery v Matthews (2000) 9 WWR 286..................................................................... 2.49 Rush & Tomkins Construction Ltd v Vieweger Construction Co Ltd (1964) 45 DLR (2d) 122; revs’d [1965] SCR 95.............................................................................. 2.21 Rushden Heel Co Ltd v Keene [1946] 2 All ER 141........................................................ 12.26 Rushton (bankrupt), Re [1972] Ch 197, [1971] 2 WLR 1477, [1971] 2 All ER 937...........23.15, 23.17 Rushton (QLD) Pty v Rushton (NSW) Pty (2003) 1 QdR 320........................................ 16.37 Russell v Austwick (1826) 1 Sim 52, 57 ER 498..........................................................2.39, 2.41, 11.34, 11.38 Russell v Clarke [1995] 2 Qd R 310 (Queensland SC).................................................... 16.40 Russell v Fulling (The Times, 23 June 1999)...................................................................4.7, 4.21 Russell v Russell (1880) LR 14 Ch D 471................................................................12.10, 15.27, 16.40, 16.43 Russell-Cooke v Prentis [2002] EWHC 2227 (Ch), [2003] 2 All ER 478, [2003] WTLR 81........................................................................................................................... 24.39 Russell-Cooke Trust Co v Elliott [2001] All ER (D) 197................................................. 24.39 Ruut v Head (1996) 20 ASCR 160 (NSW SC).................................................17.1, 17.16, 17.25 Ryall v Rowles (1750) 9 Bli NS 377, 5 ER 1331............................................................. 12.34 Ryan v Mason [2011] 3 NZLR 791 (NZ High Court)..................................................2.32, 2.51 Ryder v Frohlich [2004] NSWCA 472............................................................................ 14.13 Rye v Rye [1962] AC 496, [1962] 2 WLR 361, [1962] 1 All ER 146............................2.56, 8.43 S SCF Finance Co Ltd v Masri (No 2) [1987] QB 1002, [1987] 2 WLR 58, [1987] 1 All ER 175...........................................................................................................4.2, 4.11, 4.19 SEB Trygg Holding AB v Manches [2005] EWCA Civ 1237, [2006] 1 WLR 2276, [2006] 1 All ER 437...........................................................................................................5.5, 19.3 SG & R Valuation Service v Boudrais [2008] EWHC 1340 (QB), [2008] IRLR 770...........12.11, 21.13 SPI North Ltd v Swiss Post International (UK) Ltd [2019] EWHC 2004 (Ch), [2019] 7 WLUK 796............................................................................................................. 2.41 St Aubyn v Smart (1867–68) 3 Ch App 646.................................................................... 19.61 St Barbe, ex p (1805) 11 Ves Jr 413, 32 ER 1147............................................................ 23.49 St John Shipping Corpn v Joseph Rank Ltd [1957] 1 QB 267, [1956] 3 WLR 870, [1956] 3 All ER 683..................................................................................................4.2, 4.11, 4.14 Sabemo Pty Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880..................1.6, 11.46 Sachs v Johnston (1915) 17 GLR 511 (New Zealand)..................................................... 11.44 Saddique v Sadiq [2010] EWCA Civ 458........................................................................ 15.48 Sadler v Lee (1843) 6 Beav 324, 49 ER 850.....................................................3.27, 17.15, 20.32 Sadler v Nixon (1834) 5 B & Ad 936, 110 ER 1038....................................................... 12.33 Sadler v Whiteman [1910] 1 KB 868.............................................................................8.55, 21.1 Safeway Stores v Twigger [2010] All ER (D) 90 (Jan)..................................................... 14.53 Saffery v Mayer [2001] 1 KB 11...................................................................................... 4.21 Sahota v Sahota [2006] EWHC 344 (Ch)........................................................................ 15.19

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Table of Cases para Sainsbury (J) v Broadway (1999) PNLR 286, 61 Con LR 31.......................................... 14.60 Saleji (Ahmed Musaji) v Saleji (Hashim Enrahim) (1915) LR 42 Ind App 91.................. 18.8 Sales v Crispi (1913) 29 TLR 491................................................................................... 21.3 Saloman v A Saloman & Co Ltd [1897] AC 22.............................................................. 1.1 Saltman Engineering Co Ltd v Campbell Engineering Co (1948) Ltd [1963] 3 All ER 413n, (1948) 65 RPC 203....................................................................................... 8.68 Samarkand Film Partnership No 3 v R & C Comrs [2017] EWCA Civ 77, [2017] STC 926, [2017] 2 WLUK 645....................................................................................... 2.16 Sander v Sander (1845) 2 Coll 276, 63 ER 733............................................................... 17.9 Sandham v Sandham Bros [1933] 3 DLR 292 (Canada).....................................15.6, 15.9, 15.10 Sandilands & Marsh (1819) 2 B & Ald 673, 106 ER 511....................................19.3, 19.6, 19.7 Sandhu v Gill [2005] EWCA Civ 1297, [2006] Ch 456, [2006] 2 WLR 8...........9.9, 10.1, 18.16, 18.18, 18.19, 18.44 Sangster v Biddulph (unreported, 22 March 2005).......................................................... 5.6 Santamera v Express Cargo Forwarding (t/a IEC Ltd) [2003] IRLR 273......................... 16.43 Sargant v Read (1875–76) LR 1 Ch D 699................................................................15.41, 15.47 Saskatoon Townsites v Simpson [1920] 1 WWR 884...................................................... 10.12 Satnam Investments Ltd v Dunlop Heywood & Co Ltd [1999] 3 All ER 652, [1999] 1 BCLC 385, [1999] FSR 722.................................................................................... 8.68 Sattalick v Jarrett [1918] 1 WWR 92.............................................................................. 19.33 Saudi Prince, The (No 1) [1982] 2 Lloyd’s Rep 255........................................................ 1.10 Saunders v Anglia Building Society [1971] AC 1004, [1970] 3 WLR 1078, [1970] 3 All ER 961.................................................................................................................... 2.1 Saunders v Edwards [1987] 1 WLR 1116, [1987] 2 All ER 651, [2008] BTC 7119......4.22, 4.23 Saunders (H) & TG Sorrell v Customs & Excise Comrs [1980] VATTR 53.................... 24.12 Saville v Robertson (1792) 4 Term Rep 720, 100 ER 1264................................2.16, 2.19, 20.14 Sawers, ex p Blain, Re (1879) LR 12 Ch D 522.............................................................. 1.1 Sawyer v Goodwin (1867) 36 LJ Ch 578.......................................................19.48, 19.51, 20.19 Sawyer-Massey v Schley (1914) 29 WLR 454 (Canada).................................................. 8.1 Sayer v Bennet (1784) 1 Cox Eq Cas 107, 29 ER 1084....................................17.8, 17.10, 17.15 Saywell (t/a Eaton Tractor Co) v Pope (Inspector of Taxes) [1979] STC 824, 53 TC 40, [1979] TR 229.......................................................................................................2.1, 2.20, 2.58, 7.4 Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 AC 694, [1983] 3 WLR 203, [1983] 2 All ER 763...............................7.16, 15.34 Scarborough Building Society v Howes Percival (1998) 76 P & CR D4....................19.45, 19.54 Scarf v Jardine (1881–82) LR 7 App Cas 345, [1881–5] All ER Rep 651..........5.6, 11.44, 20.15, 20.22, 20.25, 23.36 Scarfe v Morgan (1838) 4 M & W 270, 150 ER 1430.................................................... 4.23 Schacfer v Schrieber (1899) 25 VLR 254 (Australia)....................................................... 2.49 Schering Chemicals Ltd v Falkman Ltd [1982] QB 1, [1981] 2 WLR 848, [1981] 2 All ER 321.................................................................................................................... 8.68 Schooler v Customs & Excise Comrs [1995] 2 BCLC 610, [1996] BPIR 207.............17.1, 20.11, 22.13, 22.72 Scott, Re (1813) 1 M & S 751, 105 ER 280.................................................................... 4.21 Scott v Brown, Doering, McNab & Co [1892] 2 QB 724......................................4.3, 4.16, 4.21 Scott v Miller (1859) John 220, 70 ER 404..................................................................... 4.11 Scott v Milne (1843) 12 LJ Ch 233................................................................................. 15.55 Scott v Rayment (1868–69) LR 7 Eq 112........................................................................ 14.2 Scott v Rowland (1872) 26 LT 391................................................................................. 18.64 Scott v Scott (1903) 89 LT 582.................................................................................18.35, 18.41 Scott v Scott [2012] EWHC 4186 (Ch).....................................................................15.36, 18.67 Scott v Wise (1986) 2 NZLR 484.................................................................................... 3.25 Scottish Pension Fund Trustees v Marshall Ross & Munro [2018] CSIH 39, 2018 SC 523, 2019 SCLR 93................................................................................................ 20.15 Scrace v Revenue & Customs Comrs [2006] EWHC 2646 (Ch), [2007] STC 269, [2007] BTC 5822.............................................................................................................1.1, 19.34 Scruton v Bone [2001] All ER (D) 290 (Nov).................................................................. 19.51

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Table of Cases para Seager Hunt, Re [1906] 2 Ch 295....................................................................3.25, 10.15, 17.10 Seal & Edgelow v Kingston [1908] 2 KB 579, [1950] 1 All ER 1095, 66 TLR (PT 2) 719......................................................................................................................21.2, 21.4, 21.9, 21.35 Sealy v Stephenson [1923] 3 DLR 18.............................................................................. 18.2 Seamone v Boehner [1951] 1 DLR 777 (Canada)............................................................ 2.30 Seaton v Burnand [1900] AC 135................................................................................... 18.28 Secretary of State for Trade & Industry v Great Western Assurance Co SA see Company (No 007816 of 1994), Re a Securities & Exchange Commission v Chenery Corpn 318 US 80 (1943)........................ 11.2 Securities Development Co v Noble & Hodgins [1931] DLR 161................................... 19.12 Sedgwick v Daniell (1857) 2 H & N 319........................................................................ 12.33 Selangor United Rubber Estates Ltd v Craddock (a bankrupt) (No 3) [1968] 1 WLR 1555, [1968] 2 all ER 1073, [1968] 2 Lloyd’s Rep 289.....................................11.10, 19.62 Seldon v Clarkson Wright & Jakes [2014] ICR 1275, [2014] IRLR 748, [2014] Eq LR 517......................................................................................................................... 13.9 Sempff v Neubauer [1903] TH 202 (South Africa).......................................................... 15.7 Semtext Ltd v Gladstone [1954] 1 WLR 945, [1954] 2 All ER 206, (1954) 98 SJ 438.... 12.14 Senator Hanseatische Verwaltungsgesellschaft mbH, Re [1996] 2 BCLC 562, [1996] 4 All ER 933......................................................................................................1.14, 4.6, 4.7, 22.7, 22.19 Senator Hanseatische Verwaltungsgesellschaft mbH, Re [1997] 1 WLR 515, [1996] 4 All ER 933, [1997] BCC 112.................................................................................. 22.88 Senanayake v Cheng [1966] AC 63, [1965] 3 WLR 715, [1965] 3 All ER 296............14.8, 14.9, 15.61, 15.63 Severn & Wye & Severn Bridge Rly Co, Re [1896] 1 Ch 559......................................... 15.53 Sew Hoy v Sew Hoy [2001] 1 NZLR 391, NZCA.........................................11.13, 11.39, 18.59 Shadwell Waterworks, Re (1869) 18 WR 160................................................................. 15.63 Shaffer James Ltd v Findlay Durham & Brodie Ltd [1953] 1 WLR 106, (1953) 97 SJ 26........................................................................................................................... 14.15 Shalson v Russo [2003] EWHC 1637 (Ch), [2005] Ch 281, [2005] 2 WLR 1213........... 2.5 Sharma v Sharma [2013] EWCA Civ 1287, [2014] BCC 73, [2014] WTLR 111............ 15.64 Shirreff v Wilks (1800) 1 East 48, 109 ER 19.................................................................. 20.13 Shanmugathaas v Paramanirupan [2018] NSWSC 1219...............................................2.40, 2.61 Shanshal v Al-Kishtaini (unreported, 9 June 1999).......................................................... 2.41 Shanshal v Al-Kishtaini [2001] EWCA Civ 264, [2001] 2 All ER (Comm) 601, [2001] Lloyd’s Rep 174......................................................................................................4.2, 4.21 Sharment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530.......................... 2.5 Sharp v Harrison [1922] 1 Ch 502.................................................................................. 15.32 Sharp v Milligan (1856) 22 Beav 606, 52 ER 1242.......................................................8.38, 19.6 Sharp v Taylor (1849) 2 Ph 801, 41 ER 1153................................................................. 4.2 Sharpe v Foy (1868–69) LR 4 Ch App 35, (1868) 17 WR 65.......................................... 20.38 Shaw v Benson (1882–83) LR 11 QBD 563..................................................................2.57, 4.19 Shaw v Shaw [1965] 1 WLR 537, [1965] 1 All ER 638, (1965) 109 SJ 233.................... 4.2 Shaw v Shaw 1968 SLT (Notes) 94................................................................................. 18.35 Shayler v Woolf [1946] Ch 320, [1946] 2 All ER 54, [1947] LJR 71.............................. 15.21 Shell (UK) Ltd v Lostock Garages Ltd [1976] 1 WLR 1187, [1977] 1 All ER 481, (1976) 120 SJ 523.............................................................................................................. 18.72 Shelley v Paddock [1980] QB 348, [1980] 2 WLR 647, [1980] 1 All ER 1009...............4.2, 4.22 Shephard v Cartwright [1955] AC 431, [1954] 3 WLR 967, [1954] 3 All ER 649.......... 4.18 Shepherd v Hirsch, Pritchard & Co (1890) LR 45 Ch D 231.......................................... 21.23 Shergill (J) v NLT Group Ltd [2005] UKEAT 0036 05 1104.....................................16.42, 16.43 Sherman, Re [1954] Ch 653, [1954] 2 WLR 903, [1954] 1 All ER 893....................11.27, 14.28 Sheveleu v Brown [2018] CSIH 68, 2019 SC 149, 2018 SLT 1288................................. 18.15 Shilito v Child [1883] WN 208....................................................................................... 21.27 Shiloh Spinners Ltd v Harding [1973] AC 691, [1973] 2 WLR 28, [1973] 1 All ER 90........7.16, 14.2 Shipwright v Clements (1871) 19 WR 599..................................................................8.52, 18.66

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Table of Cases para Shirt v Shirt [2012] EWCA Civ 1029, [2013] 1 FLR 232, [2012] 3 FCR 304....8.48, 11.5, 11.29 Shore v Bedford (1843) 5 Man & G 271, 134 ER 567.................................................... 15.13 Shuckett v Lockhart & Kyle [1932] 3 DLR 466 (Canada).............................................. 2.21 Sichel v Mosenthal (1862) 30 Beav 371......................................................................14.2, 15.33 Silver & Drake v Barnes [1971] 1 QB 396, [1971] 2 WLR 187, [1971] 1 All ER 473..... 19.73 Sim v Howat [2012] CSOH 171, [2012] 10 WLUK 934, 2-12 GWD 36-731................. 11.17 Sim v Sim (1861) 11 I Ch R 310 (Ireland).................................................................14.42, 14.44 Simpson v Chapman (1853) 4 De GM & G 154, 43 ER 466......................................15.7, 18.17 Simpson v Jones [1968] 1 WLR 1066, [1968] 2 All ER 929, 44 TC 599......................... 14.48 Simpson v McDonough (1844) 1 UCQB 157 (Canada)................................................... 19.12 Simpson v Rackham (1831) 5 Moo & P 612.................................................................. 15.7 Sims, Executors of Abernethie v Burtton & Clipperton (1850) 5 Exch 802..................... 19.2 Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (In Administration) [2011] EWCA Civ 347, [2012] Ch 453, [2011] 3 WLR 1153............................................ 11.37 Sinclair v Brougham [1914] AC 398, [1914–15] All ER Rep 622.................................... 19.65 Sinclair v Neighbour [1967] 2 QB 279, [1967] 2 WLR 1, [1966] 3 All ER 988.............. 11.10 Singleton v Knight (1888) LR 13 App Cas 788................................................2.35, 19.11, 19.31 Singleton v Roberts, Stocks & Co (1894) 70 LT 687...................................................... 21.23 Singh v Ali [1960] AC 167, [1960] 2 WLR 180, [1960] 1 All ER 269..........................4.18, 4.23 Singh (Gian) & Co v Nahar [1965] 1 WLR 412, [1965] 1 All ER 768, (1965) 109 SJ 74................................................................................................................8.20, 8.32, 8.45 Sintra Homes Ltd v Beard [2007] EWHC 3071 (Ch)...................................................... 2.41 Siquerira v Noronha [1934] AC 332, [1934] All ER Rep 78, [1934] 2 WWR 117....14.42, 15.58 Skinner v Stocks (1821) 4 B & Ald 437, 106 ER 997...................................................... 21.3 Skipp v Harwood (1747) 2 Swan 586, 36 ER 739......................................................10.8, 16.32 Slack v Parker (1886) 54 LT 212..................................................................................... 5.7 Slater, ex p (1801) 6 Ves Jr 146, 31 ER 984.................................................................... 20.9 Slipper v Stidstone (1794) 5 Term Rep 493, 101 ER 277................................................ 23.47 Slyth, ex p Barrow, Re (1815) 2 Rose 255....................................................................... 6.2 Small v Currie (1854) 18 Jur 731.................................................................................... 7.10 Smart, Donkin & Co, Re (1870) 2 QSCR 66 (Australia)................................................ 12.10 Smith v Anderson (1880) LR 15 Ch D 247..................................................1.1, 2.16, 2.40, 2.49, 2.57, 4.2, 4.12, 4.20, 24.7 Smith v Baker [1977] 1 NZLR 511................................................................................. 17.1 Smith v Bailey [1891] 2 QB 403...................................................................................... 5.7 Smith Cork & Bandon Rly Co (1870) IR 5 Eq 65........................................................... 15.52 Smith v Crawshay [2019] EWHC 2507 (Ch), [2019] 9 WLUK 349.............................7.21, 10.4, 12.24, 12.25 Smith v Croft (No 2) [1988] Ch 114, [1987] 3 WLR 405, [1987] 3 All ER 909............. 25.46 Smith v De Silva (1776) 2 Cowp 469, 98 ER 1191...................................................10.12, 23.50 Smith v Donaldson (1864) Session 3rd Series 86...........................................................9.7, 18.11 Smith v Everett (1859) 27 Beav 446, 54 ER 175........................................................10.3, 18.11, 18.14, 18.51 Smith v Fromont (1818) 2 Swan 330, 36 ER 642............................................................ 15.33 Smith v Gale [1974] 1 WLR 9, [1974] 1 All ER 401, (1973) 117 SJ 854...................12.21, 14.8, 14.42, 18.35 Smith v Gregory (1888) 6 NZLR 319............................................................................. 20.22 Smith v Huggins (1740) 7 Mod Rep 407......................................................................... 21.12 Smith v Jameson (1794) 5 Term Rep 601, 101 ER 336................................................... 18.29 Smith v Jeyes (1841) 4 Beav 503, 49 ER 433..................................................2.12, 15.35, 15.43, 17.20, 17.26 Smith v Mackenzie (1881) 1 NZLR 1 (New Zealand CA).............................................. 19.51 Smith v Mules (1852) 9 Hare 556, 68 ER 633................................................8.11, 11.31, 12.11, 16.40, 18.50 Smith v Nelson (1905) 92 LT 313................................................................................... 18.41 Smith v Ogg (1864) 3 NSWSCR (4) 6............................................................................. 21.3 Smith v Parkes (1852) 16 Beav 115, 51 ER 720.............................................................. 21.11

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Table of Cases para Smith v Patrick [1901] AC 282, (1901) 3 F (HL) 14....................................................... 20.19 Smith v Smith [1926] NZLR 311.................................................................................... 18.18 Smith v Smith [2017] 9 WLUK 261................................................................................ 18.2 Smith and another (Assignees of the Estate & Effects of Sampson) v Watson (1824) 2 B & C 401, 107 ER 434...........................................................................................2.31, 2.33 Smith & Fawcett, Re [1942] Ch 304, [1942] 1 All ER 542............................................. 14.53 Smith & Williamson v Sims Pipes [2001] BPIR 401........................................................ 22.33 Smith v Winter (1838) 4 M & W 454............................................................................. 18.2 Smith, ex p (1800) 5 Ves Jr 295, 31 ER 595.................................................................... 16.29 Smith, ex p (1813) 2 Rose 63.......................................................................................... 23.42 Smith Fleming & Co, ex p Harding, Re (1879) LR 12 Ch D 557..................................8.55, 20.3 Smith (HS) & Sons, Re (The Times, 6 January 1999)................................................22.23, 22.48 Smith Knight & Co, Re (1868–69) LR 4 Ch App 662..................................................... 18.32 Smith (a bankrupt), ex p Braintree DC, Re [1990] 2 AC 215, [1989] 3 WLR 1317, [1989] 3 All ER 897................................................................................................ 23.17 Smuthwaite v Hannay [1894] AC 494............................................................................ 21.2 Smyth (Ross T) Co Ltd v TD Bailey, Son & Co (1940) 164 LT 102................................ 14.15 Snell v De Lane 27 NE 183 (1891).................................................................................. 14.53 Snook v London & West Riding Investments Ltd [1967] 2 QB 786, [1967] 2 WLR 1020, [1967 1 All ER 518........................................................................................2.6, 24.4, 25.6 Snow v Mitford (1868) 18 LT 142.................................................................................. 17.19 Sobell v Boston [1975] 1 WLR 1587, [1975] 2 All ER 282, (1975) 119 SJ 760.......15.38, 15.39, 15.42, 15.43, 16.33, 16.34, 18.4, 18.34 Sobell v Hooberman (unreported, 20 December 1993).............................................16.25, 16.36 Sobey v Sobey (2016) VSCA 36....................................................................................8.22, 8.23 Société Générale de Paris v Tramways Union Co (1884) 14 QBD 424 aff’d sub nom Société Générale de Paris & Colladon v Walker (1885) 11 App Cas 20............20.33, 20.41 Soinco SACI v Novokuznetsk Aluminium Plant Co (Appointment of Receiver) [1998] QB 406, [1998] 2 WLR 334, [1997] 3 All ER 523.................................................. 21.45 Soleimany v Soleimany [1999] QB 75.........................................................................4.21, 15.23 Solicitor, a, Re (1987) 131 SJ 1063................................................................................. 19.75 Solicitors, a firm of, Re [1997] Ch 1, [1996] 3 WLR 16, [1995] 3 All ER 482................ 19.75 Solicitors, a firm of, Re [2000] 1 Lloyd’s Rep 31............................................................. 19.75 Solicitor’s Arbitration, Re [1962] 1 WLR 353, [1962] 1 All ER 772, (1962) 106 SJ 221.16.40 Solle v Butcher [1950] 1 KB 671, [1949] 2 All ER 1107, 66 TLR (Pt 1) 448................... 14.43 Solly v Forbes (1820) 2 Brod & Bing 38, 129 ER 871..................................................... 20.9 Solvency Mutual Guarantee Co v Freeman (1861) 7 H & N 17...................................... 8.7 Somerville v Mackay (1810) 16 Ves Jr 382, 33 ER 1029................................................. 11.38 Soremekun v Omulunde (unreported, 20 October 2003)................................................ 10.9 Souhrada v Bank of New South Wales [1976] 2 Lloyd’s Rep 444 (New South Wales SC).......................................................................................................................... 14.21 South Wales Atlantic Steamship Co, Re (1875–76) LR 2 Ch D 763................................ 4.19 Southern (Inspector of Taxes) v AB Ltd [1933] 1 KB 713.............................................2.16, 4.14 Southern Rly of Peru v Owen (Inspector of Taxes) [1957] AC 334, [1956] 3 WLR 389, [1956] 2 All ER 728................................................................................................ 12.26 Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 1 WLR 1072, [1986] 3 All ER 75, (1986) 2 BCC 99302............................. 19.66 Spalding (AG) & Bros v AW Gamage Ltd [1914–15] All ER Rep 147, (1915) 31 TLR 328, (1915) 32 RPC 273......................................................................................... 8.57 Spanish Prospecting Co Ltd, Re [1911] 1 Ch 92.........................................................2.16, 12.26 Sparkle Properties v Residential Developments Ltd [1998] NPC 73................................ 15.48 Spartali v Constantinidi (1872) 20 WR 823.................................................................... 9.7 Spencer v Spencer (1828) 2 Y & J 249, 148 ER 911....................................................... 14.33 Spicer (Keith) Ltd v Mansell [1970] 1 WLR 333, [1970] 1 All ER 462, (1969) 114 SJ 30.....................................................................................................1.1, 2.1, 2.4, 2.7, 2.16, 2.19, 5.6 Spire Freezers Ltd v Canada (2001) 196 DLR (4th) 210 (Canada Sup Ct)...................... 2.39

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Table of Cases para Spiro v Glencrown Properties Ltd [1991] Ch 537, [1991] 2 WLR 931, [1991] 1 All ER 600.....................................................................................................................8.30, 18.34 Sport International Bussum BV v Inter-Footwear Ltd [1984] 1 WLR 776, [1984] 2 All ER 321, (1984) 81 LSG 1992................................................................................. 7.16 Spread Trustee Co Ltd v Hutcheson [2011] UKPC 13, [2012] 2 AC 194, [2012] 2 WLR 1360....................................................................................................................... 14.53 Spree Engineering & Testing Ltd v O’Rourke [1999] EWHC 272.................................2.30, 2.40 Sproule v McConnell [1925] 1 DLR 982......................................................................... 2.1 Spurr v Cass (1869–70) LR 5 QB 656...........................................................................5.5, 21.10 Squirrel Films Distribution Ltd v SPP Opportunities Fund LLP [2010] EWHC 706 (Ch).15.30 Stacey, Ross etc v Decy (1789) 7 Term Rep 361n............................................................ 23.38 Stainton v Carron Co (1857) 24 Beav 346, 53 ER 391............................................12.34, 14.44, 14.48, 15.60 Standard Chartered Bank v Pakistan National Shipping Corpn (No 2) [2002] UKHL 43, [2003] 1 AC 959, [2002] 3 WLR 1547................................................................... 25.70 Standard Life Health Care v Gorman [2009] EWCA Civ 1292, [2010] IRLR 233...12.11, 12.13, 15.34, 15.36 Standon Iron Co, Re (1855) 21 Beav 164, 52 ER 821..................................................... 2.2 Stanfield v Gibbon [1925] WN 11................................................................................... 15.42 Stanford International Bank Ltd (in receivership), Re [2010] EWCA Civ 137, [2011] Ch 33, [2010] 3 WLR 941............................................................................................ 22.90 Stapleford Colliery Co Barrow’s Case, Re (1879) LR 14 Ch D 432................................. 11.27 Starbucks (HK) Ltd v British Sky Broadcasting Group plc [2015] UKSC 31, [2015] 1 WLR 2628, [2015] 3 All ER 469............................................................................ 8.52 Starglade Properties v Nash [2010] EWCA Civ 1314, [2011] Lloyd’s Rep FC 102, [2011] 1 P & CR DG17....................................................................................19.51, 19.53 Star Industrial Co Ltd v Kap Kwee Kor (t/a New Star Industrial Co) [1976] FSR 256.... 8.52 Starkey & Whiteside, ex p Chuck, Re (1832) 8 Bing 469, 131 ER 473.......................18.32, 20.4 State of South Australia v Peat Marwick (1997) 24 ACSR 230.................................19.56, 21.24 State Tax (SA) v Cyril Henschke P/L (2010) CLR 508 (High Ct of Australia)................. 16.1 Stead v Salt (1825) 3 Bing 101, 130 ER 452................................................................... 21.7 Steadman v Steadman [1976] AC 536, [1974] 3 WLR 56, [1974] 2 All ER 977............. 8.35 Steele v Grossmith (1872) 19 Gr 141 (Canada)............................................................... 15.43 Steele v Stuart (1866) LR 2 Eq 84.............................................................................20.35, 20.38 Steiglitz v Egginton (1815) Holt NP 141, 171 ER 193.................................................... 19.20 Stein v Blake [1994] Ch 16, [1993] 3 WLR 718, [1993] 4 All ER 225............................ 15.5 Stein v Blake [1996] AC 243, [1995] 2 WLR 710, [1995] 2 All ER 961......................... 23.10 Stein v Garlick & Holdcroft [1910] TPD 250 (South Africa).......................................... 19.23 Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452..............................................................3.22, 3.23 Stekel v Ellice [1973] 1 WLR 191, [1973] 1 All ER 465, (1972) 117 SJ 126.........2.1, 2.11, 2.20, 2.33, 2.34, 7.10, 12.14, 17.3, 18.26 Stenhouse Australia Ltd v Phillips [1974] AC 391, [1974] 2 WLR 134, 1974] 1 All ER 117......................................................................................................................... 18.73 Stening v Abrahams [1931] 1 Ch 470............................................................................. 8.45 Stephens v Reynolds (1860) 5 H & N 513...................................................................... 19.2 Stephenson (SBJ) Ltd v Mandy [1999] EWCA Civ 1720................................................. 18.69 Sterenchuk Estate Western Trust Co v Demchuk (1958) 16 DLR (2d) 505 (Canada)...... 8.20 Sterry v Clifton (1850) 9 CB 110..................................................................................4.5, 11.31 Steuart v Gladstone (1878) 10 Ch D 616..................................................................16.24, 16.43 Stevens v Benning (1854) 1 K & J aff’d (1855) 6 De GM & G 223................................ 19.1 Stevens v Bower [2004] EWCA Civ 496, [2004] ICR 1582, [2004] IRLR 957................ 18.24 Stevens v Britten [1954] 1 WLR 1340, [1954] 3 All ER 385, 47 R & IT 697................5.7, 12.34 Stevens v Premium Real Estate Ltd [2009] NZSC 15...................................................... 14.52 Stevens v White (1938) LJ NCCR 356............................................................................ 4.7 Stevenson (Hugh) & Sons Ltd v AG für Cartonnagen-Industrie [1917] 1 KB 842; [1918] AC 239................................................................................................3.6, 3.18, 4.20, 4.21, 18.13, 18.41, 18.42

cviii

Table of Cases para Stevenson (W) & Son (a firm) & Bick v R [2008] EWCA Crim 273............................... 19.50 Steward v Blakeway (1869) 4 Ch App 603...................................................................8.25, 8.26, 10.8, 18.42 Stewart v Buchanan (1903) 6 F (Ct of Sess) 15................................................................ 2.35 Stewart v Forbes (1849) 1 Mac & G 137, 41 ER 1215...............................................10.2, 12.29 Stewart v Gladstone (1878–79) LR 10 Ch D 626........................................................8.52, 12.21 Stewart v Oriental Fire & Marine Insurance Co Ltd [1985] QB 988, [1984] 3 WLR 741, [1984] 3 All ER 777................................................................................................ 4.17 Stewart v Parker & Fox (1878) 18 NBR (2 P & B) 223 (Canada)................................... 19.23 Stewart v Rhodes [1900] 1 Ch 386................................................................................. 10.15 Stewart v Stuart (1823) 1 LJOS Ch 61............................................................................ 18.34 Stimpson v Smith [1999] Ch 340, [1999] 2 WLR 1292, [1999] 2 All ER 833...........14.61, 18.40 Stocken v Dawson (1845) 9 Beav 239; aff’d (1848) 17 LJ Ch 282...................10.9, 12.34, 18.10 Stocker v Brocklebank (1851) 3 Mac & G 550............................................................... 2.33 Stocker v Wedderburn (1857) 3 K & J 393..................................................................... 15.33 Stocking v Montilla (Costs) [2007] EWHC 56 (Ch)........................................................ 15.19 Stone Rolls Ltd (in liquidation) v Moore Stephens (a firm) [2009] UKHL 39, [2009] 1 AC 1391, [2009] 3 WLR 455................................................................................. 14.54 Stone, Re (1886) LR 33 Ch D 541.................................................................................. 23.7 Storm v Cumberland (1871) 18 Gr 245.......................................................................... 12.31 Story v Richardson (1839) 6 Bing NC 123, 133 ER 49................................................... 21.3 Stracey, Ross etc v Decy (1789) 7 Term Rep 361n.......................................................... 21.11 Strachan v Universal Stock Exchange (No 2) [1895] 2 QB 697....................................... 4.24 Strathearn Gordon Associates Ltd v Customs & Excise Comrs [1985] VATTR 79......... 2.34 Stratti v Stratti (2000) 50 NSWLR 324.....................................................................12.33, 14.59 Strohmenger v Finsbury Permanent Investment Building Society [1897] 2 Ch 469.......... 7.21 Stoneyford Supplies Ltd v Edge [1986] Ch 128; revs’d [1987] Ch 305............................ 14.10 Straker v Wilson (1870–71) LR 6 Ch App 503............................................................... 18.16 Strover v Strover [2005] EWHC 860 (Ch), [2005] WTLR 1245, [2005] NPC 64........... 8.9 Struthers v Barr (1826) 2 Wils & S 153.......................................................................... 10.2 Stuart v Barrett (1992) 8 EIPRD 162.............................................................................. 8.72 Stubart Investments Ltd v Canada (1984) 1 SCR 536..................................................... 2.5 Stubbs v Lakos (1994) 56 IR 110.................................................................................... 2.11 Sturgeon Bros v Salmon (1906) 22 TLR 584................................................................... 10.4 Suburban Hotel Co, Re (1866–67) LR 2 Ch App 737...............................................17.23, 17.24 Sucden Financial Ltd (formerly Sucden (UK) Ltd) v Fluxo-Cane Overseas Ltd [2010] EWHC 2133 (Comm), [2010] 2 CLC 216.............................................................. 14.53 Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444, [1982] 3 WLR 315, [1982] 3 All ER 1.........................................................................................................18.34, 18.35 Suisse Atlantique Societe d’Armament SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361, [1966] 2 WLR 944, [1966] 2 All ER 61.................................................... 14.17 Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638, [2013] 1 WLR 102, [2012] 2 All ER (Comm) 795.................................................. 15.23 Suleman v Abdul Latif (1930) LR 57 Ind App 245.......................................................... 12.32 Sun Mortgage Corpn v Kumar (2000) WWR 700.........................................................2.19, 2.39 Sunseeker International Ltd v Tobia [2011] EWHC 4004 (QB)....................................... 15.36 Sutherland v Gustar [1994] Ch 304, [1994] 3 WLR 735, [1994] 4 All ER 1................20.4, 21.3, 21.7, 21.9 Sutherland v Gustar (Inspector of Taxes) [1993] STC 399............................................21.7, 21.9 Sutton v English & Colonial Produce Co [1902] 2 Ch 502............................................. 10.15 Sutton & Co v Grey [1894] QB 285.............................................................................2.30, 2.33 Svenska Petroleum Exploration AB v Lithuania (No 2) [2006] EWCA Ci 1529, [2007] QB 886, [2007] 2 WLR 876................................................................................... 3.5 Swain v Law Society [1983] 1 AC 598, [1982] 3 WLR 261, [1982] 2 All ER 827.......... 4.11 Swaine v Wilson (1889) LR 24 QBD 252........................................................................ 4.22 Swan, The [1968] 1 Lloyd’s Rep 5.................................................................................. 19.12 Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699, [1964] 3 WLR 356, [1964] 3 All ER 30.......................................................................................... 14.15

cix

Table of Cases para Swift v Dairywise Farms Ltd (No 1) [2000] 1 WLR 1177, [2000] 1 All ER 320, [2000] BCC 642................................................................................................................. 8.11 Swift v Jewsbury (1873–74) LR 9 QB 301...................................................................... 19.52 Swindle v Harrison [1997] 3 All ER 705..........................................................11.2, 11.44, 14.51 Swire v Redman (1876) 1 QBD 536................................................................................ 20.21 Swiss Air Transport Co Ltd v Palmer [1976] 2 Lloyd’s Rep 604..................................... 2.42 Syers v Syers (1876) 1 App Cas 174........................................................2.20, 2.35, 7.1, 7.6, 7.8, 8.26, 16.24, 18.42, 18.46, 18.47, 18.48, 18.50 Sykes v Beadon (1879) LR 11 Ch D 170..............................................................2.57, 4.21, 4.23 Sykes v Land [1984] 2 EGLR 8, (1984) 271 EG 1264.....................................................9.2, 11.8 Symes v Hughes (1869–70) LR 9 Eq 475........................................................................ 4.24 Sze Tu v Lowe [2014] NSWCA 462......................................................................8.1, 8.22, 8.23, 8.26, 11.2 T Tait v Brown & MacRae 1997 SLT (Sh Ct) 63................................................................ 20.34 Tait v Winsby [1943] 1 DLR 81 (Canada)....................................................................... 16.11 Tamplin v James (1880) LR 15 Ch D 215, [1874–80] All ER Rep 562........................... 14.43 Tann v Herrington [2009] EWHC 445 (Ch), [2009] Bus LR 1051, [2009] Lloyd’s Rep PN 106.............................................................................................................14.53, 14.62 Tapper v Matheson (1884) 3 NZLR (SC) 312................................................................. 23.11 Target Holdings v Redferns [1996] 2 AC 421...........................................................14.51, 19.70 Taroperewall v Berkery [1983] 3 NSWLR 28.................................................................. 12.29 Tasker v Shepherd (1861) 6 H & N 575......................................................................... 18.26 Taste of Bangladesh v R & C Comrs (2000) SWTI 554..................................................2.5, 2.58 Tate v Barry (1928) 28 SRNSW 380............................................................................... 15.40 Tate v Charlesworth (1962) 106 SJ 368.......................................................................... 15.32 Tate v Crewdson [1938] Ch 869..................................................................................... 18.40 Tatam v Williams (1844) 3 Hare 347, 67 ER 415........................................................... 15.51 Tattersall v Groote (1800) 2 Bos & P 131, 126 ER 1197................................................ 18.62 Taylor v Bhail [1996] CLC 377....................................................................................... 4.21 Taylor v Bowers (1875–76) LR 1 QBD 291.................................................................... 4.24 Taylor v Chester (1868–69) LR 4 QB 309.....................................................................4.21, 4.23 Taylor v Collier (1882) 51 LJ Ch 853............................................................................. 20.10 Taylor v Grier (unreported, 12 May 2003)...................................................................... 18.18 Taylor v Midland Rly Co (1860) 28 Beav 287, 54 ER 376.............................................. 21.20 Taylor v Neate (1888) LR 39 Ch D 538.........................................................15.47, 18.34, 18.43 Taylor v Rundell (1841) 1 Y & C Ch Cas 128................................................................ 21.35 Taylor v Taylor (1873) 28 LT 189..................................................................10.17, 14.18, 15.52 Taylor (Charles) London Ltd, Re (1916) 86 LJ Ch 49..................................................... 4.2 Taylor Made Golf Co Inc v Rate & Rate [1996] FSR 528............................................... 19.54 Taylors (John) v Masons (2005) WTLR 1519........................................8.11, 11.4, 11.13, 11.29, 11.32, 11.33, 11.34 Taylor Stuart & Co v Croft (unreported, 7 May 1997)................................................... 18.68 Teacher v Calder [1899] AC 451, (1899) 1 F (HL) 39, (1899) 7 SLT 153..............9.2, 9.8, 14.50 Teed v Elworthy (1811) 14 East 210, 104 ER 581.......................................................... 21.11 Tempus Investments v Foxton (1994) 50 ALWS (3d) 498............................................... 24.31 Tendring Hundred Waterworks Co v Jones [1903] 2 Ch 615.......................................... 19.60 Tesco Stores v Pool [2003] EWHC 823 (Ch), [2004] IRLR 618...................................... 11.36 Tew, ex p Mills, Re (1872–73) LR 8 Ch App 569.........................................................23.7, 23.9 Thai Trading Co v Taylor [1998] QB 781, [1998] 2 WLR 893, [1998] 3 All ER 65........ 4.21 Thames & Mersey Marine Insurance Co v Società di Navigazione a Vapore del Lloyd Austriaco (1914) 111 LT 97.................................................................................... 21.23 Thames Cruises Ltd v George Wheeler Launches Ltd [2003] EWHC 3093 (Ch).... 2.19, 2.40, 2.41 Thanaknan Kasikorn v Akai Holdings (No 2) (2010) 13 HKCFAR 479......................... 19

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Table of Cases para Tharsis Sulphur & Copper Co Ltd v Société Industrielle et Commerciale des Métaux (1889) 58 LJQB 435............................................................................................... 21.29 Theophile v Solicitor-General [1950] AC 186, [1950] 1 All ER 405, 66 TLR (Pt 1) 441.......2.15, 18.41 Thomas v Atherton (1878–79) LR 10 Ch D 185...........................................12.36, 14.53, 14.59, 14.62, 19.6, 21.7 Thomas v Clark & Todd (1818) 2 Stark 450.................................................................. 19.12 Thomas v Farr [2007] EWCA Civ 118, [2007] ICR 932, [2007] IRLR 419.................... 18.72 Thomas v McNaughton (1912) 21 WLR 267................................................................. 19.18 Thomas v Milfelt 222 SW 2d 359 (1949)........................................................................ 14.53 Thomas v Nottingham Incorporated Football Club Ltd [1972] Ch 596, [1972] 2 WLR 1025, [1972] 1 All ER 1176................................................................................18.2, 18.40 Thomas, Re (1884–85) LR 14 QBD 379.......................................................................4.12, 4.20 Thomas, Re [1894] 1 QB 747......................................................................................... 4.4 Thomas v Dey (1908) 24 TLR 272................................................................................. 4.7 Thomas, ex p Poppleton, Re (1884–85) LR 14 QBD 379............................................... 4.12 Thomason v Frere (1808) 10 East 418, 103 ER 834....................................................... 22.16 Thompson v Brown & Weston (1827) Mood & M 40.................................................... 20.21 Thompson v Geary (1842) 5 Beav 131, 49 ER 527......................................................... 14.8 Thompson v Percival (1834) 5 B & Ad 925, 110 ER 1033............................................. 18.32 Thompson v Robinson (1889) 16 OAR 175................................................................... 19.9 Thompson v Williamson (1831) 7 Bli NS 432, 5 ER 833................................................ 12.28 Thompson’s Trustee in Bankruptcy v Heaton [1974] 1 WLR 605, [1974] 1 All ER 1239, (1974) 119 SJ 295..............................................................................................11.2, 11.13, 11.27, 11.30 Thomson Ecology Ltd v Apem Ltd [2013] EWHC 2875 (Ch), [2014] IRLR 184............ 11.17 Thomson v Drysdale 1925 SC 311, 1925 SLT 174.......................................................... 17.26 Thomson v Thomson (1802) 7 Ves Jr 470, 32 ER 190.................................................... 4.16 Thomson v Thomson 1962 SC (HL) 28, 1962 SLT 109.................................................. 7.25 Thorndike v Hunt (1859) 3 De G & J 563, 44 ER 1386, (1859) 5 Jur NS 879............... 23.4 Thorley’s Cattle Food Co v Massam (No 2) (1880) LR 14 Ch D 763............................. 18.66 Thorn’s Executrix v Russel 1983 SLT 335....................................................................... 18.35 Thorp v Holdsworth (1876) LR 3 Ch D 637................................................................... 17.1 Three Rivers DC v Bank of England (Disclosure) (No 5) [2003] EWCA Civ 474, [2003] QB 1556, [2003] 3 WLR 667................................................................................. 24.21 Thurston Hoskin & Partnership v Jewill Hill & Bennett (unreported, 5 February 2002).18.74 Thwaites v Couthwaite [1896] 1 Ch 496........................................................................ 4.7 Thwaites v Richardson (1790) Peake 16, 170 ER 62....................................................... 21.37 Tibbits v Phillips (1853) 10 Hare 355, 68 ER 963.............................................8.23, 12.24, 18.8 Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35, [2012] 1 WLR 1887, [2012] 2 All ER 1113.............................................................................................2.13, 2.20, 2.32, 2.33, 2.34, 25.75 Till v Morris (14/2/2012)................................................................................................ 11.31 Tilley’s Will Trusts, Re [1967] Ch 1179, [1967] 2 WLR 1533, [1967] 2 All ER 303...........19.65, 19.66 Tilsley v Jevon (1673) Cas temp Finch 66....................................................................... 15.63 Times Travel (UK) v Pakistan International Airlines [2019] EWHC 3732 (Ch), [2019] 12 WLUK 133............................................................................................................. 14.41 Tim Russ & Co (A Firm) v Robertson [2011] EWHC 3470 (Ch).................................... 18.73 Timeplan Education Group Ltd v National Union of Teachers [1997] IRLR 457............ 18.71 Tinsley v Milligan [1994] 1 AC 340, [1993] 3 WLR 126, [1993] 3 All ER 65......4.3, 4.16, 4.18, 4.19, 4.24, 12.34 Tito v Waddell (No 2) [1977] Ch 106, [1977] 2 WLR 496, [1977] 3 All ER 129............ 15.51 Toker v Akgul (unreported, 2 November 1995).............................................15.43, 18.46, 18.49 Tomasetti v Brailey [2012] 274 SLR 248......................................................................... 19.54 Tomlinson v Broadsmith (1896) 1 QB 386.................................................................19.13, 21.2, 21.8, 21.17 Toogood v Farrell [1988] 2 EGLR 233.....................................................................16.24, 16.36

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Table of Cases para Topping, ex p (1865) 4 De GJ & Sm 551........................................................................ 23.46 Toshuku Finance (UK) plc (in liquidation), Re [2002] UKHL 6, [2002] 1 WLR 671, [2002] 3 All ER 961................................................................................................ 23.23 Tottey v Kemp (1970) 215 EG 1021.........................................................................15.43, 18.66 Toulman v Copland (1834) 2 Cl & Fin 681.................................................................... 9.8 Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397, [1949] 1 All ER 1033, 65 TLR 407...5.5, 5.7, 20.25, 20.27, 20.29, 20.30 Tower Taxi Technology LLP v Marsden [2005] EWCA Civ 1503................................... 25.89 Townend v Townend (1859) 1 Giff 201, 65 ER 885........................................................ 19.60 Townsend v Jarman (1900) 2 Ch 699...........................................................18.63, 18.64, 18.66, 18.70, 20.26 Towry EJ Ltd v Bennett [2012] EWHC 224 (QB)............................................................ 18.72 Tradigrain SA v Intertek Testing Services (ITS) Canada Ltd [2007] EWCA Civ 154, [2007] 1 CLC 188, [2007] Bus LR D32.................................................................. 14.53 Transbus International Ltd (in liquidation), Re [2004] EWHC 932 (Ch), [2004] 1 WLR 2654, [2004] 2 All ER 911...................................................................................... 22.50 Transco plc (formerly BG plc) v O’Brien [2002] EWCA Civ 379, [2002] ICR 721, [2002] IRLR 444................................................................................................................ 11.10 Trans-Oil International SA v Savoy Trading LP [2020] EWHC 57 (Comm), [2020] 1 WLUK 59............................................................................................................... 15.25 Trego v Hunt [1896] AC 7..............................................................................8.52, 11.25, 15.32, 18.3, 18.66 Trepca Mines Ltd (No 2), Re [1963] Ch 199, [1962] 3 WLR 955, [1962] 3 All ER 351.4.4 Tribe v Tribe [1996] Ch 107, [1995] 3 WLR 913, [1995] 4 All ER 236........................4.23, 4.24 Trimble v Goldberg [1906] AC 494................................................................11.9, 11.40, 11.45, 14.50, 14.51 Trinkler v Beale (2009) 72 NSWLR 47........................................................................11.2, 11.4, 11.44, 16.19 Troughton v Hunter (1854) 18 Beav 470, 52 ER 185..................................................... 16.21 Truong v Lam (2009) WASCA 217.............................................................................16.1, 16.34 Truman’s Case sub nom Brewery Assets Corpn, Re [1894] 3 Ch 272.............................. 20.41 Trustor AB Ltd v Smallbone (No 4) [2001] 1 WLR 1177, [2001] 3 All ER 987, [2001] 2 BCLC 436.........................................................................................................11.26, 11.38 Tucker v Tucker [1999] All ER (D) 301.......................................................................... 18.34 Tucker, Re [1894] 3 Ch 429.................................................................................... 19.26, 20.19, 20.25 Tucker, ex p Tucker, Re (1895) 2 Mans 358.................................................................... 21.5 Tuff, ex p Nottingham, Re (1887) LR 19 QBD 88.......................................................... 23.3 Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334, [1993] 2 WLR 262, [1993] 1 All ER 664........................................................................................ 15.27 Tunstall v Condon [1980] ICR 786...........................................................................18.25, 18.26 Tupper v Haythorne (1815) Gow 135n........................................................................... 19.4 Turcan, Re (1888) LR 40 Ch D 5.................................................................................... 8.11 Turner v Burkinshaw (1866–67) LR 2 Ch App 488........................................................ 12.32 Turner v Major (1862) 3 Giff 442, 66 ER 483...............................................15.39, 18.11, 18.34 Turner v Major (1874) 5 AJR 61.................................................................................... 18.65 Turner v Turner [1911] 1 Ch 716.................................................................................... 23.12 Turner, Re (1881–82) LR 19 Ch D 105........................................................................... 23.15 Turney v Bayley (1864) 4 De GJ & Sm 332..............................................................11.23, 15.12 Turnock v Taylor (1961) 180 EG 773............................................................................. 7.22 Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164, [2002] 2 WLR 802........ 19.53, 19.73 Twogood, ex p (1805) 11 Ves Jr 517, 32 ER 1189.......................................................... 23.11 Twyford v Trail (1834) 7 Sim 92, 58 ER 771.................................................................. 19.62 Tyrrell v Bank of London (1862) 10 HL Cas 26, 11 ER 934........................................... 11.36 Tyser v Shipowners Syndicate (Reassured) [1896] 1 QB 135........................................... 2.12 Tyson v Waldie [1954] 2 DLR 401 (Canada)............................................................11.44, 12.10

cxii

Table of Cases para U UBAF Ltd v European American Banking (The Pacific Colocotronis) [1984] QB 713, [1984] 2 WLR 508, [1984] 2 All ER 226................................................................ 19.52 UCB Home Loans Corpn Ltd v Soni [2013] EWCA Civ 62............................................  5.3, 5.5 USB Wealth Management (UK) Ltd v Vestra Wealth LLP [2008] EWHC 1974 (QB), [2008] IRLR 965, (2008) 105(37) LSG 21.............................................................. 18.71 Ubbink Isolatie v Dak- en Wandtechniek see Braymist Ltd v Wise Finance Co Ltd Udall (t/a Udall Sheet Metal & Co) v Capri Lighting Ltd [1988] QB 907, [1987] 3 WLR 465, [1987] 3 All ER 262........................................................................................ 19.72 Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch), [2006] FSR 17, [2007] WTLR 835...................................................................................................................14.21, 14.49 Ulysses Compania Naviera SA v Huntingdon Petroleum Services Ltd [1990] 1 Lloyd’s Rep 160.................................................................................................................. 15.23 Underwood (AL) Ltd v Bank of Liverpool & Martins [1924] 1 KB 775......................19.4, 19.16 Underwood (E) & Son Ltd v Barker [1899] 1 Ch 300...................................................4.9, 18.72 Unical Properties v 784688 Ontario Ltd (1990) 73 DLR (4th) 761................................. 21.8 Union Bank of Australia v McClintock & Co [1922] 1 AC 240..................................14.21, 19.5 Unit Construction Co Ltd v Bullock (Inspector of Taxes) [1960] AC 351, [1959] 3 WLR 1022, [1959] 3 All ER 831...................................................................................... 2.33 United Australia Ltd v Barclays Bank Ltd [1941] AC 1, [1940] 4 All ER 20...............14.21, 20.9 United Bank of Kuwait v Sahib [1997] Ch 107, [1996] 3 WLR 372, [1996] 3 All ER 215......................................................................................................................... 23.19 United Bank of Kuwait v Hammoud [1988] 1 WLR 1051, [1988] 3 All ER 418, (1988) 138 NLJ Rep 281...........................................................................12.9, 19.1, 19.10, 19.11, 19.13, 19.16, 19.43, 19.51, 19.55, 19.61, 19.72, 19.73 United Builder Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673.......................... 23.18 United Dominions Corpn Ltd v Brian Pty Ltd (1985) 157 CLR 1 (HC of A)........2.1, 2.40, 2.41, 11.12, 11.43 United Mining & Financial Corpn Ltd v Becher [1910] 2 KB 296.................................. 19.72 United Pan-Europe v Deutsche Bank AG [2000] 2 BCLC 461......................................... 14.51 United Properties v 784698 Ontario Ltd (1990) 73 DLR (4th) 761................................ 15.9 Unsworth v Jordan [1896] WN 2................................................................................16.24, 17.6 Uphoff v International Energy Trading Ltd (The Times, 4 February 1989)...................14.21 15.5 Upperton, Re (1823) 1 Gl & J 303.................................................................................. 15.41 Urquhart v Macpherson (1877–78) 3 App Cas 831........................................................ 14.35 Usher v Dauncey (1814) 4 Camp 97, 171 ER 32............................................................. 19.1 Uxbridge Permanent Benefit Building Society v Pickard [1939] 2 KB 248....................... 19.43 Uye v Le Roux [1906] TS 429 (South Africa).................................................................. 2.21 V V/O Sovfracht v Van Udens Scheepvaart en Agentur Maatschappij (NV Gebr) [1943] AC 203, (1942) 74 Ll L Rep 59.............................................................................. 4.8 Vagliano Anthracite Collieries Ltd, Re (1910) 79 LJ Ch 769........................................... 1.1 Vale of Neath & South Wales Brewery Co, Re (Keene’s Executors’ Case) (1853) 3 De GM & G 272.......................................................................................................... 7.22 Valencia v Llupar [2012] EWCA Civ 396....................................................................... 2.8 Vanderplank, ex p Turquand, Re (1841) 2 Mont D & De G 339....................................  2.6, 2.8 Van der Walt v Pelser (1895) 12 SC 353 (South Africa)................................................... 11.23 Van Heeren v Kidd (2016) NZCA 401......................................................................11.17, 18.59 Van Praagh v Everidge [1903] 1 Ch 434......................................................................... 14.43 Vanquish Properties (UK) Ltd Partnership v Brook Street (UK) Ltd [2016] EWHC 1508 (Ch), [2016] 6 WLUK 569, [2016] L & TR 33.....................................................8.36, 24.3 Vansittart v Osborne (1871) 20 WR 195........................................................................ 7.25

cxiii

Table of Cases para Variety Video Pty v Jones [2001] NSWSC 5.................................................................... 16.40 Various Claimants v Institute of the Brothers of the Christian Schools [2012] UKSC 56, [2013] 2 AC 1, [2012] 3 WLR 1319....................................................................... 19.45 Vaughan v Barlow Clowes International Ltd (in liquidation) [1992] 4 All ER 22, [1992] BCLC 910............................................................................................................... 19.65 Vawdrey v Simpson [1896] 1 Ch 166.............................................................................. 15.23 Veerappa Chetty v Muthiah Chetty (1929) ILR 52 Mad 509.......................................... 10.11 Venables v Wood (1839) 3 Ross LC 529......................................................................... 2.19 Vernon v Hallam (1886) LR 34 Ch D 748................................................................18.73, 18.74 Vernon v Vawdry (1740) 2 Atk 119................................................................................ 14.44 Vestergaard Frandsen S/A (now called MVF3 APS) v Bestnet Europe Ltd [2013] UKSC 31, [2013] 1 WLR 1556, [2013] 4 All ER 781........................................................ 11.35 Vice v Fleming (1827) 1 Y & J 227, 148 ER 655............................................................ 20.39 Vice v Lady Anson (1827) 7 B & C 409, 108 ER 776..................................................... 5.6 Vickers v Vickers (1867) LR 4 Eq 529............................................................................ 18.35 Vigers v Pike (1842) 8 Cl & Fin 562............................................................................... 14.54 Viho Europe BV v EC Commission [1997] All ER (EC) 163........................................... 2.52 Vince, ex p Baxter, Re [1892] 2 QB 478......................................................................23.7, 24.57 Virdachala Nattan v Ramasavami Nayakan (1862) 1 Mad 341 (India)........................... 14.3 Virdi v Abbey Leisure Ltd [1990] BCC 60, [1990] BCLC 342........................................ 17.25 Vita Food Products Inc v Unus Shipping Co Ltd (in liquidation) [1939] AC 277, (1939) 63 Ll L Rep 21........................................................................................................ 4.11 Voaden v Voaden [1997] CLY 3873..............................................................11.33, 11.39, 11.40, 12.13, 15.32, 15.34, 15.36, 18.34 Vocam Europe Ltd, Re [1998] BCC 396......................................................................... 15.23 Von Hellfeld v Rechnitzer & Mayer Frères & Co [1914] 1 Ch 748.............................1.10, 1.15, 21.1, 21.28 Vyse v Foster (1872–73) LR 8 Ch App 309..................................................................... 19.61 Vyse v Foster (1874–75) LR 7 HL 318.....................................................................10.17, 10.19, 18.17, 18.20 W WEA (a debtor), Re [1901] 2 KB 642.........................................................................19.19, 20.9 WH Newson Holding Ltd v IMI plc [2016] EWCA Civ 773, [2017] Ch 27, [2016] 3 WLR 1595.............................................................................................................. 14.60 WWF World Wide Fund for Nature (formerly World Wildlife Fund) v World Wrestling Federation Entertainment Inc [2007] EWCA Civ 286, [2007] Bus LR 1252, [2008] 1 WLR 445............................................................................................................. 18.68 Waddington v O’Callaghan (1931) 16 TC 187............................................................... 2.1 Wadeson v Richardson (1812) 1 Ves & B 103, 35 ER 40................................................ 12.33 Wah Tat Bank Ltd v Chan Cheng Kum [1975] AC 507, [1975] 2 WLR 475, [1975] 2 All ER 257.......................................................................................................20.5, 20.9, 20.11 Wah v Grant Thornton International Ltd [2012] EWHC 3198 (Ch), [2013] 1 All ER (Comm) 1226, [2013] 1 Lloyd’s Rep 11.................................................................. 15.24 Wake v Renault (UK) Ltd (The Times, 1 August 1996)................................................... 15.34 Wakeham, ex p Gliddon, Re (1883–84) LR 13 QBD 43................................................. 23.40 Wakim v HIH Casualty & General Insurance (2001) FCA 103....................................... 12.33 Waland v Elkins (1816) 1 Stark 272, 171 ER 470........................................................... 2.39 Walford v Miles [1992] 2 AC 128, [1992] 2 WLR 174, [1992] 1 All ER 453................. 15.24 Walker, Re (1880) 42 LT 516.......................................................................................... 23.17 Walker, Re [1905] 1 Ch 160............................................................................................ 3.26 Walker v Customs & Excise Comrs [1976] VATTR 10................................................... 2.16 Walker v Harris (1793) 1 Anst 345................................................................................. 14.4 Walker v Hirsch (1884) LR 27 Ch D 460...................................................2.20, 2.31, 2.33, 2.34, 15.40, 17.3

cxiv

Table of Cases para Walker v Martin (23/12/1993 BC 9300519 SC of South Australia)................................. 8.53 Walker v Mottram (1881–82) LR 19 Ch D 355.............................................................. 18.66 Walker v Reith (1906) 8 F (Ct of Sess) 381..................................................................... 2.38 Walker v Stones [2001] QB 902, [2001] 2 WLR 62, [2000] 4 All ER 412.....19.53, 19.58, 19.59 Walker West Developments Ltd v Emmett (1978) 252 EG 117....................2.1, 2.20, 2.21, 2.31, 2.40, 12.31 Wall v London & Northern Assets Corpn [1898] 2 Ch 469............................................ 12.10 Wallace v C Brian Barratt & Son Ltd (1997) 74 P & CR 408, [1997] 2 EGLR 1, [1997] 31 EG 97................................................................................................................ 8.45 Wallace v Wallace’s Trustees (1906) 8 F 558................................................................... 2.1 Wallersteiner v Moir (No 2) [1975] QB 373, [1975] 2 WLR 389, [1975] 1 All ER 849......11.10, 15.18, 19.71 Walmsley v Walmsley (1846) 3 Jo & Lat 556............................................................11.22, 14.29 Walmsley v White (1892) 40 WR 675............................................................................. 15.23 Walsh Automation (Europe) Ltd v Bridgeman [2002] EWHC 1344 (QB)....................... 15.13 Walsh v Needleman Treon (A Firm) [2014] EWHC 2554 (Ch).............................2.1, 2.11, 2.13, 2.20, 5.6 Walsh v Scanlan (1892) 7 Nfld 633 (Canada)...........................................................15.64, 16.11 Walsh v Shanahan [2013] EWCA Civ 411, [2013] 2 P & CR DG7................................. 14.51 Walsham v Stainton (1863) 1 De GJ & Sm 678.............................................................. 14.44 Walter v Ashton [1902] 2 Ch 282...................................................................................  5.5, 5.9 Walters v Bingham [1988] 1 FTLR 260........................................................7.8, 7.10, 11.1, 11.7, 16.25, 16.36, 16.41, 16.43 Walters v Green [1899] 2 Ch 696.................................................................................... 21.2 Walton Homes Ltd v Staffordshire CC [2013] EWHC 2554 (Ch), [2014] 1 P & CR 10, [2013] 42 EG 125 (CS)........................................................................................... 14.43 Walton v Butler (1861) 29 Beav 42...............................................................................8.23, 8.24 Walton v IRC [1996] STC 68, [1996] 1 EGLR 159, [1996] 21 EG 144...........8.43, 18.39, 18.50 Ward v Newalls Insulation Co Ltd [1998] 1 WLR 1722, [1998] 2 All ER 690, [1998] PIQR Q41................................................................................................2.34, 12.28, 12.29 Ward (a bankrupt), Re [1985] 2 NZLR 352.....................................................10.8, 10.9, 10.12, 18.55, 23.50 Warder v Stilwell (1856) 26 LJ Ch 373........................................................................... 17.25 Wardley & Hodson, ex p Thorpe, Re (1836) 3 Mont & A 716...................................... 20.3 Warman International Ltd v Dwyer (1995) 128 ALR 201.........................................14.28, 14.51 Warne v Bromley (1844) 3 LTOS 70............................................................................... 21.17 Warner v Smith (1863) 1 De GJ & Sm 337..................................................................... 10.2 Warner Bros Pictures Inc v Nelson [1937] 1 KB 209....................................................... 15.32 Warnick Erven BV v J Townsend & Sons (Hull) Ltd (No 1) [1979] AC 731, [1979] 3 WLR 68, [1979] 2 All ER 927..............................................................................8.52, 8.57 Warren v Mendy [1989] 1 WLR 853, [1989] 3 All ER 103, [1989] ICR 525...........15.32, 15.33, 15.34 Warren & MacDonald v Gallagher [1921] 2 WWR 346................................................. 8.31 Warrin v Thomas (1854) 23 LTOS 185........................................................................... 15.19 Wartnaby v Shuttleworth & Taylor (1837) 1 Jur 469...................................................... 10.4 Warwick, ex p Meinertzhagen, Re (1838) 3 Deac 101.................................................... 20.3 Waterer v Waterer (1872–73) LR 15 Eq 402................................................................... 8.26 Waters v Taylor (1813) 2 Ves & B 299, 35 ER 333......................................................... 3.27 Watney v Trisy (1876) 45 LJ Ch 412............................................................................... 15.35 Watney v Wells (1862) 1 New Rep 82.......................................................................12.19, 14.24 Watney v Wells (1867) 2 Cr App 250.....................................................9.7, 18.11, 18.17, 18.54, 18.57, 18.60 Watney v Wells (1961) 30 Beav 56, 54 ER 810............................................................... 17.20 Watson v Croft Promo-Sport Ltd [2009] EWCA Civ 15, [2009] 3 All ER 249, [2009] 2 EGLR 57................................................................................................................. 18.68 Watson v Haggitt [1928] AC 127.........................................................................7.11, 18.7, 18.9 Watson v Imperial Financial Services (1994) 111 DLR (4th) 643.................................... 24.12

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Table of Cases para Watson v Kea Investments [2019] EWCA Civ 1759, [2019] 4 WLR 145, [2019] 10 WLUK 319............................................................................................................. 15.18 Watson v Rodwell (1879) LR 11 Ch D 150.................................................................... 14.44 Watson, ex p (1815) 19 Ves Jr 459, 34 ER 587............................................................... 5.1 Watt v Mortlock [1964] Ch 84, [1963] 2 WLR 626, [1963] 1 All ER 388...................... 18.40 Watts v Aldington (The Times, 16 December 1993)........................................................ 20.9 Watts v Christie (1849) 11 Beav 546, 50 ER 928............................................................ 23.11 Watts v Driscoll [1901] 1 Ch 294................................................................................10.4, 10.11 Watts v Hart [1984] STC 548, 58 TC 209, [1985] CLL 146.........................................7.5, 16.14 Watts v Lord Aldington (The Times, 16 December 1993)............................................... 20.9 Watts v Taft (1858) 16 UCR 256.................................................................................... 24.25 Waugh v Carver (1793) 2 Hy Bl 235...............................................................................  2.1, 5.1 Way v Bishop [1928] Ch 647.......................................................................................... 18.67 Way & Intro-cate Chemicals Ltd v Crouch [2005] ICR 1362, [2005] IRLR 603, (2005) 155 NLJR 937....................................................................................................13.1, 14.60 Weall v James (1893) 68 LT 515..................................................................................... 20.4 Wearmouth v Macpherson [1936] 1 WWR 623 (Canada).............................................. 2.19 Weatherley v Calder & Co (1889) 61 LT 508................................................................. 21.27 Webb, Wallington, Brown & Brice, Re (1818) 8 Taunt 443, 129 ER 455......12.36, 14.59, 14.62 Webb, Re [1894] 1 Ch 73..............................................................................14.42, 14.46, 14.53 Weber Feeds Ltd v Weber (1979) 24 OR (2d) 754 (Ontario CA).................................... 11.4 Webster v Bray (1849) 7 Hare 159, 68 ER 65...........................................................12.24, 12.28 Webster v Webster (1791) 3 Swan 490n.......................................................................... 20.31 Wedderburn v Wedderburn (1838) 4 My & Cr 41.........................................15.52, 18.17, 18.34 Wedge v Wedge (1995) 12 WAR 489.............................................................15.41, 15.42, 18.44 Wedlake Bell (a firm) v Jones [2007] EWHC 1143 (Ch).................................................. 15.23 Weed v Ward (1889) LR 40 Ch D 555............................................................................ 11.43 Weiner v Harris [1910] 1 KB 285.................................................................................... 2.1 Welch v Bank of England [1955] Ch 508, [1955] 2 WLR 757, [1955] 1 All ER 811....... 15.53 Weld v Petre [1929] 1 Ch 33........................................................................................... 15.61 Wells v Smith [1914] 3 KB 722....................................................................................... 20.36 Welsh v Knarston 1972 SLT 96................................................................................19.48, 20.19, 20.21, 20.28 Welzel v Kain (1926) 27 SRNSW 140............................................................................. 11.29 Wenham, ex p Battams, Re [1900] 2 QB 698............................................................21.16, 21.23 Wessex Dairies Ltd v Smith [1935] 2 KB 80, [1935] All ER Rep 75............................8.52, 18.70 West v Benjamin (1898) 29 SCR 282 (Canada)............................................................... 14.45 West v Skip (1749) 1 Ves Sen 239, 27 ER 1006.......................................10.1, 10.8, 10.9, 10.12, 15.61, 23.50 West London Dairy Society Ltd v Abbott (1881) 44 LT 376........................................... 15.27 West London Syndicate v IRC [1898] 2 QB 507............................................................. 8.52 West of England Steamship Owners Protection & Indemnity Association Ltd v John Holman & Sons [1957] 1 WLR 1164, [1957] 3 All ER 421 (note), (1957) 101 SJ 886...................................................................................................................21.27, 21.28 West Park Golf & Country Club, Re [1997] 1 BCLC 20..................................8.51, 19.28, 22.55 West Tankers v Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) (Case -185/07) [2009] 1 AC 1138, [2009] 3 WLR 696, [2009] All ER (EC) 491............................ 15.27 Westacre Investments Inc v Jogimport-SPDR Holding Co Ltd [1999] QB 740, [1998] 3 WLR 770, [1998] 4 All ER 570..........................................................................4.21, 15.23 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12, [1996] 2 AC 669, [1996] 2 WLR 802...................................15.18, 19.65, 19.71 Western Bank of Scotland v Needell (1859) 1 F & F 461................................................ 20.27 Western National Bank of the City of New York v Perez, Triana & Co [1891] 1 QB 304........................................................................................................21.12, 21.14, 21.23 Westland Helicopters Ltd v Arab Organisation for Industrialisation [1995] QB 282, [1995] 2 WLR 126, [1995] 2 All ER 387................................................................ 1.14 Westminster Airways Ltd v Kuwait Oil Co Ltd [1951] 1 KB 134, [1950] 2 All ER 596, (1950) 84 Ll L Rep 297.......................................................................................... 21.35

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Table of Cases para Westshield Ltd, Re; Waldron v Waldron [2019] EWHC 115 (Ch), [2019] Bus LR 1351, [2019] 2 WLUK 226............................................................................................... 25.41 Weston v Abrahams (1869) 20 LT 586............................................................................ 14.22 Wheatley v Smithers [1906] 2 KB 321.......................................................................19.13, 19.17 Wheeler v Van Wart (1838) 9 Sim 193, 59 ER 332......................................................... 16.24 Whetham v Davey (1885) LR 30 Ch D 574..............................................................10.10, 10.12 Whichelow (George), Re [1954] 1 WLR 5 [1953] 2 All ER 1558, (1954) 98 SJ 12......... 10.21 Whimster & Co v IRC (1925) 23 Ll L Rep 79, 1926 SC 20, 1925 SLT 623.................... 12.26 Whisper Holdings Ltd v Zamikoff [1971] SCR 933........................................................ 7.24 Whitaker, ex p Macmillan, Re (1871) 24 LT 143............................................................ 2.35 White, ex p Morley (Deed of Partnership, Re (1872–73) LR 8 Ch App 1026.................. 10.8 White v Jones [1995] 2 AC 207, [1995] 2 WLR 187, [1995] 1 All ER 691..................... 14.53 White v Minnis see White (decs’d), Re [2001) Ch 393 White v White [1999] Fam 304; aff’d [2001] 1 AC 596, [2000] 3 WLR 1571, [2001] 1 All ER 1................................................................................................................2.58, 10.5 White (decs’d), Re [1999] 1 WLR 2079, [1992] 2 All ER 663........................................ 9.8 White (decs’d), Re [2001] Ch 393, [2000] 3 WLR 885, [2000] 3 All ER 618................. 7.11 White (decs’d), Re; White v Minnis [2001] Ch 393, [2000] 3 WLR 885, [2000] 3 All ER 618......................................................................................................................7.11, 7.22, 14.42, 18.35 Whitehead v Howard (1877) 11 NSR (2 R & C) 423 (Canada)...................................... 16.25 Whitehead v Hughes (1834) 2 Cr & M 318.........................................................21.2, 21.4, 21.9 Whitehill v Bradford [1952] Ch 236, [1952] 1 All ER 115, [1952] 1 TLR 66...........18.72, 18.73 Whiteley, ex p Smith & Co, Re (1892) 67 LT 69............................................................ 2.19 Whiteman Smith Motor Co Ltd v Chaplin [1934] 2 KB 35............................................. 8.52 Whitley v Lowe (1858) 25 Beav 421, 53 ER 697............................................................ 15.58 Whitmore v Mason (1861) 2 John & H 204, 70 ER 1031...............................7.14, 16.29, 22.15 Whittle v M’Farlane (1830) 1 Knapp 311....................................................................... 12.25 Whittemore v Macdonnell (1857) 6 UCCP 547.............................................................. 24.25 Whitwell v Arthur (1865) 35 Beav 140, 55 ER 848........................................................ 17.15 Whitwood Chemical Co v Hardman [1981] 2 Ch 416.................................................... 15.34 Whywait Pty Ltd v Davison (1996) 1 Qd R 225............................................................. 2.21 Wigfield v Potter (1881) 45 LT 612................................................................................. 2.57 Wightman v Townroe (1813) 1 M & S 412, 105 ER 154................................................ 20.31 Wigram v Cox, Sons, Buckley & Co [1894] 1 QB 792...................................21.16, 21.27, 21.43 Wilbrahim v Colcough [1952] 1 All ER 979................................................................... 20.33 Wilcoxon, Re (1884) 24 Ch D 505................................................................................. 23.47 Wild v Southwood [1897] 1 QB 317............................................................................... 10.16 Wild v Wild [2018] EWHC 2197 (Ch), [2018] 8 WLUK 281......................................... 8.22 Wilkes v Hopkins (1845) 1 CB 737................................................................................. 19.14 Wilkes v Saunion (1877–78) LR 7 Ch D 188.................................................................. 14.28 Wilkie v Wilkie (No 2) (1900) 18 NZLR 734................................................................. 16.43 Wilkins v Davies (1890) 16 VLR 70 (Australia).............................................................. 2.7 Wilkinson v Eykyn (1866) 14 WR 470........................................................................... 19.4 Wilkinson v West Coast Capital [2005] EWHC 3009 (Ch), [2007] BCC 717................. 11.10 Wilks v Howey [1954] VLR 22 (Australia)..................................................................... 12.32 Willett v Blanford (1842) 1 Hare 253, 66 ER 1027...................................................18.17, 18.20 William Hill Organisation Ltd v Tucker [1999] ICR 291, [1998] IRLR 313, (1998) 95(20) LSG 33........................................................................................................ 12.13 Williams, ex p (1805) 11 Ves Jr 3, 32 ER 988..............................................................10.8, 10.9, 10.12, 23.50 Williams, ex p Warden, Re (1872) 21 WR 51................................................................. 7.14 Williams v Harris (1980) ILRM 237.........................................................................18.20, 18.41 Williams v Jones (1826) 5 B & C 108, 108 ER 40.................................................4.11, 4.23, 7.4 Williams v Keats (1817) 2 Stark 290, 171 ER 649....................................................20.26, 20.29 Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, [1998] 2 All ER 577, [1998] BCC 428...................................................................................................... 25.70 Williams v Prince of Wales Ltd etc Co (1857) 23 Beac 338............................................. 11.24

cxvii

Table of Cases para Williams v Williams (Sale of Matrimonial Home) [1976] Ch 278, [1976] 3 WLR 494, [1977] 1 Al ER 28................................................................................................... 17.2 Williams v Williams [1999] CLY 4095...........................................................15.16, 15.17, 18.19 Williams & Glyn’s Bank Ltd v Boland [1979] Ch 312, [1979] 2 WLR 550, [1979] 2 All ER 697... 8.36 Williams, Re (1872) 21 WR 51.................................................................................22.14, 22.15 Williamson v Bank of Scotland [2006] EWHC 1289 (Ch), [2006] BPIR 1085................ 25.61 Williamson v Barbour (1877) LR 9 Ch D 529.................................................14.44, 14.45, 19.7, 20.33, 20.36, 20.41 Williamson v Hine [1891] 1 Ch 390............................................................................... 11.36 Willis v Dyson (1816) 1 Stark 164................................................................................19.4, 19.5 Willis v Jernagan (1741) 2 Atk 251................................................................................. 14.42 Willmott v Berry Bros (1981) 126 SJ 209........................................................................ 21.23 Willmott v London Celluloid Co [1887] LR 34 Ch D 147.............................................. 19.9 Wilsford v Wood (1794) 1 Esp 181...............................................................................7.4, 20.13 Wilson v Brett (1843) 11 M & W 113............................................................................ 14.53 Wilson v Carmichael (1904) 2 CLR 190......................................................................... 11.23 Wilson v Church (1879–80) LR 13 Ch D 1..................................................................... 17.23 Wilson v Cutting (1834) 10 Bing 436, 131 ER 973......................................................... 12.33 Wilson v Drinkwater (Lewis) (1840) 2 Man & G 197, 133 ER 719................................ 20.13 Wilson v Dunbar 1988 SLT 93........................................................................................ 18.35 Wilson v Greenwood (1818) 1 Swan 471, 36 ER 469.................................................7.14, 23.52 Wilson v Greenwood (1819) 10 Sim 101n...................................................................... 18.44 Wilson v Johnstone (1873) LR 16 Eq 606....................................................................... 18.62 Wilson v Kirkcaldie (1894) 13 NZLR 286....................................................................7.7, 16.11 Wilson v McCarthy (1877) 25 Gr 152 (Canada)............................................................. 12.32 Wilson v McLay (Roger) & Co (1884) 10 PR 355.......................................................... 21.16 Wilson v Viscount Curzon (1847) 15 M & W 532.......................................................... 12.25 Wilson v Whitehead (1842) 10 M & W 503........................................................2.19, 2.30, 2.39 Wilson v Williams (1892) 29 LR Ir 176.......................................................................... 8.52 Wilson, Re; Wilson v Holloway [1893] 2 Ch 340.........................................................8.20, 8.37 Wilson’s Solicitors LLP v Roberts [2018] EWCA Civ 52, [2018] 1 WLUK 420, [2018] BCC 350................................................................................................16.39, 25.75, 25.80 Windsor v Schroeder (1979) 129 NLJ 1266..................................................................2.21, 11.1 Windsor Refrigerator Co Ltd v Branch Nominees Ltd [1961] CH 88; on appeal [1961] Ch 375, [1961] 2 WLR 196.................................................................................... 19.20 Winsor v Schroeder (1979) 129 NLJ 1266...................................................................... 2.19 Winter v Hockley Mint Ltd [2018] EWCA Civ 2480, [2019] 1 WLR 1617, [2019] 2 All ER 1054.................................................................................................................. 19.45 Winter v Innes (1838) 4 My & Cr 101............................................................................ 20.21 Winter v Winter (unreported, 10 November 2000)......................................................... 15.19 Wiscum & Cash v Cash 837 P 2d 692 (1992)................................................................. 14.53 Wise v Perpetual Trustee Co Ltd [1903] AC 139............................................................. 2.46 Wish v Small (1808) 1 Camp 331n................................................................................. 2.62 Witney Town Football & Social Club [1994] BCLC 487................................................ 2.46 Witt v Corcoran (1872) 21 WR 47................................................................................. 16.39 Witt v Stocks [1917] 1 WWR 1451 (Canada)................................................................. 2.19 Wolmerhausen v Gullick [1893] 2 Ch 514...................................................................... 18.40 Wolverhampton, Chester & Birkenhead Junction Rly Co, Re; Norris v Cottle (1850) 2 HL Cas 647............................................................................................................ 2.7 Wondoflex Textiles Pty Ltd, Re [1951] VLR 458............................................................ 16.43 Wong v Hou [1928] 1 WWR 480 (Canada).................................................................... 14.32 Wood v Braddick (1808) 1 Taunt 104, 127 ER 771........................................................ 18.2 Wood v Duke of Argyll (1844) 6 Man & G 928........................................................2.7, 5.3, 5.6 Wood v Fresher Foods Ltd (2008) 2 NZLR 248 (New Zealand)...............................20.27, 20.28 Wood v Gould (1915) 53 SCR 51 (Canada).................................................................... 8.2 Wood v Robson (1867) 15 WR 756................................................................................ 15.23 Wood v Scoles (1865–66) LR 1 Ch App 369................................................................9.7, 12.23, 18.11, 18.56

cxviii

Table of Cases para Wood v Woad (1874) LR 9 Exch 190............................................................................. 16.43 Woodar Investment Development Ltd v Wimpey Construction (UK) Ltd [1980] 1 WLR 277, [1980] 1 All ER 571, (1980) 124 SJ 184...................................................14.14, 14.15 Woodfull v Lindsley [2004] EWCA Civ 165, [2004] 2 BCLC 131, (2004) 148 SLJB 263.......................................................................................................11.13, 11.14, 11.18, 11.26, 11.28, 11.32, 11.33, 11.34, 11.38, 11.39, 14.28 Woodgate v Davis (2002) 42 ACSR 286.......................................................................3.2, 19.49 Woodhouse & Co Ltd v Woodhouse (1914) 30 TLR 559............................................... 15.13 Woodroffes (Musical Instruments) Ltd, Re [1986] Ch 366, [1985] 3 WLR 543, [1985] 2 All ER 908.............................................................................................................. 8.49 Woods v Lamb (1866) 35 LJ Ch 309.............................................................................. 7.10 Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666, [1981] IRLR 347........ 11.1 Woodside v Grant & Keatley (1914) 30 WLR 77 (Canada)............................................ 20.28 Wooldridge v Norris (1868) LR 6 Eq 410....................................................................... 18.40 Woolf v Woolf [1899] 1 Ch 343...................................................................................... 3.22 Worbey v Campbell [2017] CSIH 49, [2017] 7 WLUK 616, 2017 GWD 24-412..........2.1, 16.24 Worcester City & County Banking Co v Firbank, Pauling & Co [1894] 1 QB 784..21.23, 21.27, 21.28 Worcester Corn Exchange Co, Re (1853) 3 De GM & G 180, 43 ER 71........................ 12.36 Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573, [1993] 2 WLR 702, [1993] 2 All ER 370........................................................................... 7.15 Working Project Ltd, Re; Foster-down Ltd, Re; Davies Flooring (Southern) Ltd, Re [1995] BCC 197, [1995] 1 BCLC 226.............................................................22.84, 25.102 Worldham Park Golf Course Ltd, Re [1997] 5 WLUK 360, [1998] 1 BCLC 554............ 25.41 Worthington Pumping Engine Co v Moore (1902) 20 RPC 41........................................ 8.11 Worthington (decs’d), Re; Leighton v Macleod [1954] 1 WLR 526, [1954] 1 All ER 677, (1954) 98 SJ 227..................................................................................................... 19.74 Worts v Pern (1707) 3 Bro Parl Cas 548, 1 ER 1490.......................................................2.8, 7.24 Wray v Hutchinson (1834) 2 My & K 235, 39 ER 934.............................................17.21, 17.26 Wray v Wray [1905] 2 Ch 349.....................................................................8.2, 8.23, 8.36, 8.55, 22.17, 24.3 Wrexham v Hudleston (1734) 1 Swan 514n................................................................17.8, 17.15 Wright v Carter [1903] 1 Ch 27...................................................................................... 11.44 Wright v Hunter (1801) 5 Ves Jr 792, 31 ER 861........................................................... 12.35 Wright v Kyle [1939] OWN 464..................................................................................... 8.23 Wright v Morgan [1926] AC 788.................................................................................... 19.65 Wright v Pepin [1954] 1 WLR 635, [1954] 2 All ER 52, (1954) 98 SJ 252..............15.58, 15.59, 19.26, 21.19 Wright v Pulhan (1816) 1 Stark 375, 171 ER 501........................................................... 20.25 Wright v Snowe (1848) 2 De G & Sm 321, 64 ER 144................................................... 3.22 Wright v Tanner (1869) 20 LT 427.............................................................................3.22, 18.61 Wright, ex p Sheen (1877) LR 6 Ch D 235...................................................................... 23.46 Wright, ex p Wood, Re (1878–79) LR 10 Ch D 554....................................................... 8.29 Wright (Frank H) (Constructions) Ltd v Frodoor Ltd [1967] 1 WLR 506, [1967] 1 All ER 433, (1967) 111 SJ 210...............................................................................12.21, 18.35 Wrotham Park Estate Co v Parkside Homes Ltd [1974] 1 WLR 798, [1974] 2 All ER 321, (1974) 27 P & CR 296................................................................................... 18.68 Wrought v Dawes (1858) 25 Beav 369, 53 ER 678......................................................... 10.8 Wyllie v Pollen (1863) 3 De GJ & Sm 596...................................................................... 20.34 Wynne v Hair Control [1978] ICR 870, (1978) 13 ITR 401........................................... 18.24 X X v A, B, C [2000] 1 All ER 490, [2000] Env LR 104, [2000] 1 EGLR 19...................10.8, 10.9

cxix

Table of Cases para Y Yafai v Muthana [2012] EWCA Civ 289........................................................................ 7.11 Yahya v Yahya (unreported, 15 May 1997)..................................................... 10.4, 10.10, 15.61 Yallop, Ex p (1808) 15 Ves Jr 60, 33 ER 677.................................................................. 4.23 Yam Seng Pte v International Trade Corpn Ltd [2013] EWHC 111 (QB), [2013] 1 All ER (Comm) 1321, [2013] 1 Lloyd’s Rep 526................................................................ 2.41 Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 (High Ct, Australia)................................................................................................................ 4.2 Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd [1995] QB 174, [1995] 2 WLR 49, [1995] 3 All ER 211..........................................................................................................11.13, 14.9, 25.72 Yates v Cousins (1889) 60 LT 535.................................................................................. 18.62 Yates v Dalton (1858) 28 LJ Ex 69................................................................................. 19.17 Yates v Finn (1879–80) 13 Ch D 839..........................................................................18.9, 18.17 Yazhou Travel Investment v Bateson (2004) 1 HKLRD 969............................................ 25.70 Ybasco v Dakas (1948) 51 WALR 22 (Australia)............................................................ 4.3 Yeeles v Benton [2010] EWCA Civ 326.......................................................................... 25.70 Yenidje Tobacco Co Ltd, Re [1916] 2 Ch 426...........................................................17.20, 17.26 Yetton v Eastwoods Froy Ltd [1967] 1 WLR 104, [1966] 3 All ER 353, 1 KIR 469....... 14.17 York v Powell (1909) 10 WLR 407 (Canada)................................................................. 14.45 York & North Midland Rly Co v Hudson (1853) 16 Beav 485, 51 ER 866..............12.32, 12.34 Young, Re (1881–82) LR 19 Ch D 124........................................................................... 21.47 Young, ex p Jones, Re [1896] 2 QB 484.......................................................................2.20, 2.36, 7.4, 23.7 Young v Buckett (1882) 51 LJ Ch 504............................................................................ 15.41 Young v Hunter (1812) 4 Taunt 582, 128 ER 458....................................................20.13, 20.14 Young v Lamb [2001] NSWCA 225................................................................................ 19.30 Young v Robson Rhodes [1999] 3 All ER 524, [1999] Lloyd’s Rep PN 641.................... 19.75 Young v Wilson (1955) 72 RPC 351............................................................................... 8.11 Young (M) Associates v Zahid (a firm) [2006] EWCA Civ 613, [2006] 1 WLR 2562, (2006) 103(22) LSG 26...................................................................2.1, 2.2, 2.4, 2.13, 2.19, 2.20, 2.33, 2.34, 4.11 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 77 ALJR (Australia HC)..14.51, 19.70 Z Z v Z [1997] NZFLR 241............................................................................................... 10.5 Zaman (Kamruz) v Zoha (Hamid Yusuf) [2006] EWCA Civ 770..................12.33, 12.37, 15.63 Zeckler v Assigned Risk Pool Manager Capita Commercial Services Ltd [2012] EWHC 3591 (Ch), [2012] BPIR 1321, (2012) 156(35) SJLB 31..........................................  4.2, 7.2 Zeckler v Assigned Risk Pool Manager (2013) App Ref Ch/2011/0606.......................... 25.63 Zeiss Stiftung (Carl) v Herbert Smith & Co (No 2) [1969] 2 Ch 276, [1969] 2 WLR 427, [1969] 2 All ER 367..........................................................................................19.53, 19.68 Zeital (Giselle), Zeital (Kim) v David Norman Kaye [2010] EWCA Civ 159, [2010] 2 BCLC 1, [2010] WTLR 913.................................................................................... 10.4 Zurich v Gray & Kellas (2007) CSOH 91, 2007 SLT 917, [2008] PNLR 1.............19.51, 20.32, 20.34, 20.36 Zurich Bank v McConnon [2011] IEHC 75.................................................................... 2.35

cxx

1 Partnership in general Contents

para 1 The nature of partnership�������������������������������������������������������������������1.1 2 The history of partnership A The origins�����������������������������������������������������������������������������������1.2 B The statutes of 1865, 1890 and 1907�������������������������������������������1.3 C Later development������������������������������������������������������������������������1.6 3 Foreign firms and companies A Foreign companies and apparent companies������������������������������1.10 B Scottish and Irish partnerships���������������������������������������������������1.11 C Isle of Man and Channel Islands������������������������������������������������1.12 D The nature of foreign partnerships���������������������������������������������1.13 E Recognition by the courts of England and Wales������������������������1.14 F Procedure against foreign firms��������������������������������������������������1.15

1  THE NATURE OF PARTNERSHIP 1.1  English partnership law is to be found in the rules of law and equity relating to partnership which were codified and to some extent amended by the Partnership Act 18901. That Act defined partnership (subject to exceptions) as follows: 1(1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.

So a ‘partnership’ does not mean a body or association; it means a relationship between separate component persons. In England and Wales (as opposed to Scotland2 and other civil law jurisdictions) a partnership is not a legal persona or entity3, though for some purposes it may be deemed to be so for tax or other statutory purposes4 and may be sued as if it were5. 1

1.1  Partnership in general

It merely comprises its members6; unlike a company it cannot have property vested in itself or create a floating charge over its assets7. Contracts taken in its name are enforced against its members; without those members it has no existence. ‘Partner’ is not defined by the Act, but implicitly it means one of those ‘persons’ in the definition above. ‘Firm’ is the correct term for the body of partners as a whole: 4(1) Persons who have entered into a partnership with one another are for the purposes of this Act called collectively a firm, and the name under which their business is carried on is called the firm-name.

The requirements for the existence of a partnership (‘a business in common with a view of profit’) will be considered in the next chapters. Partnerships can be created in widely varying circumstances, either expressly or by inadvertence. Two art dealers agreeing once to buy a picture together may constitute a firm for that purpose, as will an international network of accountants, or the members of a family running a restaurant together. The result of this variety is that the main principles of partnership law are drawn broadly. They may be compressed into two: (i) subject to contrary agreement between them, each partner owes a duty of good faith to the others; and (ii) irrespective of agreement between them, every partner is an agent of the other partners for the purpose of the business of the partnership. This book will explain and qualify those principles. 1 The Partnership Act 1890 is set out in Appendix A below. It was described by Harman LJ as a ‘model piece of drafting’ in Keith Spicer Ltd v Mansell [1970] 1 WLR 333 at 335. Lindley LJ was of the view that it made no great change in the law save in the mode of making a partner’s share of the partnership assets available for his debts: Supplement to A Treatise on the Law of Partnership (1891) p 2. 2 Partnership Act 1890, s 4(2), which is printed in Appendix A below. 3 Re Sawers, ex p Blain (1879) 12 Ch D 522; Meyer & Co v Faber (No 2) [1923] 2 Ch 421; R v Holden [1912] 1 KB 483; Re Vagliano Anthracite Collieries Ltd (1910) 79 LJ Ch 769; contrast a company, Saloman v A Saloman & Co Ltd [1897] AC 22. 4 Eg where the firm itself is appointed an auditor or registered under the Value Added Tax Act 1974, s  45(1): see Revenue and Customs Commissioners v Pal [2006]  EWHC  2016 (Ch D: Patten J), but as to the nature and effect of such registration see Scrace v Revenue and Customs Commissioners [2006] EWHC 2646 (Ch). 5 See para 21.12 below. 6 Per James LJ in Smith v Anderson (1880) 15 Ch D 247 at 273; Pooley v Driver (1876) 5 Ch D 458 at 471. 7 Save under the Agricultural Credits Act 1928 mentioned at para 8.49 below.

2  THE HISTORY OF PARTNERSHIP A The origins   1.2 B The statutes of 1865, 1890 and 1907   1.3 C Later development   1.6 2

The history of partnership 1.3

A  The origins 1.2  Partnership law is as old as commerce itself1. The medieval borough courts and fair courts of pie powder were enforcing something like it in the 13th century. In the 15th century, merchants from the Italian cities brought to northern Europe the foundations of the law of banking and commercial partnership, and by the 16th century the international nature of business meant that ‘Italian Law Merchant’ was recognised in Paris and London2. There were two principal forms of partnership. The first was the Commenda, whereby an investor, the Commendator, evaded the usury laws by putting money into a business in return for a share in the profit, but was liable for no more than his investment. This developed in France into the Société en Commandite or limited partnership, but it did not find favour in England. The other was the Societas3 which in France became the Société en nom collectif or ordinary partnership, in which all members were equally responsible for the debts and could bind the firm. Foreign notions of commercial law were accepted in the English common law courts where they blended with the English law merchant, ‘the accumulated product of the customs of trade to which sanction has from time to time been given by decisions of the courts’4, and were taken up by the Court of Chancery in the 17th century. In 1691 the Commissioners for Trade had reported to the House of Commons on the inadequacy of the machinery for deciding ‘controversies between merchants concerning accounts’5. A large part of English commerce was then being conducted by partnerships. Daniel Defoe, writing in 16976, advocated the creation of a new ‘court merchant’ to regulate disputes between merchants and tradesmen. His complaints about procedural inefficiency went unheeded, but nonetheless both the common law courts and the Court of Chancery were evolving modern notions of partnership law, largely unassisted by statute. The principal partnership action, the action for an account, was then available (with characteristically different drawbacks and procedure) both at law and in equity. But the action for an account at law had fallen out of favour by the time section 34(3) of the Judicature Act 1873 came into effect and assigned partnership actions to the Chancery Division. 1 And is commended in Holy writ: Luke ch 5 v 10. 2 Holdsworth A History of English Law (7th edn, 1955), vol V, p 84. 3 See Justinian’s Institutes, title ‘De Societate’, referred to by Page Wood V-C in Blisset v Daniel (1853) 10 Hare 493 at 523. 4 Per Cockburn LJ in Goodwin v Robarts (1875) LR 10 Exch 337 at 352. 5 Commons Journals xi 696. 6 Essay upon Projects.

B  The statutes of 1865, 1890 and 1907 (a)  The Law of Partnership Act 1865, ‘Bovill’s Act’ (repealed) 1.3  Bovill’s Act1 was passed to reverse the presumption that the existence of certain payments out of the profits of a business would constitute the recipient 3

1.4  Partnership in general

a partner or liable as such for the debts of the business. It became known as the Limited Partnership Act, which was a misdescription because its effect was not to confer any limited liability upon any partner. Its scope was somewhat extended by section 2(3) of the 1890 Act. 1 Repealed by the Partnership Act 1890 but printed in Appendix  I below. Its provisions explain the reasoning behind decisions before 1890. Bovill’s Act was ‘supposed by every one concerned to make a material change in the law, but really added little or nothing to the effect of Cox v Hickman’: per Sir Frederick Pollock in the preface to the fifth (1890) edition of his Digest of the Law of Partnership.

(b)  The Partnership Act 1890 1.4  The 1890 Act1 represents the law of England and Wales today. It was an Act which was largely declaratory of the existing law2; its innovations are insignificant3. Almost all of it remains in force today. Section 46 of the Partnership Act 1890 shows that it did not revoke the earlier law: The rules of Equity and Common Law applicable to partnership shall continue in force except so far as they are inconsistent with the express provisions of this Act.

It codifies much (but by no means all) of the previous law with admirable terseness. Its drawbacks were that it provided no mechanism for limited partnerships4, and it drew no distinction between professional or ‘civil’ partnerships and business or ‘commercial’ partnerships, unlike most foreign jurisdictions. Its model was the commercial partnership through which so much English trade had hitherto been conducted. It applied to Ireland and with insignificant variations it applied to Scotland, and Irish and Scottish decisions on the Act are accordingly valuable although not strictly binding in England and Wales5. The draftsman of the 1890 Act, Sir Frederick Pollock, modestly stated in the preface to the fifth (1890) edition of his Digest of the Law of Partnership: ‘It will be doubted whether the Act will add much to the knowledge of the law possessed by practising members of the Chancery Bar.’ Although the previous law upon which the Act was based will be discussed in this book it is worth mentioning that the very purpose of the Act was to make most of such citation unnecessary. As Lord Herschell said in the House of Lords less than six months after the Partnership Act 1890 came into force6: I think the proper course is in the first instance to examine the language of the statute and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of this enactment will bear an interpretation in conformity with this view. If a statute, intended to embody in a code a particular branch of the law, is to be treated in this fashion, it appears to me that its utility will be almost entirely destroyed, and the very object with which it was enacted will be frustrated. The purpose of such a statute surely was that on any point specifically dealt with by it, the law should be ascertained by interpreting the language used

4

The history of partnership 1.5 instead of, as before, by roaming over a vast number of authorities in order to discover what the law was, extracting it by a minute critical examination of the prior decisions, dependent upon a knowledge of the exact effect even of an obsolete proceeding such as a demurrer to evidence …

Sir Frederick Pollock’s account of the origin and history of the Partnership Act 1890 is in his preface to the 11th edition of his Digest of the Law of Partnership (1920), the last edited by himself, and there he remarks: The Act, therefore, has to be read and applied in the light of the decisions which have built up the existing rules.

Sir Nathaniel (later Lord) Lindley published in 1891 a supplement to his well-known Treatise on the Law of Partnership in which he identified the changes introduced by the 1890 Act as follows7: Section  23 introduces a new method of making a partner’s share in the partnership assets available for the payment of his separate judgement debts. Probably the assignment or mortgage by a partner of his share in the partnership assets does not in any case dissolve the partnership nor give the other partners a right to dissolve. The power of the court to decree the dissolution of a partnership is extended by section 33(f) and perhaps also by section 33(e). It is doubtful whether the doctrine of holding out has been extended by the words ‘knowingly suffered’ in sections 14(1) and 38. Possibly section  15 has made the admissions of a partner concerning the partnership affairs made in the ordinary course of business evidence against his co-partners in criminal cases. Section  16 may have made notice to a partner who habitually acts in the partnership business notice to the firm, though he was not acting in the partnership business when he received the notice. 1 Set out with current amendments in Appendix A below. 2 Per Farwell J in British Homes Assurance Corpn Ltd v Paterson [1902] 2 Ch 404 at 410. 3 Section 23 was mostly new, empowering a charging order to be made over a partner’s share, and the provisions of ss 1 to 4 of Bovill’s Act (see Appendix I below) were re-enacted rather more broadly in s  2(3) of the 1890 Act (see Appendix  A below). See also paras 2.20 and 2.22 below. 4 A deficiency remedied in Canada in 1849, in New South Wales in 1892, but not in England until the Act of 1907. Limited partnerships are dealt with in Chapter 24. 5 For a discussion of Scottish, Irish and foreign firms see para 1.10ff below. 6 In Bank of England v Vagliano Bros [1891] AC 107 at 145, with reference to the Bills of Exchange Act 1882. 7 Page 115. He also identified, in the same place but at greater length, the doubtful points of law settled by the Act.

(c)  The Limited Partnerships Act 1907 1.5  This Act1 introduced into English law the possibility that a person might be a partner in a firm but liable only to the extent of the capital he had invested, 5

1.6  Partnership in general

as in the French Société en commandite; and, as in the latter, the privilege of limited liability might be forfeit if the limited partner involved himself in the management of the firm2. But the Act arrived too late to be of much commercial significance, because it was overshadowed by the Companies Act of the same year which introduced private limited companies. Businessmen saw the benefit of trading with unfettered limited liability through a limited company, and the pre-eminence of the partnership as the vehicle for trade had ended. Company law developed separately from partnership law from which it had originally sprung3. 1 Printed as Appendix B below. Sir Frederick Pollock, in his 1879 draft of what was to be the 1890 Act, included provisions for the creation of limited partnerships, but in 1882 a Select Committee declined to proceed with them. They were left out of the Bill notwithstanding the enthusiasm with which limited liability was advocated by the Duchess of Plaza-Toro in The Gondoliers (1889) Act II. For this reference I am grateful to my friend David Rees QC. 2 Limited partnerships are discussed in Chapter 24. 3 The first (1860) edition of Lindley on Partnership was entitled A  Treatise on the Law of Partnership, including its application to Companies.

C  Later development (a)  The Commonwealth 1.6  Before the 20th century most countries within what was to become the Commonwealth had enactments similar to the Partnership Act 1890. They inherited England’s rejection of the continental tendency to divide partnerships into civil, commercial and other categories1. The courts of the Commonwealth provide authorities which are valuable although not strictly binding in the English courts. For instance in the field of joint ventures2 Australian law may have been influenced by the law of those states of the USA that will not permit corporations to be partners. In spite of these differences a modern Commonwealth case is often as useful to the English practitioner as an ancient English one. 1 The rejection is not an absolute one. English law draws a certain distinction between the implied authority of partners in trading and non-trading partnerships as discussed in Chapter 19. Joint ventures are discussed at para 2.40ff above. 2 In Regalian Properties plc v London Docklands Development Corpn [1995] 1 WLR 212 at 231 Rattee J held that the Australian case of Sabemo Pty Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880 was not good English law.

(b)  The limited company 1.7  Throughout the 20th century the limited company continued to be preferred to a partnership as the vehicle for commercial, but not professional1 business. The advantages were: • limited liability; • relative ease of accumulating profits and holding property. 6

The history of partnership 1.9

The disadvantages of a limited company were: • • • •

greater formality of registration and the requirement of annual returns; public access to accounts; tax disadvantage; the weak position of a minority member.

Today the partnership is enjoying a revival against the rigidity of the limited company because it is ‘tax-transparent’ and because of its suitability for flexible and short-term commercial arrangements. 1 Until late in the 20th century most professions barred their members from practising under the cloak of limited liability.

(c)  Limited Liability Partnerships 1.8  At the end of the 20th century some large negligence claims led to some accountancy firms threatening to register themselves abroad with limited liability, and a few did so. The then government did not trouble the Law Commission with the matter but with an admirable enthusiasm for the protection of professionals rather than their clients, introduced a bill which became the Limited Liability Partnerships Act 2000. It is discussed in detail in Chapter 25. It created a new legal entity called a Limited Liability Partnership (‘LLP’)1 and enabled regulations2 to be made which applied (in amended form) much Companies Act regulation to them. It laid down no structure for their internal organisation, but imposed the obligation of registration and filing annual accounts. 1 LLPs are discussed in Chapter 25. 2 See the Limited Liability Partnerships Regulations 2001, printed as Appendix H below and discussed in Chapter 25.

(d)  The Law Commissions 1.9  On 10  October 2003 the Law Commission and the Scottish Law Commission agreed a joint report on Partnership Law and proposed a draft bill to replace the 1890 Act. The report made some useful proposals for some minor alterations in the law, and a major proposal to give separate legal personality to all English partnerships, whether the partnership was created expressly or merely by implication or operation of law. This suggestion did not receive the support of the legal profession as a whole, and on 20 July 2006 Ian McCartney, Minister for Trade, Investment and Foreign Affairs at the DTI, stated that the government would not take forward the proposals except for some which related to limited partnerships and which are mentioned in Chapter 24. 7

1.10  Partnership in general

3  FOREIGN FIRMS AND COMPANIES A B C D E F

Foreign companies and apparent companies   1.10 Scottish and Irish partnerships   1.11 Isle of Man and Channel Islands   1.12 The nature of foreign partnerships   1.13 Recognition by the courts of England and Wales   1.14 Procedure against foreign firms   1.15

A  Foreign companies and apparent companies 1.10  Under section 1(2)(a) of the Partnership Act 1890 companies registered under the Companies Acts are excluded from the definition of partnership for the purposes of the Act. Most foreign companies are not so registered, but this has not resulted in the English courts treating them as partnerships. The reason is that the English courts recognise the status of a foreign corporation duly registered under the law of a foreign country1. The question whether a foreign entity is a corporation, and any other question as to its constitution, must be decided according to the relevant foreign law, which is the law where the entity was created2. So a Delaware Limited Partnership is likely to be recognised as a limited partnership by the English courts3, as will be a UAE ‘mudarabah’ agreement which is similar to a limited partnership4. Where a partnership is situated depends upon where its business is carried on or principally carried on5. 1 Para 1.14 below; Lazard Bros & Co v Midland Bank Ltd [1933] AC 289, 297; Bonanza Creek Gold Mining Co Ltd v R [1916] 1 AC 566, PC; Henriques v General Privileged Dutch Co Trading to West Indies (1728) 2 Ld Raym 1532, 1535; Devon Canada Corp v PE-Pittsfield LLC (2008) 303 DLR (4th) 460 (Canada). 2 Von Hellfeld v Rechnitzer and Mayer Frères & Co [1914] 1 Ch 748; The Saudi Prince [1982] 2 Lloyd’s Rep 255; J H Rayner (Mincing Lane) Ltd v Department of Trade and Industry [1990] 2 AC 418; Associated Shipping Services Ltd v Department of Private Affairs of HH Sheikh Zayed Bin Sultan Al-Nahayan (1990) Financial Times, 31 July. 3 See paras 1.13 and 24.8 below for a discussion of foreign LPs. 4 Dana Gas PJSC v Dana Gas Sukuk Ltd [2017] EWHC 1896 (Comm). 5 Laidley’s Trustees v Lord Advocate; CPR, Pt 7 PD 5A.1(2).

B  Scottish and Irish partnerships 1.11  In Scotland the firm is a legal entity1 as it is not in England, although an individual Scottish partner may be charged on a decree of diligence directed against the firm. He is not a principal, as in England, but is an agent of the firm and of his partners2. The nature of the entity that is a Scottish partnership or a Scottish limited partnership is obscure because it is uncertain whether it is the same entity that exists before and after a change of its membership3. Subject to this and some minor provisions relating to execution and bankruptcy4, the 8

Foreign firms and companies 1.13

Partnership Act 1890 applies in Scotland as it does in England. The 1890 Act applied also to what is now Eire and Northern Ireland. But partnership law in those jurisdictions has developed separately5, and their authorities are not binding in England. 1 Partnership Act 1890, s  4(2); the Companies Act 1985, s  740 (now repealed) stated that references in the Act to a body corporate did not include a Scottish partnership. This implied that without that provision such a partnership should be regarded as corporate. For consideration of when a legal entity is not a corporation see Lord Oliver in J  H Rayner v Department of Trade (The Tin Council Case) [1990] 2 AC 418 at 504, citing Chaff & Hay Acquisition Committee v J A Hemphill & Sons Pty Ltd (1947) 74 CLR 375 at 385 (for which reference I am grateful to my friend Sir David Richards). 2 See Peter Gibson J in Memec plc v IRC [1998] STC 754 at 765. 3 See Park J in Major (Inspector of Taxes) v Brodie [1998] STC 491; Badger v Major (1997) STC (SCD) 218, and Lord Maxwell in Jardine-Paterson v Fraser 1974 SLT 93 at 97. 4 See the Partnership Act 1890, ss 9, 23 and 47, set out in Appendix A below. 5 The only valuable work on Irish partnership law is Twomey on Partnership (2nd edn, 2019, Bloomsbury Professional).

C  Isle of Man and Channel Islands 1.12  The principles of Manx partnership law are those of England1. In Jersey the position is different because in relation to contract generally French (or Norman) customary law is preferred to English2. The 1890 Act does not apply, but on the other hand the court has relied upon English authorities on partnership law3. Jersey has a Limited Partnerships (Jersey) Law 1994 and a Limited Liability Partnerships (Jersey) Law 1997. 1 Labouchere v Tupper (1857) 11 Moo PCC 198; Buckmaster and Moore v Fado Investments Ltd [1986] PCC 95. 2 Bennett v Lincoln (2005) JLR 125; La Motte Garages v Morgan [1989] JLR 312. 3 Cooley v Wood (1993) unreported; Golder v Le Quesne and Thacker (1993) unreported.

D  The nature of foreign partnerships 1.13  Firms in many states in the USA which have adopted the Revised Uniform Partnership Act (‘RUPA’)1 have status as legal entities; those in most Commonwealth countries do not. In France, Belgium, Greece, Norway and Sweden a partnership may acquire legal personality by registration. In Switzerland a general partnership must be registered; it is not a corporation, but in certain respects it is an entity separate from its members, so that it can make contracts in its own name and own property2. The distinction between the French Société en Commandite and the Société en nom collectif has been mentioned in para  1.2 above. Germany and other continental jurisdictions draw a distinction between a BGBGesellschaft or non-commercial association or partnership including a professional firm, and a HGBGesellschaft which is a trading partnership. The German ‘silent partnership’ (Stille Gesellschaft) has some analogy with an English limited partnership3. The status of English 9

1.14  Partnership in general

limited partnerships abroad, and of foreign limited partnerships in England, is considered at para 24.8 below. 1 RUPA has unfortunately not been enacted in every state in identical form. Its predecessor, the Uniform Partnership Act (1914), which remains in force in many states, was unclear as to whether the partnership was a legal entity. 2 A claim in England against a Swiss partnership was discussed in Oxnard Financing SA v Rahn [1998] 1 WLR 1465, CA. 3 Its description by Robert Walker J is quoted in Memec v IRC [1998] STC 754 at 759.

E  Recognition by the courts of England and Wales 1.14  The English court affords recognition to a foreign entity according to the terms of its constitution1; if the constitution renders the general partners in a company liable, then the English courts will hold them liable if the company trades within the jurisdiction2. In Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd3, Lord Hodge, with whom Lords Sumption and Carnwath agreed, said at paragraphs 84–89: where a contract governed by a foreign proper law is made with an English partnership, English law and not the proper law of the contract will determine whose liabilities are thereby engaged. All the partners will be jointly and severally liable … In Johnson Matthey & Wallace Ltd v Alloush4 Sir John Donaldson MR observed that: ‘it is open to the proper law of a company to limit the liability of its members and officers by adopting either a substantive law route or a procedural law route. The choice is that of the relevant legislature. If it chooses to adopt the substantive law route, that law will have extraterritorial effect, at any rate so far as England is concerned’.

Except in circumstances where jurisdiction is governed by the recast Brussels I Regulation or Lugano Convention5, the English courts will not recognise the purported jurisdiction of a foreign court over a British subject who is neither resident in that country nor submits to its jurisdiction, so a decision of such a court that a British person is not a partner there is not binding on him in the UK6. Jurisdiction is discussed at paras 15.1 and 21.20 below. A foreign partnership may be wound up as an unregistered company7 if it has assets in England8 or if there is a connection with England and there are persons who would benefit from the winding-up order9. The situs of a claim for account after dissolution where the partners reside in different jurisdictions is the place of the principal place of business10. 1 Para  1.10 above; Westland Helicopters Ltd v Arab Organisation for Industrialisation [1995]  QB  282; Arab Monetary Fund v Hashim (No  3) [1991] 2  AC  114; Re Senator Hanseatische Verwaltungsgesellschaft mbH [1996] 2 BCLC 562. 2 Johnson Matthey & Wallace Ltd v Ahmad Alloush (1984) 135 NLJ 1012 cited by Lord Oliver in the Tin Council case J H Rayner (Mincing Lane) Ltd v Department of Trade and Industry [1990] 2 AC 418 at 509. 3 [2018] UKPC 7. We are grateful to our friend David Raphael for these references. 4 (1984) 135 NLJ 1012, Court of Appeal (Civil Division) Transcript No 234 of 1984.

10

Foreign firms and companies 1.15 5 See Regulation (EU) 1215/2012 and the Civil Jurisdiction and Judgments Act 1982. In practice this means that where jurisdiction is assumed by the court of a Member State of the European Union, this will be respected and any judgment recognised by an English court. 6 Emanuel v Symon [1908] 1  KB  302 discussed by the Court of Appeal in Adams v Cape Industries plc [1990] Ch 433 at 515. 7 Insolvency Act 1986, s 220. Insolvency is discussed in Chapter 22. 8 Banque des Marchands de Moscou (Koupetschesky) v Kindersley [1951] Ch 112. 9 Re a Company (No  003102 of 1991) [1991]  BCLC  539; Re Compania Merabello San Nicholas SA [1973] Ch 75. 10 Luchmeechund v Mull (1860) 3 LT 603.

F  Procedure against foreign firms 1.15 The Civil Procedure Rules provide that a firm may be sued in its firm name only when the partners carried on ‘business within the jurisdiction’1. Otherwise the firm must be sued in the names of its individual partners as discussed in Chapter  21. The English courts will accept jurisdiction in a dispute between partners if the relevant defendants have been served with the proceedings and (as against other Member States of the 1968 European Conventions) if the partnership has its ‘seat’ in the UK as a Member State2. 1 See Para 5A of PD to Part 7, discussed in Chapters 15 and 21. This meaning of the paragraph is characteristically less clear than the meaning of its predecessor in RSC Order 81(1), but no change in the practice was intended by the change in the rules. In Von Hellfeld v Rechnitzer and Mayer Frères & Co [1914] 1 Ch 748 the foreign firm did not trade within the jurisdiction, and a writ against it in its own name was set aside by the Court of Appeal. 2 See the Civil Jurisdiction and Judgments Act 1982, Sch 1, Art 16(2) and see now Article 24(2) of Council Regulation (EU) 1215/2012 (‘Brussels Regulation Recast’). Jurisdiction over claims between partners is dealt with in Chapter 15.

11

2 Whether there is a partnership and whether a person is a partner Contents

para 1 Express agreement, complete or incomplete A Agreement that there is or is not a partnership�����������������������������2.1 B The issue as to the existence of the partnership����������������������������2.4 C Sham partnerships������������������������������������������������������������������������2.5 D Partnership options����������������������������������������������������������������������2.6 E Proposals and preparation for business����������������������������������������2.7 F Draft agreements acted upon or not acted upon���������������������������2.8 G Deeds and written and oral agreements����������������������������������������2.9 H Continuation, and whether there is a new partnership���������������2.10 I Salaried partners������������������������������������������������������������������������2.11 2 The existence of the partnership without express agreement A The implication of partnership generally������������������������������������2.12 B Carrying on a business in common with a view of profit������������2.15 3 Sharing of profits and property as evidence of partnership A Sharing net profits����������������������������������������������������������������������2.20 B Where sharing profits does not create a partnership�������������������2.23 C Sharing gross profits�������������������������������������������������������������������2.30 D Sharing losses�����������������������������������������������������������������������������2.31 E Employees and agents����������������������������������������������������������������2.32 F Lenders��������������������������������������������������������������������������������������2.35 G Legatees�������������������������������������������������������������������������������������2.38 H Sharing property������������������������������������������������������������������������2.39 4 Joint ventures A Partnership contrasted with other joint ventures������������������������2.40 B Rights and liabilities of joint venturers: relational contracts�������2.41 5 Other entities akin to partnerships A Agents����������������������������������������������������������������������������������������2.42 B Barristers’ chambers�������������������������������������������������������������������2.43 C Commercial agents���������������������������������������������������������������������2.44 13

2.1  Whether there is a partnership and whether a person is a partner

D Civil partnerships�����������������������������������������������������������������������2.45 E Clubs and societies���������������������������������������������������������������������2.46 F Companies limited and unlimited, LLPs and other corporate entities����������������������������������������������������������������������������������������2.49 G Constructive trust: Pallant v Morgan�����������������������������������������2.50 H Employment�������������������������������������������������������������������������������2.51 I European Economic Interest Groups������������������������������������������2.52 J Family partnerships��������������������������������������������������������������������2.53 K Franchises����������������������������������������������������������������������������������2.54 L Friendly societies������������������������������������������������������������������������2.55 M Landlords and tenants����������������������������������������������������������������2.56 N Mutual benefit associations��������������������������������������������������������2.57 O Marriage, civil partnership, boyfriends and girlfriends���������������2.58 P Mining companies in the stannaries�������������������������������������������2.59 Q Public-private partnerships���������������������������������������������������������2.60 R Quasi-partnerships���������������������������������������������������������������������2.61 S Share farmers�����������������������������������������������������������������������������2.62 T Sharia law����������������������������������������������������������������������������������2.63

1 EXPRESS AGREEMENT, COMPLETE OR INCOMPLETE A Agreement that there is or is not a partnership   2.1 B The issue as to the existence of the partnership   2.4 C Sham partnerships  2.5 D Partnership options  2.6 E Proposals and preparation for business   2.7 F Draft agreements acted upon or not acted upon   2.8 G Deeds and written and oral agreements   2.9 H Continuation, and whether there is a new partnership   2.10 I Salaried partners  2.11

A  Agreement that there is or is not a partnership (a)  Agreement between the partners 2.1  Partnership results from express or implied agreement1. A partnership comes into existence between legal persons who have not mutually incorporated2 in one of two cases: (a) where they commence business3 together and they accept that they are partners, and agree upon either some or all of the partnership terms; (b) where, without agreeing that they are partners they carry on business in common and satisfy the other criteria mentioned in para 2.12ff below as giving rise to the implication that a partnership exists. 14

Express agreement, complete or incomplete 2.1

The question whether there is a partnership depends on the true relationship and not on any label that the parties attach to it4. It is a matter of mixed fact and law5, so a decision at first instance on whether they are partners can be reviewed by the Court of Appeal, which in Walker West Developments Ltd v Emmett6 held that a developer and his contractor were partners notwithstanding that their agreement was full of provisions that echoed a simple building contract. They may be partners although they agree in writing that they are not partners7 or not until a deed is executed8 or that they are to be mere ‘joint venturers’9. Alleged partners can deny their agreement, pleading ‘non est factum’10. The actual terms of the partnership agreement are discussed below at para 7.1ff. In Waugh v Carver11 two ship-brokers agreed to share profits but that neither should be liable for the acts or losses of the other; they were held partners and were consequently liable for each other’s losses.

So whether the parties claim that they are in partnership12 or were partners from a certain date retrospectively13 or (more often) deny it14, is in theory irrelevant: ‘No ‘Phrasing of it’ by dexterous draftsmen … will avail to avert the legal consequences of the contract’15. In Firth v Amslake16 Plowman J observed17: ‘the fact that the partners claimed that they did not have any partnership between them was irrelevant’. But in practice a disclaimer of intention to create partnership relations casts doubt upon whether the parties intend essentials of partnership such as the intention to carry on business in common with a view of profit18 and to create mutual agency19, and so a specific deed of trust in favour of tenants in common may defeat the implication of partnership20. To be partners, the members need to have agreed something21 but need not have agreed much. If they agree to be in business in common with a view of profit, there is no need for common capital, management, assets, facilities or firm name22, or for a partner to actually receive his profit share, or get any other benefit23, to do anything at all24: You can have, undoubtedly, according to English Law, a dormant partner who puts nothing in, neither capital, nor skill, nor anything else25.

A secret or inactive partner is called a ‘sleeping’ partner, But it will be unusual for such a person to be regarded as a true partner in the absence of a clear intention that he is a partner: see ‘Implied partnership generally’ in para 2.12 below. Whether an agreement constitutes a partnership depends upon the arrangements when the agreement was made and not later arrangements26. An agreement that there is a partnership will not be inferred lightly, and not where one partner at the time denied that there was a partnership27. In Scotland the law is the same as in England and it is held that certain features are of particular significance in deciding whether there is partnership agreement: share of the profits in proportion to interest in the concern, mutual relief from debts and liabilities, agency, community in profits and losses, sharing in capital, agreement to share loss: 15

2.1  Whether there is a partnership and whether a person is a partner although the absence of one or even more of the key elements … might be reconcilable with the existence of a partnership, the absence of all of them was not28.  1 Philips v Symes (2002) 1 WLR 853 per Hart J at [43]; Worbey v Campbell (2017) CSIH 49 CA200/15 (Scotland). The statement in the text is cited with approval in Dutia v Geldof [2016] 2 BCLC 252 at para 93.   2 See the Partnership Act 1890, s 1(2), discussed at para 2.49 below.   3 See para 2.7 below.   4 Megarry J in Stekel v Ellice [1973] 1  All ER  465; Ross v Parkyns (1875)  LR  20 Eq 331; Holme v Hammond (1872) LR 7 Exch 218; Bullen v Sharp (1865) LR 1 CP 86; Kilshaw v Jukes (1863) 3 B & S 847; Dawson v Helicopter Exploration Co (1956) 20 WWR 359; revsd (1957) 8 DLR (2d) 97, Walsh v Needleman Treon (2014) EWHC 2554.  5 Keith Spicer Ltd v Mansell [1970] 1 All ER 462, CA.   6 (1978) 252 Estates Gazette 1171, where Eveleigh LJ observed that it was vital to bear the whole agreement in mind.  7 Weiner v Harris [1910] 1  KB  285 at 290; Duke Group Ltd v Pilmer (1998) 27  ACSR  1; Fenston v Johnstone (Inspector of Taxes) (1940) 23  TC  29; Pooley v Driver (1876) 5 Ch D 458; Moore v Davis (1879) 11 Ch D 261; in Re Megevand, ex p Delhasse (1878) 7 Ch D 511 the arrangement was described as that of a loan, with a declaration that it was not a partnership, which it was held to be.  8 Amadio Pty Ltd v Henderson (1998) 81 FCR 149.   9 Per Gibbs CJ in United Dominions Corpn Ltd v Brian Pty Ltd (1985) 157 CLR 1 (H C of A) at p 5 and Deputy Comr of Taxation v Tuza (1997) 35 ATR 32 (NSW Sup Ct). For joint ventures see para 2.40 below. 10 Koh v Chan (1997) 139 FCR 410, following Saunders v Anglia Building Society [1971] AC 1004. 11 (1793) 2 Hy Bl 235. 12 IRC v Williamson (1928) 14 TC 335, Ct of Sess; Sproule v McConnell [1925] 1 DLR 982; contrast Young (M) Associates v Zahid [2006] 1 WLR 2562. 13 Saywell v Pope [1979] STC 824; Waddington v O’Callaghan (1931) 16 TC 187. 14 Fenston v Johnstone (Inspector of Taxes) (1940) 23 TC 29. 15 Per Lord Halsbury LC in Adam v Newbigging (1888) 13 App Cas 308 at 315; see Goddard v Mills (1929) Times, 16 February; Duke Group Ltd v Pilmer (1998) 27 ACSR 1. 16 (1964) 108 Sol Jo 198. 17 (1964) 108 Sol Jo 198 at 199. 18 See para 2.15 below. 19 BBC Worldwide Ltd v Bee Load Ltd (t/a Archangel Ltd) (6 February 2007, unreported) Comm Court, Tomlin LJ; Young (M) Associates v Zahid [2006] 1 WLR 2562, followed in Hodson v Hodson [2009] EWHC 430 (Ch), upheld sub nom Rowlands v Hodson [2009] EWCA Civ 1042. The fact that they declared to the tax authorities that they were partners was held relevant in Pham v Doan (2005) 63 NSWLR 370. 20 Pratt v Medwin [2003] 2 P&CR D63. 21 Per Jessel MR in Pooley & Driver (1877) 5 Ch  D  460 at 472; Cayzer v Beddow [2007] EWCA Civ 644. 22 Northern Sales (1963) Ltd v Ministry of National Revenue (1973) 37 DLR (3d) 612 (Canada). 23 Hodson v Hodson [2009] EWHC 430 (Ch). 24 Wallace v Wallace’s Trustees (1906) 8 F 558. 25 Per Jessel MR in Pooley v Driver (1876) 5 Ch D 458. 26 Ahsan v Westmead Business Group Ltd (in liquidation) (6 April 2010, unreported), EAT (an employment case). 27 Per Bingham LJ in Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 1  WLR  1195, Greville v Venables (2007)  EWCA  878, Coward v Phaestos Ltd (2013) EWHC 1292. 28 Worbey v Campbell (2017) CSIH 49 CA200/15 at para 72.

16

Express agreement, complete or incomplete 2.4

(b)  Representations to outsiders 2.2  Where persons hold themselves out to the world that they are partners, or publish a statement to that effect, or their professional obligations require it1, it is evidence that between themselves they are partners2, but not conclusive; they can agree that they owe one another no duty of good faith but are partners only as regards their creditors, in which case they would be partners towards the world without being partners between themselves3. In Radcliffe v Rushworth4 a father and son practised and described themselves as ‘R and Son Bankers’, but the son received no share of profit and only £1 per week; Held that as between themselves they were not partners.

Whatever the true position, a person who represents himself as a partner will be estopped from denying that he is, to those who deal with the firm in reliance upon the representation5. 1 Young (M) Associates v Zahid [2006] 1  WLR  2562 discussed at para  2.20 below, and followed in Hodson v Hodson [2009] EWHC 430 (Ch), upheld sub nom Rowlands v Hodson [2009] EWCA Civ 1042. 2 Per North J in Davis v Davis [1894] 1 Ch  393; Fivegrange v Customs and Excise Comrs LON/89/1631Y, VAT Trib; Keydon Estates v Customs and Excise Comrs LON/88/1225X, VAT Trib; Re Stanton Iron Co (1855) 21 Beav 164. 3 Bissell v Cole [1998] CLY 4071, CA; Re Stanton Iron Co (1855) 21 Beav 164; Jacobsen v Hennekenius (1714) 5 Bro Parl Cas 482. 4 (1864) 33 Beav 484, cited in Floydd v Cheney [1970] Ch 602 at 607D. 5 Mollwo, March & Co v Court of Wards (1872) LR 4 PC 419. See ‘holding out’ in Chapter 5.

(c)  Written disclaimer of partnership 2.3  The implication of partnership can be excluded in writing only in the narrow circumstances where a loan is made in return for an interest in the profits. Section 2(3)(d) of the Partnership Act 1890 provides: The advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person that the lender shall receive a rate of interest varying with the profits, or shall receive a share of profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such. Provided that the contract is in writing, and signed by or on behalf of all the parties thereto.

This is discussed further at para 2.35 below.

B  The issue as to the existence of the partnership 2.4  The issue whether a partnership has come into existence by operation of law is discussed at para 2.12ff below. 17

2.5  Whether there is a partnership and whether a person is a partner

There was a time when the courts became less enthusiastic about raising the implication of partnership than formerly1. Thus in the 1960s in cases about the breakdown of the relationship of trust between pop groups and their managers2, the possibility of a partnership was seldom even raised. In Keith Spicer Ltd v Mansell3 in 1970 the Court of Appeal was prepared to hold that no partnership existed because the acts relied upon as implying a partnership (opening a bank account and ordering goods) were described as those of the members preparatory to carrying on business, and not actually carrying on business4. They intended to incorporate a company. In 1859 Kindersley V-C5 had deplored the fact that he had been compelled by the then Companies (Winding-up) Acts to reach a similar decision. Before we applaud any modern trend against finding a partnership relationship where none was intended, we must remember that the purpose of finding a partnership is often for public protection: to enable a customer of the business to be able to look to others in the firm if the person with whom he dealt proves insolvent. And modern judges, keen to follow their perception of the merits of a case, seem today to find partnership in unexpected places once more6. 1 See for instance BBC Worldwide Ltd v Bee Load Ltd (t/a Archangel Ltd) (6 February 2007, unreported) Comm Court, Tomlin LJ. 2 Page One Records Ltd v Britton [1968] 1 WLR 157 (The Troggs); and Denmark Productions Ltd v Boscobel Productions Ltd [1969] 1 QB 699 (The Kinks). 3 [1970] 1 WLR 333, CA. As to the present law see para 2.7 below. 4 This rather hard decision had a happy result as it drove counsel for the unsuccessful plaintiff to leave the Bar for politics. He fought a Parliamentary seat the following year, and rose to become a Secretary of State. 5 Hamilton v Smith (1859) 5 Jur NS 32; contrast Khan v Miah [2000] 1 WLR 2123 discussed at para 2.7 below. 6 Young (M) Associates v Zahid [2006] 1  WLR  2562, discussed at para  2.20 below, and followed in Hodson v Hodson [2009] EWHC 430 (Ch), upheld sub nom Rowlands v Hodson [2009] EWCA Civ 1042.

C  Sham partnerships 2.5  A person may claim that a partnership exists when it does not, perhaps to gain an advantage under tax law1. This motive does not of itself prevent it being a partnership2; the test is whether the parties to the alleged partnership in fact intended that there should be no such entity as they purportedly agreed to3. A sham was described generally by Diplock LJ in Snook v London and West Riding Investments Ltd4: It means acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. … All the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.

18

Express agreement, complete or incomplete 2.5

Where parties have entered into a partnership not for any substantive business enterprise5 but for the purpose of excluding the effect of the security of tenure provisions in the agricultural holdings legislation, their partnership is still not a sham unless it can be shown that they intended to create a different relationship from that recorded in their agreement6, and save that the person who contrived the sham partnership may not be allowed to deny it7. Similarly a partnership established for tax avoidance will still be a partnership if it was entered into at least mainly for a commercial purpose; but if entered into wholly to avoid tax8 or ‘if the greater part of the transaction is explicable only on fiscal grounds’9, the partnership will be a sham. In Alexander Bulloch & Co v IRC10 the two partners’ daughters were owed money by the firm. Purportedly they were made partners and the debt became their loan accounts, but they continued their previous routine duties and were paid no share of the profits. Held they were not partners.

If the supposed partnership described in the document might really have been an employment arrangement, the issue is not merely the terms of the document (since they were presumably composed by the quasi-employer to be signed by the quasi-employee) but the court should ask11: Whether the parties ever realistically intended or envisaged that its terms, particularly the essential terms, would be carried out as written. By ‘the essential terms’ I mean those terms which are central to the nature of the relationship, namely mutuality of obligation.

Where there is a partnership between spouses and one receives a profitshare out of all proportion to his contribution to the business, a settlement may be created and the profit will be regarded as that of the other partner12.  1 MacCarthaigh v Daly [1986] IRLM 116; Taste of Bangladesh v HMRC (2000) SWTI 554.  2 Ensign Tankers (Leasing) Ltd v Stokes [1992] 1 AC 655, a tax case on the question whether a certain payment was incurred for the purposes of a trade or was part of a sham arrangement, followed in Barclays Mercantile Industrial Finance Ltd v Melluish [1990] STC 314.  3 Dickenson v Gross (1927) 11  TC  614; Alexander Bulloch & Co v IRC  [1976]  STC  514; Hitch v Stone [2001]  STC  214; Shalson v Russo [2005] Ch  281. In Minwalla v Minwalla (2006)  WTLR  311 a settlement made by a husband was held to be a sham because the property remained in practice his ‘private fiefdom’.   4 [1967] 2 QB 786, CA at 802, cited by the Lord Ordinary Lord Marnoch in Macfarlane v Falfield Investments Ltd 1996 SCLR 826, a case of an allegedly sham limited partnership. For the Australian meaning of ‘sham’ see Lockhart J in Sharment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530 at 537, cited with approval by Justice T R Hartigan in No V T86/112 AAT No 5343, and Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at para 46.   5 See, for example, E Rennison & Son v Minister of Social Security (1970) 114 Sol Jo 952. For a sham partnership in Canada see Ministry of National Revenue v Shields (1963) Ex C  R V91, referred to in the Supreme Court of Canada in Stubart Investments Ltd v Canada (1984) 1 SCR 536.  6 Macfarlane v Falfield Investments Ltd 1996  SCLR  826, following Kaye v Massbetter Ltd (1990) 62  P & CR  558 and distinguishing Gisborne v Burton [1989]  QB  390; Martin v Davies [1952] CPL 189.  7 Dickson v MacGregor 1992 SLT (Lands Tr) 83.  8 Overseas Containers (Finance) Ltd v Stoker [1989] 1  WLR  606; Newstead (Inspector of Taxes) v Frost [1979] 2 All ER 129, CA; affd [1980] 1 All ER 363, HL; but contrast the earlier House of Lords decisions on such partnerships; FA and AB  Ltd v Lupton [1972]  AC  634

19

2.6  Whether there is a partnership and whether a person is a partner and Bishop v Finsbury Securities Ltd [1966] 1  WLR  1402. See also Backman v Canada [2001] SCC 10, SC Canada.   9 Per Megarry J in FA and AB Ltd v Lupton [1968] 2 All ER 1042 at 1051, quoted by Roskill LJ in Newstead (Inspector of Taxes) v Frost [1979] 2 All ER 129 at 139, CA. 10 [1976] STC 514, Ct of Sess. 11 Per Smith LJ in Protectacoat Firthglow Ltd v Szilagyi [2009]  EWCA  Civ 98, where some other recent appeal cases on this issue are discussed. 12 Income Tax (Trading and Other Income) Act 2005, Part 5.

D  Partnership options 2.6  A person may have an option to join a partnership, or the right to nominate another to be a partner1, and these are discussed in Chapter 7. Even if the right is coupled with an immediate right to a share of profits as a return on a loan, he will not become a partner until the actual exercise of the option2. So there is no partnership if the parties merely agree that one is to test a patent belonging to the other, with the option of future partnership3. 1 Re Harris, ex p Davis (1863) 4 De GJ & Sm 523. The right to nominate a successor was common in Victorian times but is now mercifully rare. 2 Courtenay v Wagstaff (1864) 16 CBNS 110; Re Vanderplank, ex p Turquand (1841) 2 Mont D & De G 339; Meyer v Schacher (1878) 38 LT 97; Hill v Bellhouse, Dartling and Bellhouse (1860) 10 CP 122 (Canada). 3 Osborne v Jullion (1856) 3 Drew 596.

E  Proposals and preparation for business 2.7  Those who agree that they are partners do not become partners until business commences; an agreement that their partnership is ‘deemed’ to have commenced at some date in the past is ineffective1. They are not yet partners if they have agreed to commence partnership in the future but have not yet done so2, but they are partners if they start collaborating on the commercial venture itself, the activity in which they have agreed to be engaged, which may be before actual business activity commences3. Similarly a management buyout team will not usually be a partnership itself4. Conversely ‘business’ can commence before actual trading, and the partnership can come into existence before the partners execute their partnership deed5. In Khan v Miah6 the promoters of a proposed restaurant fitted out the premises and bought the equipment but fell out (thereby dissolving any partnership, if there was one) before the restaurant opened. The House of Lords reversed a majority of the Court of Appeal which had held that no partnership had come into existence. Lord Millett rejected as ‘nominalism’ the argument that because the intended trade was a restaurant, there was no business until the restaurant opened. He said7: ‘The question is not whether the restaurant had commenced trading, but whether the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage’.

20

Express agreement, complete or incomplete 2.8

By contrast those preparing to carry on business through a limited company and ordering goods before incorporation takes place usually do not constitute themselves partners in the interim, because their acts have merely been preparatory to carrying on business8. In Keith Spicer Ltd v Mansell9 one agreed with the defendant to form a company to run the defendant’s restaurant, and ordered goods for the use of the proposed company, and they opened a bank account in its name. Held the defendant was not liable for the price of the goods because there was no partnership; they were not carrying on business in common with a view of profit before incorporation.

But there is no rule of law that those preparing to form a company are not partners10. If they have commenced business and their relationship falls within the definition of partnership discussed in this chapter then the mere fact that they intend to incorporate in the future will not prevent them being partners11. The effect of a new partner joining an existing firm is discussed at paras 7.23 and 20.13 below.  1 Macken v Revenue Comrs [1962] IR 302. I am grateful to Michael Twomey Partnership Law (2000) for this reference.  2 Player v Isenberg (2002) NSWCA 186.  3 Coward v Phaestos Ltd [2013] EWHC 1292 (Ch) per Asplin J at [177].  4 Murray v Yorkshire Fund Managers Ltd [1998] 1 WLR 951, CA, but the partnership question was not argued. Perhaps it should have been.  5 Amadio Pty Ltd v Henderson (1998) 81 FCR 149.   6 [2000] 1  WLR  2123, doubting Kirk and Randall Ltd v Dunn (1924) 8  TC  663. Khan v Miah was followed in Ilott v Williams [2013]  EWCA  Civ 645 and in Christie, Owen and Davies v RAOBGLE  Trust Corpn [2011]  EWCA  Civ 1151, where partnership was held to have commenced when the partners had brought a property intending to develop it into a restaurant.   7 [2000] 1 WLR 2123 at 2128E.  8 Keith Spicer Ltd v Mansell [1970] 1 WLR 333, CA; the additional ground for that decision given by Harman LJ, that there was no partnership because ‘they never intended to be partners’, is hardly sustainable. See also Hamilton v Smith (1859) 28 LJ Ch 404; Bright v Hutton (1852) 3 HL Cas 341, 368; Reynell v Lewis (1846) 15 M & W 517; Dickinson v Valpy (1829) 10 B & C 128 at 141 and Wood v Duke of Argyll (1844) 6 Man & G 928; Ness Training Ltd v Triage Central Ltd 2002 SLT 675 (Scotland); Wilkins v Davies (1890) 16 VLR 70 (Australia).   9 [1970] 1 WLR 333. 10 See Lowry CJ in De Pol v Cunningham [1974] STC 487. 11 Batard v Hawes (1853) 2  E & B  287, 290; Boulter v Peplow (1850) 9  CB  493; Holmes v Higgins (1822) 1  B & C  74; but see comment on the latter case in Re Wolverhampton, Chester and Birkenhead Junction Rly Co, Norris v Cottle (1850) 2 HL Cas 647. Partners who purport to contract as agents for a partnership not yet in existence would render themselves liable personally on the contract: Advocate-General Cruz Vilaca in Ubbink Isolatie v Dak – en Wandtechniek cited by Arden LJ in Braymist Ltd v Wise Finance Co Ltd [2002] EWCA Civ 127, [2002] 2 All ER 333.

F  Draft agreements acted upon or not acted upon 2.8  Where the joint business commences but the partnership agreement is never finalised, a partnership has indeed come into existence but it is not 21

2.9  Whether there is a partnership and whether a person is a partner

governed by the terms of that agreement1 and its duration is therefore that of a partnership at will2. Abortive negotiations for a partnership on the terms of a draft agreement will not render the parties liable as partners3. In Re Vanderplank4 an applicant for partnership agreed in principle with the existing partners that he would introduce some goods and cash to a total of £2,000. He advanced the cash and the words ‘and Company’ were added to the firm name, but no other act was done to show that he considered himself a partner, and he refused to sign any formal partnership agreement. Held he was no partner.

By contrast if a draft partnership agreement or a mere note of intended instructions for a partnership agreement5 is acted upon, the partners will become bound by it6. An arrangement ‘subject to contract’ which is actually performed, may raise the inference that the ‘subject to contract’ proviso has been waived7. But where the parties intend not to be bound until they have entered into a formal written contract, they are not partners even though one has paid money to the other and begun to take part in the business8. The commencement of liability of a person joining an established partnership is discussed at paras 20.13ff below, and in relation to LLPs at para 25.29. He may even incur liability even though he never joins. In LAC (Minerals) Ltd v International Corona Resources Ltd9 a proposed10 partner in a joint venture firm obtained information as a result of exploratory drilling activities. Using this confidential information he bid against his former associate for adjacent land. Held by the Canadian Supreme Court that he held the land as a constructive trustee accordingly.

The duties on those negotiating a partnership are considered further at paras 11.43ff and 2.40 below.  1 Popat v Shonchhrata [1995] 1 WLR 908 at 913; revsd [1997] 1 WLR 1367, CA; Amadio Pty Ltd v Henderson (1998) 81 FCR 149.  2 Firth v Amslake (1964) 108 Sol Jo 198. Partnerships at will are explained at para 7.7 below.  3 Connery v Best, Saxby & Co (1884) Cab & El 291; Harris v Petherick (1878) 39 LT 543; Ellis v Ward (1872) 21 WR 100.   4 (1841) 2 Mont D & De G 339; see Ex p Peele (1802) 6 Ves 602.  5 England v Curling (1844) 8 Beav 129.  6 Baxter v West (1860) 1 Drew & Sm 173; Heyhoe v Bunge (1850) 9 CB 431; Worts v Pern (1707) 3 Bro Parl Cas 548. The subject is a branch of the general law on acceptance by conduct, which was considered by the Court of Appeal in Reveille Independent LLC  v Anotech International (UK) Ltd [2016] EWCA Civ 443.  7 RTS Ltd v Molkerei A Lois Muller [2010] 1 WLR 753.  8 Valencia v Llupor (2012) EWCA Civ 396.   9 (1989) 61 DLR (4th) 14, [1990] FSR 441, Can SC. 10 Treated for these purposes as if he were a partner.

G  Deeds and written and oral agreements 2.9  Partnership agreements were once commonly called partnership ‘articles’ and incorporated in deeds. There is no need for the agreement to be made by deed or even in writing (even if the partnership owns land)1, but a deed is 22

Express agreement, complete or incomplete 2.10

needed if one partner is giving a power of attorney in favour of another, or empowering another to execute other deeds on behalf of the firm or on behalf of another partner2. Each partner has a right to retain his own copy of the partnership agreement3. The requirement of writing in cases of land is discussed at para 8.35ff below. A partnership agreement made by deed creates a ‘specialty’ and a partner suing under it may bring his action up to 12 years after the cause of action arose, rather than within the usual limitation period of six years4. This long limitation period is inconvenient. A written partnership agreement, and even one made by deed, may be varied by mutual consent, which may arise by implication from the partners’ conduct. Section 19 of the Partnership Act 1890 provides: The mutual rights and duties of partners whether ascertained by agreement or defined by this Act may be varied by the consent of all the partners and such consent may be either express or inferred from a course of dealing.

See para 8.35 for land transactions; variations in the partnership agreement and its construction are considered in Chapter 7. 1 Bennett v Bennett [2018] EWHC 1931 (Ch) at para 296. 2 Powers of Attorney Act 1971, s 1(1), as amended. How an incoming partner is bound by an existing partnership agreement is considered at para 7.23ff below. 3 Forbes v Samuel [1913] 3 KB 706 at 722. 4 Limitation periods in relation to claims between partners are considered in Chapter 15.

H Continuation, and whether there is a new partnership 2.10  Where a partnership is carried on beyond the scope of its original term, the presumption is that the old agreement continues save that the partnership is a partnership at will. Section 27 of the Partnership Act 1890 provides: (1) Where a partnership entered into for a fixed term is continued after the term has expired, and without any express new agreement, the rights and duties of the partners remain the same as they were at the expiration of the term, so far as is consistent with the incidents of a partnership at will. (2) A continuance of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is presumed to be a continuance of the partnership.

This is discussed at para 7.8 below. Where a firm is dissolved by operation of law under section  34 of the Partnership Act 1890 because of the illegality of part of the operation or the incapacity of one of its members, a new partnership frequently arises by operation of law among the innocent partners1. When the constituent members of a partnership change (for whatever reason) but the partnership continues, a question may arise whether the new firm is the same firm as the old. This rather academic question is relevant where the firm has its own tax obligations2, or is regulated as a quasi-corporate 23

2.11  Whether there is a partnership and whether a person is a partner

body separate from its members3 or (as in Scotland) it is a legal entity in its own right4. It can be argued that because ‘partnership’ is the relationship between the partners, and ‘the firm’ is the partners collectively, a change in their identity must mean a new partnership and a new firm. But section 33(1) of the Partnership Act 1890 specifies that upon (inter alia) death of a partner, the partnership is dissolved, subject to any agreement between the partners. The last words show that a change in the firm does not necessarily require any dissolution. So a new firm can simply be a continuation of the old; they are different, but not severed by any dissolution of the old firm, as explained in para 16.1. Novation of contracts where the identity of the partners changes is considered at paras 20.15 and 20.21 below, and the variation when a partner joins at para 7.23 below. 1 The requisite of profit-sharing is considered in para 2.20 below. See Hudgell Yeates & Co v Watson [1978] QB 451. 2 As in Australia, where the partnership is a tax accounting/reporting (but not taxpaying) entity. A  valuable explanation of this is given in the paper delivered to the Gunn Club in May 2004 by Professor Richard Vann of Sydney University, and I am grateful to David K L Raphael for supplying me with a copy. 3 See, for instance, regulation of limited partnerships by the FCA, described in para 24.38 below. 4 See para 1.11 above.

I  Salaried partners 2.11  Where there is unquestionably a partnership, there may still be an issue whether a certain person working in it is a partner, an independent contractor or an employee. Whether he is a true partner depends upon the principles discussed in this chapter. The position of an employee who advances money to the firm in return for a profit share is discussed in the next section. The question of his status is not clarified by the use of the ambiguous term ‘salaried partner’ which ‘has no meaning in law’1 but often refers to one who receives a salary rather than share of profits, and usually means that he is not properly a partner at all2. Even if he is not a partner he may be liable by being held out as one3. 1 Shona Morrison v Aberdein Considine & Co (2018) 18/07/201 EAT, per Lady Wise. 2 Stekel v Ellice (1973) 1 WLR 191, followed in Walsh v Needleman Treon [2014] EWHC 2554 (Ch) and O’Kelly v Darragh (1988) IRLM 309 and McAleenan v AIG (2010) IIEHC 128; aliter in Stubbs v Lakos (1994) 56 IR 110; Ryan v Mason (NZ High Court) (2/2011) 791. Salaried partners are discussed in Chapter 12. 3 Holding out is considered in Chapter 5.

2 THE EXISTENCE OF THE PARTNERSHIP WITHOUT EXPRESS AGREEMENT A The implication of partnership generally   2.12 B Carrying on a business in common with a view of profit   2.15 24

The existence of the partnership without express agreement 2.13

A  The implication of partnership generally (a)  Implied agreement generally 2.12  This section and those following it are concerned with the question of whether a partnership has come into existence where there has been no express agreement that there should be any partnership. There can be no partnership unless some identifiable persons1 have agreed to do at least something together2. Their intention must be ascertained from their agreement3 and (failing that) the surrounding circumstances as at the date of the agreement4; subsequent conduct can only be looked at to show that the agreement has been varied or a new arrangement made5. If what they have agreed expressly or impliedly constitutes them partners, the law as declared in the Act will supply the other terms of their agreement. The law implies terms wherever these cannot be deduced from the express or presumed agreement of the parties6. 1 They may all be corporations (Cox v Hickman (1860) 8 HL Cas 268) although the Partnership Act 1890 makes no specific mention of this. There must be more than one partner (Huffman v Ross (1925) 57 OLR 329) but not more than one needs to actually do anything. 2 See Jessel MR in Pooley v Driver (1876) 5 Ch D 458 at 471; ‘It is a contract of some kind undoubtedly – a contract, like all contracts, involving the mutual consent of the parties’. 3 King & Co v Whichelow (1895) 64 LJQB 801, CA but not where one has refused to be a partner: Greville v Venables [2007] EWCA Civ 878. 4 Tyser v Shipowners Syndicate (Reassured) [1896] 1  QB  135; McKenzie v McKenzie [1921] NZLR 319. 5 Re Beard & Co [1915] HBR 191, CA. 6 Smith v Jeyes (1841) 4 Beav 503.

(b)  The rules for ascertaining the existence of a partnership 2.13  Most partnerships are created by express agreement between the members, and the layman may be surprised to learn that he may become a partner inadvertently if he falls within the statutory definition. ‘Partnership’ is elegantly defined in section 1 of the Partnership Act 1890 in the following terms: (1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.

This useful definition is qualified in the Act by a number of rules or guidelines which are summarised here and will be discussed in detail in the next parts of this chapter: • what is meant by business in common with a view of profit; • sharing gross returns does not of itself create a partnership1; • sharing net profits is evidence of partnership2, as is ownership of partnership capital3 and a share in the management4; • joint ownership of property does not of itself create partnership5; • if the body of members is incorporated, there is no partnership6. Two decisions of differently constituted Courts of Appeal have made the law in this field more difficult. In Young (M) Associates v Zahid7 the Court rejected 25

2.14  Whether there is a partnership and whether a person is a partner

the established view that sharing of profits is an essential of partnership and in Tiffin v Lester Aldridge LLP8 it rejected any question of absolute indicia of partnership, in favour of the uncertain test of what the parties ‘intended’. Rimer LJ said9: … critical to the question of whether a partnership is created between A and B is whether or not they intended to create a partnership.

This question of intention will be answered from the partnership agreement if there is one, but if there is not, it can presumably be answered only by the parties’ conduct, and the question of what constitutes partnership conduct will not be an easy one. For a person to seek relief against another in the Employment Tribunal suggests that he regards himself as their employee rather than their partner10.   1 See para 2.30 below.   2 See para 2.20 below.   3 See para 2.39 below.   4 See para 2.34 below.   5 See para 2.39 below.   6 See limited and unlimited companies at para 2.49 below.   7 [2006] 1 WLR 2562 CA further mentioned in para 2.20 below.   8 [2012] EWCA Civ 35 discussed at para 2.20 below.   9 Both at paras 17 and 21. The other two Lords Justices agreed. 10 Walsh v Needleman Treon [2014] EWHC 2554 (Ch).

(c)  Continuation of a previous partnership 2.14  Where a partnership agreement expires by effluxion of time or even by illegality1, but the members continue it without dissolution, it becomes a partnership at will (dissoluble by any partner) but the other terms of the previous partnership survive and continue, as discussed in para  7.8 below. When there has been a dissolution but the business continues it will usually be presumed to be the old partnership continuing in dissolution for the purposes of winding up and not as a new partnership2. 1 Hudgell Yeates & Co v Watson [1978] QB 451, CA. 2 Hopper v Hopper [2008] EWHC 228 (Ch), Briggs J, a case partly reversed in the Court of Appeal on other grounds.

B Carrying on a business in common with a view of profit (a) General 2.15  Partnership subsists between persons carrying on a business with a view of profit1. If these ingredients are not present, there is no partnership; 26

The existence of the partnership without express agreement 2.16

if they are present, there is a presumption that there is a partnership. But where there is no agreement between the parties, the court will not lightly infer one2. Sharing profits is discussed later in this chapter. A new business is not necessary3; ‘carrying on business’ may simply be continuing an existing business, and this ‘business’ is then deemed to continue after actual trade ceases, and the debts are paid4. 1 See the Partnership Act 1890, s 1(1), quoted at para 2.13 above. A distinction between ‘profit’ and ‘gain’ was drawn by the Irish Supreme Court in Deane v Voluntary Health Insurance Board [1992] 2 IR 319 following Re Arthur Average Association (1875) 10 Ch App 542. 2 McPhail v Bourne [2008]  EWHC  1235 (Admin), where the court held that there was no agreement between four song-writers sufficient to constitute a partnership, following Bingham LJ in Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 1  WLR  1195, Greville v Venables (2007) EWCA 878 and Coward v Phaestos Ltd (2013) EWHC 1292. 3 Backman v Canada [2001] SCC 10, SC Canada. 4 Theophile v Solicitor-General [1950] AC 186.

(b)  Business … with a view of profit 2.16 Business’ includes: Every trade, occupation or profession1.

But the word ‘occupation’ here must be construed ejusdem generis and coupled with the words ‘with a view of profit’ in section 1(1) of the Act, so that some sort of commercial activity is essential. Lindley LJ in Rolls v Miller2 suggests that a business was anything that was an occupation as opposed to a pleasure. So the running of a shooting syndicate is not a business, even though done on a large scale and profitably, if its members are restricted to friends and relations3. If there is a business, the motive for the enterprise is irrelevant: In Ensign Tankers (Leasing) Ltd v Stokes (Inspector of Taxes)4 taxpayers set up two limited partnerships to finance the production and exploitation of two films because capital allowances would thereby be obtained. Held that this was still ‘carrying on a trade’.

What is apparently an international firm of accountants may be no such thing as between its members5, if it is in fact a non-profit-making umbrella association of partnerships which itself exists to enhance the profits of its members rather than those of itself. In Brostoff v Clark Kenneth Leventhal6 Dyson J considered whether a partnership was formed by a mutual association for the development of accountancy firms worldwide by the exchange of information and clients. It was financed by fees from member firms but was not itself intended to make a profit. Held that it was conducted ‘with a view of profit of other businesses, which are not conducted in common’, and that there was no partnership.

Mere joint ownership of shares7 or land or other property is not business8 but trading in land9 or renting land and employing a manager of it will be10. 27

2.16  Whether there is a partnership and whether a person is a partner In Bhatti v HMRC11, the first tier tax tribunal considered whether three brothers carried on business as a partnership or whether they were merely co-owners of property. The brothers had described themselves as partners to their bankers, there were partnership accounts and a declaration of trust in relation to the properties which referred to the partnership. Held that there was a partnership, that ‘business is a very wide term embracing almost every commercial activity … it includes a business of making investments’ and that the brothers’ activities clearly constituted a business rather than their being ‘mere co-owners in receipt of rents’.

So a man who owns a narrow boat and hires it long-term to a company engaged in short-term hire of such boats to the public is not carrying on business12, but he is if he lets furnished accommodation managed by himself13. Those who purchase goods jointly are not partners unless they are jointly interested in a future sale for profit14. There is no partnership where each supplies his own goods to be sold jointly15. For a ‘business’ to exist, more activity is required than acts of mere ownership of funds, or the acts of winding up an enterprise16. Those who merely take preparatory steps to set up a company usually do not carry on business so as to constitute themselves partners17 but there is no absolute rule to this effect18. Those who carry on business illegally will still be carrying on business19, although the illegality has consequences which are discussed in Chapter 4. For the position with LLPs, see Ingenious Games LLP v Revenue and Customs Commissioners20 and para 25.18 below. … carrying on a business in common with a view of profit.

‘Profit’ means the excess of actual income over expenditure, ignoring tax and any particular method of accounting21; as to the meaning of ‘profit’ see further para  12.26 below. The test of ‘a view of profit’ is a subjective one; there is no need for the profit to be the predominant aim, but the intention to seek a profit must be genuine and the business must be conducted with that purpose, intention or contemplation22. Whether there is a partnership when the trade is carried on for a profit not for those carrying it on but for those who will be carrying it on in the future is an open question23.   1 See the Partnership Act 1890, s 45.   2 (1884) 27 Ch  D  71 at 88. See Beautiland Co Ltd v IRC  [1991]  STC  467 for the nature of trade.  3 Customs and Excise Comrs v Lord Fisher [1981] 2 All ER 147.  4 [1989] 1  WLR  1222 but see further Ingenious Games LLP  v Revenue and Customs Commissioners [2019] UKUT 226 (TCC) and para 12.26 below.   5 But its members may well be liable for the debts of each other by ‘holding out’ which is discussed in Chapter 5.   6 (11 March 1996, unreported), QBD.  7 Smith v Anderson (1880)  LR  15 Ch  D  247. As to private equity limited partnerships see Chapter 24.   8 Discussed at para 2.39 below.   9 For a discussion in the Court of Appeal as to whether land was purchased as capital or as trading stock see Kirkham v Williams [1991] 1 WLR 863. 10 Harris v Amery (1865) LR 1 CP 148; Hickman Motors v Canada [1997] 2 SCR 336. 11 [2013] UKFTT 355 (TC). 12 Coleman v Customs and Excise Comrs [1976] VATTR 24. 13 Walker v Customs and Excise Comrs [1976] VATTR 10.

28

The existence of the partnership without express agreement 2.18 14 Hoare v Dawes (1780) 1 Doug KB 371; Coope v Eyre (1788) 1 Hy Bl 37; Reid v Hollinshead (1825) 7 Dow & Ry KB 444; Gibson v Lupton (1832) 9 Bing 297; Langermann v Casper [1905] TH 251 (South Africa); contrast Gouthwaite v Duckworth (1810) 12 East 421 and Karmali Abdulla Allarkhia v Vora Karimji Jiwanji (1914) LR 42 Ind App 48. The meaning of ‘profit’ was discussed in Beauchamp v FW Woolworth plc [1990] 1 AC 478 at 489; Naval Colliery Co (1897) Ltd v IRC (1928) 138 LT 593 and Re Spanish Prospecting Co Ltd [1911] 1 Ch 92 at 98. 15 Heap v Dobson (1863) 15 CBNS 460; Alfaro v De la Torre (1876) 24 WR 510; Kilshaw v Jukes (1863) 3 B & S 847 and Saville v Robertson (1792) 4 Term Rep 720. 16 Coates v Williams (1852) 7 Exch 205. If the continuing of a business for the purpose of winding it up (see the Partnership Act 1890, s  38) were to constitute a partnership, the dissolution provisions of the Act would be unworkable. 17 Keith Spicer Ltd v Mansell [1970] 1 All ER 462. 18 See para 2.7 above. 19 IRC v Aken [1988] STC 69; Southern (Inspector of Taxes) v AB Ltd [1933] 1 KB 713; Mann v Nash [1932] 1 KB 752. 20 [2019] UKUT 226 (TCC). 21 Ingenious Games LLP v Revenue and Customs Commissioners [2019] UKUT 226 (TCC) at para 302. 22 Ingenious Games LLP v Revenue and Customs Commissioners [2019] UKUT 226 (TCC) at paras 333, 338 and 347. And see further para 12.26 below. 23 The question was specifically left open by the Court of Appeal in Samarkand Film Partnership v HMRC [2017] EWCA Civ 77.

(i)  Landlord and Tenant Act cases 2.17  Part II of the Landlord and Tenant Act 1954 gives security to certain ‘business’ tenants and some cases under that Part are instructive although the statutory definition of ‘business’ in that Part is not identical to that in the Partnership Act 18901. Under the 1954 Act the Court of Appeal held in Abernethie v A M and J Kleiman Ltd2 that the gratuitous running of a Sunday school is not a ‘business’, and Widgery LJ suggested that ‘what a man does in his spare time in his home is most unlikely to qualify for the description “business”’3. 1 The Landlord and Tenant Act 1954, s  23(2) provides that ‘business’ includes ‘a trade, profession or employment and includes any activity carried on by a body of persons’ and the Act nowhere specifies that such activity should be carried on ‘with a view of profit’ as does the Partnership Act 1890, s 1. 2 [1970] 1 QB 10. 3 [1970] 1 QB 10 at 20.

(ii)  Slight or temporary activity 2.18  A ‘single adventure or undertaking’1 can constitute a business as is implicit from the reference to it in section 32(b) of the Partnership Act 1890. Two solicitors engaged to defend a single action have been held to constitute a partnership if they agree to share the fees2, as have two coal merchants sharing profits during a coal strike3. A very limited commercial activity can also constitute a business, such as the bare right to sell another’s goods4, or the renting out of machinery5. It is not necessary that the partners hold 29

2.19  Whether there is a partnership and whether a person is a partner

meetings, enter into transactions, or make decisions, but it is necessary that the partnership is more than an ‘empty shell’6. An unpaid wife may be in ‘business’ with her husband7. But where two individuals simply gave a single order for the shipping of goods, they were not held to be partners8. The same body of persons may be in partnership for some of their activities and acting individually for others9. 1 2 3 4 5 6 7 8 9

Or ‘any separate commercial venture’: Re Abenheim (1913) 109 LT 219. Robinson v Anderson (1855) 20 Beav 98. John Gardner & Bowring, Hardy & Co Ltd v IRC (1930) 15 TC 602, Ct of Sess. Pathirana v Pathirana [1967] 1 AC 233 at 239G. Per L’Heureux-Dube J in Hickman Motors v Canada [1997] 2 SCR 336 at para 46, approved in Backman v Canada [2001] SCC 10 (Supreme Court of Canada). Backman v Canada [2001] SCC 10 (Supreme Court of Canada), following Continental Bank Leasing Corp v Canada [1998] 2 SCR 298. Nixon v Nixon [1969] 1  WLR  1676; contrast Britton v Customs and Excise Comrs [1986] VATTR 209 and Romas v Romas [1949] 4 DLR 423 (Canada) where the partnership was not proved; and see para 2.58 below. Gibson v Lupton (1832) 9 Bing 297. Alberni String Quartet v Customs and Excise Comrs [1990] VATTR 166.

(c)  Business in common: mutual agency and joint ownership 2.19  The business itself must to some extent be shared1; it is insufficient that the profits alone are shared2. It is said that mutual agency must exist between the partners3, for the liability of each partner arises from the fact that he is authorised to carry on the business for the others4. But mutual agency should be regarded more as an incident of partnership than an essential defining element of it5. The question asked by Lord Cranworth in Cox v Hickman6 was: Whether the trade is carried on on behalf of the person sought to be charged as a partner …

Thus an arrangement which is in essence a contract of reinsurance is not a partnership7, and an author and a publisher, although they share the profits of a book, are not partners8. In Wilson v Whitehead9 a publisher, an editor and a printer agreed to bring out a periodical and share the profits. The publisher failed to pay for the paper, and the supplier sued the other two. Held he failed on the grounds that there was no partnership between the three.

So there is no partnership when a trader assigns a business to trustees for creditors to wind it up10 or when such trustees allow him to carry it on for them at a salary11, but there may be if he both continues to run it and to retain an interest in it12. There is none where one person merely provides a service for another’s business, as where a developer introduces a development opportunity to a property company in return for a profit share but receives no share in the property itself or any share in the management of the venture13, or where passenger boat owners share a ticketing and timetabling service14. Evidence of business in common is: 30

The existence of the partnership without express agreement 2.19 The contribution of skill, knowledge or assets to a common undertaking, a joint property interest in the subject-matter of the adventure, the sharing of profits and losses, the filing of income tax returns as a partnership, financial statements and joint bank accounts15.

Executors who carry on a business in the testator’s firm name under a power to do so in his will but without any beneficial interest of their own are not partners between themselves16. When debtors entered into an arrangement with a creditor for the continued running of the business, but the business was in the name of the creditor’s agent, no mutual business existed and there was no partnership17, and similarly where a lender made a loan to a trader with interest that included half the profits, but repayable upon three months’ notice by the lender18. But when two accountants carry on a single practice under one name sharing profits, their business is ‘common’ even though they may be running separate offices each with its own clients19. In Wearmouth v Macpherson20 the members of a mining syndicate governed by a trust deed owned shares in ‘units’ which the trustees were authorised to sell. One trustee sold shares fraudulently. Held the members were not liable as he was not a partner with the trustees.

Proposed business in common21, such as where parties prepare to form a company to trade, will not constitute them partners in the meantime, unless trading actually starts22 or their agreement takes effect immediately23.  1 Bullen v Sharp (1865) LR 1 CP 86; Brostoff v Clark Kenneth Leventhal (11 March 1996, unreported), QBD the facts of which are given above at para  2.16; Winsor v Schroeder (1979) 129 NLJ 1266; Witt v Stocks [1917] 1 WWR 1451 (Canada); Marshall v Marshall (1999) 1 Qd R 173; Hitchins v Hitchins (1987) 47 NSWLR 35; Sun Mortgage Corp v Kumar (2000) WWR 700. In Morden Rigg & Co v Monks (1923) 8 TC 450, CA an American cotton broker took commission on cotton which he consigned to a UK broker who took commission and sold it. They divided the net profit. Held they were partners.   2 See Peter Gibson LJ in Memec plc v IRC [1998] STC 754 at 766a.   3 Per Blackburn J in Bullen v Sharp (1865)  LR  1  CP  86; Gilchrist Manufacturing Co Ltd v International Junk Co [1931] 1  DLR  595 (Canada), and Young (M) Associates v Zahid [2006] EWCA Civ 613 discussed in para 2.20 below.   4 Per Lord Cranworth in Cox v Hickman (1860) 8 HL Cas 268.  5 Momentum Productions v Lewarne (2009) 174 FCR 268, Fed Ct Aus.   6 (1860) 8 HL Cas 268, quoted by Lord Blackburn in Bullen v Sharp (1865) LR 1 CP 86 at 112.  7 Baker v Black Sea and Baltic General Insurance Co Ltd [1998] 1 WLR 974 at 979E, HL; English Insurance Co Ltd v National Benefit Assurance Co Ltd [1929] AC 114.  8 Kelly’s Directories Ltd v Gavin and Lloyds [1902] 1 Ch 631; Venables v Wood (1839) 3 Ross LC on Com Law 529.  9 (1842) 10  M & W  503. This is a vivid but rather extreme case which might not be followed today. 10 Janes v Whitbread (1851) 11 CB 406. 11 Price v Groom (1848) 2 Exch 542. 12 Re Whiteley, ex p Smith & Co (1892) 67  LT  69, CA; Hickman Motors v Canada [1997] 2 SCR 336. 13 Fivegrange v Customs and Excise Comrs LON/89/1631Y, VAT Trib; and Keydon Estates v Customs and Excise Comrs LON/88/1225X, VAT Trib. 14 Thames Cruises Ltd v George Wheeler Launches Ltd [2003] EWHC 3093 (Ch). 15 Backman v Canada [2001] SCC 10 (Supreme Court of Canada), following Continental Bank Leasing Corp v Canada [1998] 2 SCR 298. 16 Re Fisher & Sons [1912] 2 KB 491; Holme v Hammond (1872) LR 7 Exch 218.

31

2.20  Whether there is a partnership and whether a person is a partner 17 Marconi’s Wireless Telegraph Co Ltd v Newman [1930] 2 KB 292, following Cox v Hickman (1860) 8  HL  Cas 268; Redpath v Wigg (1866)  LR  1 Exch 335 and Easterbrook v Barker (1870) LR 6 CP 1, but contrast Re Whiteley, ex p Smith & Co (1892) 67 LT 69, CA. 18 Hollom v Whichelow (1895) 64 LJQB 170; loans in consideration for a share in the business are considered further at para 2.35 below. 19 C Connelly & Co v Wilbey [1992] STC 783. On the other hand there was a partnership where underwriters agreed to share their profits and losses, even though each of them underwrote policies in his own name; Brett v Beckwith (1856) 26 LJ Ch 130. 20 [1936] 1 WWR 623 (Canada). 21 Heap v Dobson (1863) 15  CBNS  460; Kilshaw v Jukes (1863) 3  B & S  847; Gouthwaite v Duckworth (1810) 12 East 421; Saville v Robertson (1792) 4 Term Rep 720; see para 2.7 above. 22 Keith Spicer Ltd v Mansell [1970] 1 All ER 462; discussed at para 2.7 above. 23 Alexander v Long (1884) 1 TLR 145; see also para 2.7 above.

3 SHARING OF PROFITS AND PROPERTY AS EVIDENCE OF PARTNERSHIP A Sharing net profits   2.20 B Where sharing profits does not create a partnership   2.23 C Sharing gross profits   2.30 D Sharing losses  2.31 E Employees and agents   2.32 F Lenders  2.35 G Legatees  2.38 H Sharing property  2.39

A  Sharing net profits 2.20  The need for the parties to intend a profit is mentioned at para 2.15 above. An agreement which includes participation in profits is prima facie evidence of partnership1. Section 2(3) of the Partnership Act 1890 provides: The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of a business, does not of itself make him a partner in the business …

The inference is one of fact not of law2 and does not raise a presumption to be rebutted3 but is an important factor to be weighed in deciding whether partnership exists. North J in Davis v Davis4 held that section 2(3) did not change the existing law, namely5: … the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in it, and, if the matter stops there, it is evidence upon which the court must act. But, if there are other circumstances to be considered, they ought to be considered fairly together; not holding that a partnership is proved by the receipt of a share of the profits, unless it is rebutted by something else; but taking all the circumstances together …

32

Sharing of profits and property as evidence of partnership 2.20

To receive a fixed share ‘from the profits’ does amount to ‘a share of the profits’ for these purposes6, but a fixed profit share may not be conclusive in favour of partnership7 as an unlimited profit share will usually be, so the crew of a fishing trawler may be partners with the skipper and so liable for losses8. The implication behind all the 19th century cases9 is that a profit-share is the first essential ingredient of partnership. As Lord Lindley put it in the opening words of Chapter 1 of his Treatise10: The basis of all partnerships is an agreement to share the profits arising from some business or undertaking …

But doubt was cast upon the absolute necessity of profit-sharing in Stekel v Ellice11, where Megarry J held an ex-employee to be a partner, without a profit share, where the rest of the agreement had features ‘that strongly pointed to partnership’12 rather than to employment, and he held that the true test was ‘the substance of the relationship between the parties’13. In Young (M) Associates v Zahid14 the Court of Appeal declined to overrule Stekel v Ellice. It held that a person could still be a partner in a firm even if he was not entitled to participate in its profits, nor entitled to an interest in its capital, nor intended to assume a dominant role in its management, because he might still be ‘carrying on a business in common with a view of profit’ within section 1 of the 1890 Act, and it suggested that the 1890 Act might have changed the law in this respect15. But it emphasised that it will be the exception for a person to be a partner if he does not share profits: The absence in the agreement of a direct link between the level of payments and the profits of the firm is in most cases a strongly negative pointer towards the crucial conclusion as to whether the recipient is among those who are carrying on its business16. In Briars v Williamson & Soden Solicitors17 a solicitor who had minimal management status was held to be an employee and not a partner although he was held out as a partner and took a profit share. In Tiffin v Lester Aldridge LLP18 the Court of Appeal discussed these issues and held that the fixed share partners (but not the salaried partners) were of the nature of true partners because their agreement required them to contribute some capital and they had a share in the firm’s profits as well as a limited vote on some management questions and a share in the surplus assets.

The conclusion is that profit-sharing will usually be a prerequisite of partnership, but sometimes other shared activity will suffice.  1 Walker v Hirsch (1884) 27 Ch D 460; Saywell v Pope (Inspector of Taxes) [1979] STC 824; Pawsey v Armstrong (1881) 18 Ch  D  698 (but see comments on this in Walker v Hirsch (1884) 27 Ch D 460 and Miles v Clarke [1953] 1 All ER 779); McInroy v Hargrove (1867) 16 LT 609; Green v Beesley (1835) 2 Bing NC 108.  2 Mollwo, March & Co v Court of Wards (1872) LR 4 PC 419.   3 This concession by John Mummery of counsel was accepted as right by Goff LJ in Walker West Developments Ltd v Emmett (1978) 252 Estates Gazette 1171 discussed below, but see Syers v Syers (1876) 1 App Cas 174.   4 [1894] 1 Ch 393, following the Court of Appeal in Badeley v Consolidated Bank (1888) 38 Ch D 238 and Cox v Hickman (1860) 8 HL Cas 268.

33

2.21  Whether there is a partnership and whether a person is a partner   5 This passage at p 399 was cited with approval by Goff LJ in Walker West Developments Ltd v Emmett (1978) 252 Estates Gazette 1171 at 1173; it echoes Jessel MR in Pooley v Driver (1876) 5 Ch  D  458 at 472, considered in Re Howard, ex p Tennant (1877) 6 Ch  D  303 and Frowde v Williams (1886) 56  LJQB  62; Re Fliway-AFA  International Pty Ltd (1992) 39 FCR 446.  6 Re Young [1896] 2 QB 484; Marsh v Stacey (1963) 107 Sol Jo 512; contrast Re Ellins, ex p Hickin (1850) 3 De G & Sm 662 and Burnell v Hunt (1841) 5 Jur 650 and Hornsby v Clark Kenneth Leventhal [1998] 5 PNLR 635, CA.  7 Re Young [1896] 2  QB  484, where the arrangement was a temporary one until a full partnership took effect at a future date.  8 DPP v McLoughlin [1986] IR 355.   9 Eg Burnell v Hunt (1841) 5 Jur 650, Pooley v Driver (1876) 5 Ch 458 and Walker v Hirsch (1883) 27 Ch D 460, all discussed in Young (M) Associates v Zahid [2006] EWCA Civ 613 discussed later in the text. 10 5th edition of Lindley’s Treatise on the Law of Partnership (1888, the last edited by himself). See further on this in the notes to para 2.34 below. 11 [1973] 1 WLR 191. 12 Ibid at 200D. 13 Ibid at 199G. 14 [2006] 1 WLR 2562 in which (after permission to appeal had been given by Neuberger LJ) a three-man Court of Appeal of singular courtesy and good humour rejected the submissions of the present writer appearing for the appellant, who submitted that profit-sharing is an essential ingredient of partnership. Leave to appeal was refused by the House of Lords, and the case was followed by Arnold J in Hodson v Hodson [2009] EWHC 430 (Ch), upheld sub nom Rowlands v Hodson [2009] EWCA Civ 1042, and Walsh v Needleman Treon (2014) EWHC 2554. see also Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35 discussed at para 2.13 above. 15 The suggestion of such a law change (emanating ‘from the present learned editors of Lindley on Partnership’) was emphatically rejected by Sir Frederick Pollock, the author of the bill which had become the 1890 Act: see his Digest of the Law of Partnership (1920, the last edited by himself) p 8, but see note 2 to para 2.22 below. 16 Young (M) Associates v Zahid [2006] 1 WLR 2562 at para 33, per Wilson LJ, with whom the other Lords Justices agreed. 17 [2011] All ER (D) 101 (Aug). 18 [2012] EWCA Civ 35, esp para 59.

(a) House-building 2.21  An agreement between a builder and a site-owner to build a house and share the sale profits usually constitutes a partnership1 even though it is for a single venture only2 and even though the agreement makes no provision for losses3. It will not do so where one party has merely supplied the bricks to the builder in return for a profit share because the business or venture will then not be ‘common’ to both parties4. 1 Whywait Pty Ltd v Davison (1996) 1 Qd R 225 (CA); Noakes v Barlow (1872) 26 LT 136, but contrast Shuckett v Lockhart and Kyle [1932] 3  DLR  466 (Canada) which went the other way; and Rush and Tomkins Construction Ltd v Vieweger Construction Co Ltd (1964) 45 DLR (2d) 122; revsd [1965] SCR 95 and Davies v Uratotiu (1995) 6 BPR 13,917 (NSW Supreme Court). 2 Winsor v Schroeder (1979) 129  NLJ  1266 per Woolf J; Uye v Le Roux [1906]  TS  429 (S Africa); Moore v Davis (1879) 11 Ch D 261. 3 Walker West Developments Ltd v Emmett (1979) 252 Estates Gazette 1171, CA, although in that case the agreement had many characteristics of a building contract. 4 Kelly v Scotto (1880) 49 LJ Ch 383; Kilshaw v Jukes (1863) 3 B & S 847; Marshall v Marshall (1999) 1 Qd R 173.

34

Sharing of profits and property as evidence of partnership 2.26

(b)  A partnership without shared profits 2.22  Business ‘with a view of profit’ is a necessary ingredient of partnership1. But a joint business venture that is to achieve a commercial advantage other than strictly ‘profit’ as such may perhaps still be a partnership, if this is what its members intend, for instance where the agreement is for a mutual insurance society which sought no profit but merely the sharing of a member’s liability2. On the other hand, there is no partnership if the intention is to profit outside the business of the partners3. 1 See the Partnership Act 1890, s 1(1); quoted above. 2 Sir Nathaniel Lindley, in the 5th edition of his famous Treatise on the Law of Partnership (1888, the last edited by himself) was of the view (p 51) that no partnership subsisted between such members. However, in his Supplement on the Partnership Act 1890 (1891) p  14 he raised the possibility that the wording in s 1(1) of the 1890 Act had altered the law on this. Sir Frederick Pollock, the author of the bill which became the 1890 Act, disagreed: see his Digest of the Law of Partnership (1920, the last edited by himself) p 8. See Chapter 7 for the terms of the partnership agreement. 3 Hornsby v Clark Kenneth Leventhal [1998] 5 PNLR 635, CA.

B Where sharing profits does not create a partnership 2.23  The circumstances in which profits are shared but there is no partnership are the following.

(a)  No business or no common activity 2.24  This is discussed at para 2.15 above.

(b)  Companies and LLPs 2.25  These are discussed at para 2.49 below.

(c)  Family arrangements 2.26  Some arrangements are of too domestic a nature for legal relations between the parties to be intended, even if the agreement is written and signed1. But if the ingredients of partnership are present and there is an intention to create legal relations, any family or other relationship between the parties is irrelevant2. Married people and boyfriends and girlfriends are discussed at para 2.58 below. 1 Orion Insurance Co plc v Sphere Drake Insurance plc [1992] 1 Lloyd’s Rep 239, CA; Cripps v Comrs of Tax (1999) AATA 937 (Aus). 2 Bothe v Amos [1975] 2 All ER 321; Marx v Marx [1964] SCR 653 (Canada); Minter v Minter (2000) 10 BPR 18, 133 (NSW Sup Ct); Jones v Jones [1968] 1 NSWR 206.

35

2.27  Whether there is a partnership and whether a person is a partner

(d)  Employees, agents, lenders, investors and co-owners 2.27  These categories are dealt with specifically later in this chapter.

(e)  Vendors of a business 2.28  The agreement may be part of the relationship of vendor and purchaser, in which case there is no partnership although the vendor temporarily retains a profit share1. For instance, where the vendor of a medical practice agreed as a term of the sale to stay on at the practice premises with the purchaser for six weeks to assist him, and in that time they shared the profits equally, the transaction was one of sale and not of partnership2. Section 2(3)(e) of the Partnership Act 1890 provides: A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by him of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such. 1 Hawksley v Outram [1892] 3 Ch 359; Chitty v Boorman (1890) 7 TLR 43. Retention of an annuity payable out of the profits may not create a partnership but it loses the recipient his priority against the other creditors as mentioned below. Mere payment of an annuity (not dependent upon profits) is outside the section and so does not lose priority: Re Gieve, ex p Shaw [1899] WN 41. 2 Pratt v Strick (1932) 17 TC 459; Rawlinson v Clarke (1846) 15 M & W 292, Ex Ch.

(f)  Purchasers of a partnership share 2.29  Where a person has an option to buy a share or join a partnership, he does not become a partner until he exercises his right, even if in the meantime he is entitled to a share in profits1. The limited rights of a purchaser are discussed at para 10.10 below. If he purchases a share in a foreign partnership he may discover that it is not recognisably a partnership under English law2. 1 This is discussed at para 2.6 above. 2 Backman v Canada [2001] SCC 10 (SC Canada).

C  Sharing gross profits 2.30  Where the agreement is that gross returns rather than net profits are to be shared prima facie there is no partnership1. Section 2(2) of the Partnership Act 1890 provides: The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.

36

Sharing of profits and property as evidence of partnership 2.31

So co-owners of a ship were not partners when they had agreed that one should take two-thirds of its gross earnings and meet all the expenses, and the other would pay nothing but take the remaining one-third2. The author of a book and his publisher are not partners3. In Seamone v Boehner4 a taxi-driver agreed with the owner and manager of a taxi business to pay him 25% of his gross earnings. Held that sharing gross receipts does not create a partnership and he was not a partner.

Similarly where a person receives commission on business that he introduces5, or a percentage of gross profit as an enhancement to his salary6. In Lyon v Knowles7 a theatre producer and a theatre proprietor divided between themselves the takings at the door. Each was responsible for certain costs. Held there was no partnership. 1 Spree Engineering & Testing Ltd v O’Rourke [1999]  EWHC  272 (QB); Lyon v Knowles (1863) 3 B & S 556 at 564; affd (1864) 5 B & S 751, Ex Ch; Dry v Boswell (1808) 1 Camp 329; co-owners are discussed below at para 2.39. 2 Burnard v Aaron and Sharpley (1862) 31 LJCP 334. 3 Kelly’s Directories Ltd v Gavin and Lloyds [1901] 1 Ch  374; Wilson v Whitehead (1842) 10 M & W 503. 4 Seamone v Boehner [1951] 1  DLR  777 (Canada). As to joint owners of a racehorse who shared the costs and the gross winnings see French v Styring (1857) 2 CBNS 357. 5 Sutton & Co v Grey [1894] 1 QB 285. 6 Geddes v Wallace (1820) 2 Bligh 270. 7 (1864) 5 B & S 751; a later case on similar facts is Cox v Coulson [1916] 2 KB 177, CA, a case in which the plaintiff unsuccessfully tried to hold the manager liable for the injury he sustained from a shot fired by an actor in the course of a performance.

D  Sharing losses 2.31  A partnership agreement between several persons may provide that one alone is to bear all the losses, and this does not prevent the creation of a partnership1 and the apportionment of liability will not affect outsiders. A partnership is not constituted by a mere agreement to share losses in trade2, but will be if profit-sharing is envisaged also: In Brown v Tapscott3 the parties agreed the mutual intention of keeping open communication between London, Herne Bay and Margate by means of a small steamer, sharing any profits and the expected losses. Each agreed to subscribe a fixed sum and to be liable for no more. Held they were partners.

Where a profit is expected and the agreement is not just that the parties shall share profits, but that they shall bear losses as well, the inference of partnership is stronger4. In Brett v Beckwith5 some underwriters who each underwrote policies in his own name agreed to share the profit and loss on all their insurances. Held they were partners. 1 DPP v McLoughlin [1986] IR 355. I am indebted to Michael Twomey Partnership Law (2019) for this reference. See also Kilshaw v Jukes (1863) 3 B & S 847 and Walker West Developments

37

2.32  Whether there is a partnership and whether a person is a partner

2 3 4

5

Ltd v Emmett (1979) 252 Estates Gazette 1171, where it was argued unsuccessfully before the Court of Appeal that a provision that all losses should be borne by one partner militated against the existence of the partnership. Goff LJ at 1173(b) pointed out that the partners might agree between themselves that only one was responsible for losses, but both would still be liable to outsiders. The fact that losses were not shared was one taken into account against the existence of partnership in Fivegrange v Customs and Excise Comrs LON/89/1631Y, VAT Trib; and Keydon Estates v Customs and Excise Comrs LON/88/1225X, VAT Trib. Campbell v Pownall (1844) 3 LTOS 182. But a mutual insurance association may still be a partnership: see para 2.22 above and Re Hargrove (LR Ch 10 542) Jessel MR. (1840) 6 M & W 119; and see McInroy v Hargrove (1867) 15 WR 777. Moore v Davis (1879) 11 Ch D 261; Noakes v Barlow (1872) 26 LT 136, Ex Ch; Brett v Beckwith (1856) 26  LJ  Ch  130; Green v Beesley (1835) 2 Bing NC  108; Smith v Watson (1824) 2  B & C  401; Fenston v Johnstone (1940) 23  TC  29; Northern Sales (1963) Ltd v Ministry of National Revenue (1973) 37  DLR (3d) 612; Merchants Bank v Thompson, Mallon v Craig [1852] 2  OR  541 (Canada); but the inference is not irrebuttable, for the person sharing profits and losses may still only be an employee (Walker v Hirsch (1884) 27 Ch D 460, discussed at para 2.34 below) and Re Fliway-AFA International Pty Ltd (1992) 39 FCR 446. (1856) 26 LJ Ch 130.

E  Employees and agents (a) General 2.32  Even where there is no doubt as to the existence of a partnership there may be doubt as to whether a person is on the one hand a member of that firm or on the other only an employee or an independent contractor working for it. He cannot be both. ‘A partner is not an employee’1. He can be a partner for some purposes and an employee for others2 but cannot have the two roles at once. The fact that he is described as a ‘salaried partner’ is no answer to this problem3. Such a description may render him liable to outsiders by ‘holding out’4 but that does not resolve the question whether he is a partner as against his quasi-employer. He must be the one carrying on the business, and not merely have an economic interest in a share to be carried on by someone else5. A partner performing services of the nature of employment for an outsider may be treated (for tax purposes only) as an employee rather than a partner6. It is not decisive that he is remunerated by a share in the profits7; that is only evidence of a partnership, which may be rebutted by evidence that his role is something less than a partner8. Section 2(3)(b)9 deals with this point as follows: 2(3) The receipt by a person of a share of the profits of a business is prima facie10 evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of a business does not itself make him a partner in the business and in particular … (b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make him a partner in the business or liable as such.

He is ineligible for unfair dismissal compensation11 or redundancy payment12. 38

Sharing of profits and property as evidence of partnership 2.33   1 Per Lord Oliver in MacKinlay v Arthur Young McClelland Moores & Co [1990] 2 AC 239 following Ellis v Joseph Ellis & Co [1905] 1 KB 324; Cowell v Quilter & Goodison Co Ltd (1989) 392 cited by Rimer LJ in Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35 para 31. Under Scots law the position is uncertain.  2 Ryan v Mason [2011] 3 NZLR 791, NZ High Court.   3 The ambiguity of the phrase ‘salaried partner’ is discussed above at para 2.11 and below in Chapter 12.  4 Briggs v Oates [1990] ICR 473; the Partnership Act 1890, s 14; see Chapter 5.  5 Dutia v Geldof [2016] EWHC 547 (Ch).   6 IR 35 and ss 49, 52 and 61 Income Tax (Earnings and Pensions) Act 2003.  7 Geddes v Wallace (1820) 2 Bligh 270; Ex p Hamper (1811) 17 Ves 403. In Marsh v Stacey (1963) 107 Sol Jo 512, CA, the salary of the ‘salaried partner’ was a charge upon the profits.  8 Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35.   9 See the Partnership Act 1890, set out in full in Appendix A below. Subsection (b) was one of the provisions originally introduced by the Law of Partnership Act 1865 (Bovill’s Act). 10 The author of the 1890 Act, Sir Frederick Pollock, commented on these words in his Digest of the Law of Partnership (5th edn, 1890) p 18: ‘It is to be regretted that the learning and scholarship of both Houses of Parliament has not been able to devise a better English equivalent for the barbarous “prima facie” which, although common and convenient in everyday usage, is hardly becoming in an Act of Parliament.’ 11 Palumbo v Styliano [1966] 1 ITR 407. 12 Budgen v O’Brien [1966] 1  ITR  64. As to employment duties, see Malik v BCCI SA (in liquidation) [1997] 3 All ER 1, HL.

(b)  The agreement 2.33  An individual may be receiving a share of the profits, but his arrangement may make plain that he is (on the one hand) a partner1 or that he is only (for instance) an independent contractor or a manager or other employee2. Whether his contract describes him as a partner is not conclusive3. Nor is the fact that he may be entitled to a profit share. It is a question of the parties’ intention4. In Horner v Hasted5 he shared in profit, was treated internally as a partner for normal purposes, took part in some of the management decisions of the firm which was a large accountancy practice, and was presented as a partner in some of the partnership documentation. But other documentation was to contrary effect: he was not a chartered accountant whereas the objects of the firm excluded those who were not; he had not contributed capital, which a partner ought to have done; he was not on the notepaper, lacked authority to sign cheques, and was paid either ‘consultant’s remuneration’ or ‘salary’, each taxed under Schedule D. Held he was no partner.

If he is to receive a salary as well as a share of profit, and the salary is a liability of the other party personally rather than the business itself, that is strong evidence that he is only an employee6. If his payment is by commission on the work that he introduces, he is being paid out of gross earnings and not net profit so he will not be a partner7. There is no legal objection to a partner agreeing to become an employee on the cesser of the partnership8, but a person will not lose or gain the status of partner without the agreement to that effect being fairly clear. The accounts are strong evidence of the question of partnership, but may not be decisive9. 39

2.34  Whether there is a partnership and whether a person is a partner 1 The probability of his being a partner is increased if he bears losses as well as taking profits: Reid v Hollinshead (1825) 4 B & C 867; Smith v Watson (1824) 2 B & C 401; but in Walker v Hirsch (1884) 27 Ch D 460, CA (discussed in the text below) this factor was present and held to be insufficient of itself: see para 2.31 above. 2 All Link International v Ha Kai Cheong (2005) 3  HKLRD  65; Cobbetts LLP  v Hodge [2009] EWHC 786 (Ch); Stekel v Ellice [1973] 1 WLR 191, discussed in Young (M) Associates v Zahid [2006] EWCA Civ 613; Harrington v Churchward (1860) 29 LJ Ch 521; Petersen v Gibb (1969) 113 Sol Jo 894; Stocker v Brocklebank (1851) 3 Mac & G 550; Moore v Davis (1879) 11 Ch D 261; Edmundson v Thompson and Blakey (1861) 31 LJ Ex 207; English Insurance Co Ltd v National Benefit Assurance Co Ltd (Official Receiver) [1929] AC 114; Pratt v Strick (1932) 17  TC  459; Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR 1213. 3 Moquin v Dadd [1944] Que PR 73 (Canada); and see para 2.1 above. 4 Tiffin v Lester Aldridge LLP  [2012]  EWCA  Civ 35 which is now the leading case on this question. Contrast DPP v McLoughlin [1986] IR 355 with O’Kelly v Darragh. I am indebted to Michael Twomey Partnership Law (2000) for both of these references. 5 [1995]  STC 766n, citing Unit Construction Co Ltd v Bullock (Inspector of Taxes) [1960] AC 351. 6 Ross v Parkyns (1875) LR 20 Eq 331 at 336 per Sir Geo Jessel MR. 7 Sutton & Co v Grey [1894] 1  QB  285; Geddes v Wallace (1820) 2 Bligh 270. See also para 2.30 above. 8 Easdown v Cobb [1940] 1 All ER 49. 9 Lewis v Narayanasamy [2017] EWCA Civ 229.

(c) Management 2.34  Partnership requires ‘carrying on business in common’1. So where the issue is as to whether a quasi-employee is a mere employee or a partner, the question to what degree he has a say in the management of the firm is important. So in Walker v Hirsch2 the partners agreed with a clerk in the firm who advanced them £1,500 that he would become entitled to a share in oneeighth of the profits and losses in addition to a salary. His duties continued the same as before. The agreement made between the firm of the one part and the clerk of the other was determinable on notice from either side or repayment of the £1,500. The Court of Appeal held that he was ‘in the position of a servant not in the position of a partner having an equal voice or control in the management of the concern’3.

Similarly, employed fishermen who were entitled to a share in the profits made by the owners of their boats have failed in a claim to be partners with the owners4, as have management consultants5, farm managers6 and commission agents7. By contrast, where there is express agreement that there is a partnership, the agreement is not vitiated merely because one partner is inactive as a sleeping partner8, and in Young (M) Associates v Zahid9 the Court of Appeal rejected the contention that there could be no partnership if there was no participation in profits or capital or management, holding this not to be the test. When a partnership commences is discussed at para 2.7 above. 1 See the Partnership Act 1890, s 1, set out in Appendix A below. 2 (1884) 27 Ch  D  460, overruling Pawsey v Armstrong (1881) 18 Ch  D  698 in which Kay J had held that an agreement to share profits and losses necessarily created a partnership.

40

Sharing of profits and property as evidence of partnership 2.35

3

4 5 6 7 8 9

Contrast also Katsch v Schenck (1849) 18 LJ Ch 386, Shadwell V-C; Stekel v Ellice [1973] 1 All ER 465; Horner v Hasted [1995] STC 766n, and see Ross v Parkyns (1875) LR 20 Eq 331 where Jessel MR was perhaps influenced by the comparative social status of the parties in rejecting the plaintiff’s claim to be anything but a servant. To similar effect is Re Ellins, ex p Hickin (1850) 3 De G & Sm 662, but contrast Katsch v Schenck (1849) 18 LJ Ch 386. Per Lindley LJ at 473. To similar effect is Palumbo v Stylianou [1966] 1 ITR 407 and Burnell v Hunt (1841) 5 Jur 650, where the manager was held not to be a partner. In Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35 a ‘fixed share partner’ was held to be a true partner in a large partnership notwithstanding his involvement in management was limited to some limited voting rights. Perrott v Bryant (1836) 2 Y & C Ex 61. Contrast Parker v Walker 1961 SLT 252. Strathearn Gordon Associates Ltd v Customs and Excise Comrs [1985]  VATTR  79, Fivegrange Ltd v Customs and Excise Comrs LON/89/1631Y, VAT Trib; and Keydon Estates v Customs and Excise Comrs LON/88/1225X, VAT Trib. R v Wortley (1851) 2 Den 333. R v M’Donald (1861) Le & Ca 85; Andrews v Pugh (1854) 24 LJ Ch 58; Rawlinson v Clarke (1846) 15 M & W 292; Pott v Eyton and Jones (1846) 3 CB 32. Ward v Newalls Insulation Co Ltd [1998] 1 WLR 1722, CA; Momentum Productions Pty Ltd v Lewarne (2009) FCAFC 30. Young (M) Associates v Zahid [2006] 1  WLR  2562; for a discussion of this case see para 2.20 above.

F Lenders (a) Lenders and investors taking a profit share in lieu of interest 2.35  If the reality1 is that a person is only taking a profit share as a return on a loan that he has made, then he is not a partner2, provided that his arrangement to this effect is in writing3 and what he is making is a loan to the partners and not a purchase of a partnership share4. Section  2 of the Partnership Act 1890 includes the following: In determining whether a partnership does or does not exist, regard shall be had to the following rules: (d) The advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such. Provided that the contract is in writing, and signed by or on behalf of all the parties thereto.

A mere lender to partners is not a partner even if he takes a profit share5. A patentee who mortgages his patents to a trader in return for a weekly payment out of the proceeds of the patents does not become a partner with the trader6, nor does a father who gives security for his son’s underwriting in return for a share in the profits7, nor an investor who advances money to be used to buy a steamer for the firm8 nor one who advances the necessary bricks for a development in return for a profit share9. 41

2.36  Whether there is a partnership and whether a person is a partner In Badeley v Consolidated Bank10 the plaintiff advanced money to a contractor to enable him to carry out his contract to build a railway. The deed provided that the plaintiff should receive 10% interest and 10% of the profits on the contract, and the contractor assigned to him all his machinery and plant by way of security. Held that these provisions were consistent with an intention to secure a loan and insufficient as evidence of a partnership.

The requirement as to writing in section 2(3)(d) means this: granted that profit-sharing is prima facie evidence of partnership, a partnership may be inferred from the fact of a loan in return for a share of profits unless the agreement excluding partnership is signed and in writing11. Not all profitsharing arrangements amount to partnerships, as is discussed earlier in this chapter, but profit-sharing might make a partner out of a lender12.  1 Frowde v Williams (1886) 56 LJQB 62; Singleton v Knight (1888) 13 App Cas 788; Pooley v Driver (1876) 5 Ch D 458. He may still be a mere lender although he has certain rights of a partner if those rights are for the protection of his interest as a lender: Hollom v Whichelow (1895) 64 LJQB 170.  2 Mehra v Shah [2004]  EWCA  Civ 632; Mollwo, March & Co v Court of Wards (1872) LR 4 PC 419; Syers v Syers (1876) 1 App Cas 174, HL; contrast where in consideration of payment of a share of profit to a third party he agrees not to call in his debt: Re Pinto Leite & Nephews, ex p Visconde des Olivaes [1929] 1 Ch 221.  3 Re Fort, ex p Schofield [1897] 2 QB 495; an example of such a loan agreement was Re Young, ex p Jones [1896] 2 QB 484.  4 Re Megevand, ex p Delhasse (1878) 7 Ch D 511; Iggesunds Bruk Akt v Von Dadelszen (1887) 3 TLR 517; Badeley v Consolidated Bank (1888) 38 Ch D 238.  5 Roche v Investec Bank [2015] IEHC 356; Irish Bank Resolution Corporation v Cambourne Investments Inc [2012] IEHC 262; Cooper v Page (1876) 34 LT 90; Debenham v Phillips (1887) 3 TLR 512, and see cases cited next below. A distinction was made in Re Megevand, ex p Delhasse (1878) 7 Ch D 511 between a loan to the partners which had the benefit of the section, and a loan made on the security of the business, which did not, but see Stewart v Buchanan (1903) 6 F (Ct of Sess) 15.  6 Re Whitaker, ex p Macmillan (1871) 24 LT 143.  7 Re Howard, ex p Tennant (1877) 6 Ch D 303; Meyer v Schacher (1878) 38 LT 97; Bullen v Sharp (1865) LR 1 CP 86.  8 Meyer v Schacher (1878) 38 LT 97.  9 Kelly v Scotto (1880) 49 LJ Ch 383. 10 (1888) 38 Ch D 238, considered in Re Beard & Co, ex p Trustee [1915] HBR 191 and George Hall & Sons v Platt (1954) 35 TC 440. 11 Syers v Syers (1876) 1 App Cas 174. 12 Irish Bank Resolution Corporation v Cambourne Investments Inc [2012] IEHC 262; Zurich Bank v McConnon [2011] IEHC 75; ACC Loan Management v Dolan [2016] IEHC 68.

(b)  Lender’s capital repaid out of profits 2.36  Repayment of a loan out of the profits of a business will not alone make the lender a partner1. Section 2(3) of the Partnership Act 1890 includes the following: (a) The receipt by a person of a debt or other liquidated amount by instalments or otherwise out of the accruing profits of a business does not of itself make him a partner in the business or liable as such. 1 Re Young, ex p Jones [1896] 2 QB 484; Kilshaw v Jukes (1863) 3 B & S 847; Cox v Hickman (1860) 8 HL Cas 268.

42

Sharing of profits and property as evidence of partnership 2.39

(c) Priorities 2.37  The effect of a lender or other outsider taking a share in the profits, even if it does not render him a partner, has the effect of postponing his interest to that of the general creditors on insolvency1 as discussed in Chapter 23. 1 See the Partnership Act 1890, s 3.

G Legatees 2.38  A gift of the profit share to a relation will not make him or her a partner1. Section  2(3) of the Partnership Act 1890 (as amended) includes the following: (c) A person being the widow, widower or civil partner or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such.

It is a matter of construction of the partnership agreement whether the annuity is payable out of gross or net profits or is even a charge on the business taking priority over the profit share2. 1 Walker v Reith (1906) 8 F (Ct of Sess) 381; Re Jones, ex p Harper (1857) 1 De G & J 180. 2 Re Jones, ex p Harper (1857) 1 De G & J 180.

H  Sharing property 2.39  A partnership can exist even if it owns nothing1. If all the business property belongs to one party only this may be evidence against partnership2, but sharing property is not a necessary part of partnership3. In Barnes v Consolidated Motor Co4 three car sales companies formed a single branch for selling used cars. It carried on business in its own name but the cars were sold as the property of the companies that owned them. Held that there was a partnership as regards this branch.

Conversely, the mere sharing of ownership of property does not create a partnership5, because there is no ‘business’, except where the property being shared is itself a business6. Thus the mere co-ownership of a secret manufacturing process does not of itself imply a partnership7. Indicia of partnership arising from sharing can be explained away, for instance by a deed to contrary effect8. Section 2(1) of the Partnership Act 1890 provides: Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.

43

2.39  Whether there is a partnership and whether a person is a partner

When jointly-owned property is used in a partnership business there may be an issue as to whether it is partnership property or the separate property of the partners outside the ambit of the firm, as discussed in Chapter 8. In Davis v Davis9 the partners owned land as tenants in common outside the partnership, and borrowed money on the security of it to build workshops on it for the partnership business. Held (applying section 20(3) of the 1890 Act)10 that the workshops remained the separate property of the partners.

Although mere co-ownership of property (even a lease of land) does not imply a partnership11, there is a partnership as soon as the co-owners start business (for instance in land speculation)12 or freighting a ship13. In Bhatti v HMRC14 it was said: the key to the correct interpretation of the restriction in section 2(1) of the 1890 Act is the use of the phrase ‘of itself’ which suggests that it is directed at property holdings which are not run on commercial lines.

The phrase ‘run on commercial lines’ is perhaps a dangerous paraphrase of section 1 of the Partnership Act 1890; we think all the tribunal meant is that there will be no partnership where co-owners do not carry on business in common with a view of profit. They will then become partners in the profits, but will remain simple coowners of the land, ship or other property15, unless they agree the contrary or it was bought as part of the partnership venture16, in which case it is partnership property17. The method by which the accounts are kept is a good guide as to whether the property is partnership property or just joint property18. In Jaenicke v Schultz19 Martin JA stated: The fact that a lease of land is made out in favour of two persons does not necessarily imply that they will be partners in the farming operations carried on during the term. Co-owners of land who merely share the expense of management and divide the income arising from the land in specified shares, are not partners. But if the co-owners use their land for the purpose of carrying on any business, they are partners as regards that business … the co-owners [may] agree between themselves that one of them shall carry on business on the land covered by the lease upon such terms as may be agreed upon.

The question whether there is a ‘business’ is discussed further at para 2.16 above.  1 Northern Sales (1963) Ltd v Ministry of National Revenue (1973) 37 DLR (3d) 612 (Canada).  2 Fivegrange v Customs and Excise Comrs LON/89/1631Y, VAT Trib; and Keydon Estates v Customs and Excise Comrs LON/88/1225X, VAT Trib.  3 Waland v Elkins (1816) 1 Stark 272; Fromont v Coupland (1824) 2 Bing 170; Russell v Austwick (1826) 1 Sim 52; Moore v Davis (1879) 11 Ch D 261 at 265; Osborne v Jullion (1856) 3 Drew 596; Wilson v Whitehead (1842) 10 M & W 503.   4 [1942] 1 DLR 736 (Canada).  5 McKie v Luck (1925) 9 TC 511; Keith Murphy Pty Ltd v Custom Credit Corpn Ltd (1992) 6 WAR 332; Backman v Canada (2001) 196 DLR (4th) 193 SCC contrast Spire Freezers Ltd v Canada (2001) 196 DLR (4th) 210 (SC Canada).  6 Agnew v McKenzie Ellis Wood Co Ltd (1913) 26 WLR 113 (Canada); Cripps v Comrs of Tax (1999) AATA 937 (Aus); Hitchens v Hitchens (1998) 47 NSWLR 35.

44

Joint ventures 2.40   7 Per Kekewich J in Heyl Dia v Edmunds (1899) 81 LT 579, approved by Nourse LJ in Murray v Yorkshire Fund Managers Ltd [1998] 1 WLR 951.  8 Pratt v Mehra (2003) 2 P&CR D 63.   9 [1894] 1 Ch 393. 10 Discussed in Chapter 8, and see Sun Mortgage Corp v Kumar (2000) WWR 700. 11 Kay v Johnston (1856) 21 Beav 536; French v Styring (1857) 2  CBNS  357 at 366, a case of joint ownership of a racehorse. See also Bhatti v HMRC  [2013]  UKFTT  355 (TC), a partnership involving property investment and letting. 12 Re Hulton, Hulton v Lister (1890) 62  LT  200; Johnson v Murray (1951) 2 WWRNS 447 (Canada). 13 Associated Portland Cement Manufacturers (1910) Ltd v Ashton [1915] 2 KB 1. 14 [2013] UKFTT 355 (TC). 15 Beautiland Co Ltd v IRC [1991] STC 467; Alfaro v De la Torre (1876) 34 LT 122; Baker v Casey (1872) 19 Gr 537 (Canada). 16 Jefferys v Smith (1820) 1 Jac & W 298; Crawshay v Maule (1818) 1 Swan 495; Korman v Korman (1968) 63 WWR 759 (Canada). 17 Dale v Hamilton (1847) 2 Ph 266, followed in Canning v Catling (1864) 4 New Rep 259. 18 Re Hulton, Hulton v Lister (1890) 62 LT 200, CA; Brenssell v Brenssell (1998) NZFLR 28; see also para 8.16ff below. 19 [1924] 4 DLR 488 at 489 (Canada).

4  JOINT VENTURES A Partnership contrasted with other joint ventures   2.40 B Rights and liabilities of joint venturers: relational contracts   2.41

A  Partnership contrasted with other joint ventures 2.40  Two or more persons may find themselves in a consortium or other relationship which imposes obligations although it is not strictly a partnership. The absence of the existence of a partnership does not mean that none of the duties of good faith exists that exist between partners; but of course the extent to which such duties exist will vary from case to case. Categories are these: •

persons may agree to be partners in the future; the relationship between intended partners is discussed in Chapter 11 and para 2.8 above; • their association may not include every one of the requirements of a partnership, for instance because the business association is so slight that it cannot be said that the parties are ‘carrying on’ business within the meaning of section  1 of the Partnership Act 18901, or because the business is carried on through a company and not (for instance) through a partnership of separate companies; • their venture may not be intended to yield profit ‘in common’ as in the case of share farming (further discussed below) or some mining ventures2 or the profit-sharing may be of gross rather than net receipts and the work divided into ‘segments’ between the partners3. In England the term ‘joint venture’ usually means a partnership for a single venture4, or the arrangement whereby several parties incorporate a company 45

2.41  Whether there is a partnership and whether a person is a partner

to carry out a particular project5. In Australia the term ‘joint venture’ is ‘apposite to refer to a joint undertaking or activity carried out through a medium other than that of a partnership: such as a company, a trust, an agency or joint ownership’6 and also means ‘an association of persons who engage in a common undertaking to generate a product to be shared amongst the participants’7, whether or not that common undertaking amounts to partnership8. The law relating to joint ventures is as stated but it has been given some statutory recognition in New Zealand9 and Australia10, and in Canada a receiver has been appointed over the assets of a joint venture where the circumstances require it11. The first question will always be whether or not a partnership has come into existence12.  1 Business for a ‘single adventure or undertaking’ can constitute a partnership: Smith v Anderson (1880) 15 Ch D 247 at 277; Re Griffin, ex p Board of Trade (1890) 60 LJQB 235 at 237 but separate businesses do not: Walker West Developments Ltd v Emmett (1978) 252 Estates Gazette 1171, CA.  2 Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at 326.  3 Spree Engineering & Testing Ltd v O’Rourke [1999] EWHC 272 (QB), where contractors had agreed to share joint and several liability, but this was not enough to make them partners.   4 Eg in European Strategic Bureau Ltd v Technomark Consulting Services (20  June 1995, unreported), Ferris J.  5 Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372, CA, but see comments on this case in London & Regional Investments v TBI plc [2002] EWCA Civ 355 at paras 44–50 and Thames Cruises v George Wheeler Launches Ltd [2003] EWHC 3093 (Ch) Peter Smith J at para 66; Button v Phelps [2006] EWHC 53 (Ch) following Etherton J in Murad v Al-Saraj [2004] EWHC 1235 (Ch).   6 Per Mason, Brennan and Deane JJ in United Dominions Corpn Ltd v Brian Pty Ltd (1985) 157 CLR 1 (HC of A).  7 Daoud v Boutros [2013] NSWSC 687.  8 Shanmugathaas v Paramanirupan [2018] NSWSC 1219 following United Dominions Corpn Ltd v Brian Pty Ltd (1985) 157 CLR 1 (HC of A).   9 See Dickie v Torbay Pharmacy (1986) Ltd [1995] 3  NZLR  429 where the project was described by the court as a co-venture (whereas strictly it may have been a partnership) and fiduciary duties were held to apply. 10 See Halsbury’s Laws of Australia 305 ‘Partnership and Joint Ventures’ and John Burchall in JBL (2005) May 269. 11 Roedde v News-Advertiser Publishing Co (1894) 4 BCR 7. 12 The fact that the parties describe their association as a joint venture does not prevent it from being a partnership: per Gibbs CJ in United Dominions Corpn Ltd v Brian Pty Ltd (1985) 157 CLR 1 (HC of A) at p 5 discussed above at para 2.1.

B Rights and liabilities of joint venturers: relational contracts 2.41  If there is no partnership, a question may arise whether any rights have arisen1 under the doctrine of a joint venture. The rights may arise if a person is negotiating for an intended partnership2 or (in Australasia3) if they are ‘associated for … a common end … based upon a mutual confidence … for joint advantage … ‘4 and they have embarked upon the venture5: 46

Joint ventures 2.41 Two companies6 agreed in principle to acquire a site and develop it by means of a jointly-owned third company, but in the event the site was acquired by one of the original two companies only and though no binding agreement was ever concluded. Held that the company held the site upon a constructive trust for itself and the other. Two companies7 agreed a joint venture to buy and sell sesame seeds. Held that it was the obligation of one to inform the other of the change in the arrangements for the storage of the seeds. But the fiduciary relationship cannot alter the operation which any contractual arrangement was intended to have8.

As between them and outsiders, no quasi-partnership obligations will arise in the absence of a partnership properly so called9. As between the venturers themselves, the law of England has not followed the law of Australia so far as to hold that the obligation of good faith and the obligation not to make a clandestine profit arise10 unless: (a) a constructive trust arises (see 2.50 below) because one party acquires a property which has been intended for the joint project, and either the acquiring party obtains a benefit thereby or the non-acquiring party suffers a detriment11; or (b) money is paid by one joint venturer to the other for the specific purpose of the venture12; or (c) a person has ‘undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence’13 or is accountable to another14. This may be in a wide variety of instances. In ordinary commercial contracts15 an implied duty of good faith can arise16 and the more so where the arrangement can be called a relational contract, taking into account the factors identified by Fraser J in Bates v Post Office Ltd17.   1 The question is of importance in those states of the United States where a corporation may not be a partner, so its business associations must perforce be joint ventures only.  2 Fawcett v Whitehouse (1829) 1 Russ & M 132, 39 ER 51; Hichens v Congreve (1831) 1 Russ & M 150, 39 ER 58; Bell v Lever Bros Ltd [1932] AC 161 at 299 (Lord Atkin); cited by Gibbs CJ in United Dominions Corpn Ltd v Brian Pty Ltd (1985) 157 CLR 1 (HC of A) at pp 5–6.  3 Lawfund Australia Pty Ltd v Lawfund Leasing (2008) NSWSC 66 ACSR 1   4 Per Dixon J in Birtchnell v Equity Trustee Executors and Agency Co Ltd (1929) 42 CLR 384 at 408, cited by Mason, Brennan and Deane JJ in United Dominions Corpn Ltd v Brian Pty Ltd (1985) 157 CLR 1 (HC of A) at pp 12–13.   5 Per Gibbs CJ in United Dominions Corpn Ltd v Brian Pty Ltd (1985) 157 CLR 1 (HC of A) at p 7.  6 Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372, CA, following Holiday Inns Inc v Broadhead (1970) 232 Estates Gazette 951 and Pallant v Morgan [1953] Ch 43 (contrast Cayzer v Beddow [2007] EWCA Civ 644), but see comments on Banner in note 5 to para 2.40.  7 Huyton SA v Distribuidora Internacional de Productos Agricolas SA [2003] EWCA Civ 1104.  8 Hospital Products Ltd v United States Surgical Corpn (1984) 156 CLR 41 per Mason J at 97; Perrott v Perrott (1911) 31 NZLR 6.   9 The statement was approved by Peter Smith J in Thames Cruises v George Wheeler Launches Ltd [2003] EWHC 3093 (Ch) at para 66. 10 Murray v Yorkshire Fund Managers [1998] 1 WLR 951; contrast Casson Beckman & Partners v Papi [1991] BCLC 299; Foreman v Chambers (2007)) 284 DLR (4th) 210; United Dominions

47

2.42  Whether there is a partnership and whether a person is a partner Corpn Ltd v Brian Pty Ltd (1985) 157  CLR  1 (HC of A); Diversified Mineral Resources v CRA Exploration (1995) ICCLR 6(5) 95–96; A Akman & Son (Fla) Inc v Chipman (1988) 45  DLR (4th) 481; Russell v Austwick (1826) 1 Sim 52; Patel v Patel (31  January 1996, unreported), CA. The matter is discussed fully by John Birchall in JBL (2005) May pp 269–286. 11 Banner Homes Group plc v Luff Developments Ltd [2000] Ch  372; Button v Phelps (2006) EWHC 53; following Etherton J in Murad v Al-Saraj & anor (2004) EWHC 1235 Pallant v Morgan [1953] Ch 43 (contrast Cayzer v Beddow [2007] EWCA Civ 644); Sintra Homes Ltd v Beard [2007] EWHC 3071 (Ch) (Judge Behrens). 12 Shanshal v Al-Kishtaini, Richards J, NLC 299069302 (9 June 1999, unreported) (reversed on another point [2001] EWCA Civ 264) following Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. 13 Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 18; Pallant v Morgan [1953] Ch 43 (contrast Cayzer v Beddow [2007] EWCA Civ 644): Halton Int v Guernroy [2005] EWHC 1968 (Ch) paras 138–148. 14 Ross River Ltd v Waveley Commercial Ltd (2012) EWHC 81. 15 See discussion in SPI North Ltd v Swiss Post International (UK) Ltd [2019] EWHC 2004 (Ch). 16 Yam Seng Pte v International Trade Corp [2013] EWHC 111 (QB). 17 [2019]  EWHC  606 (QB) at [725]: SPI  North Ltd v Swiss Post International (UK) Ltd [2019] EWHC 2004 (Ch).

5 OTHER ENTITIES AKIN TO PARTNERSHIPS A Agents  2.42 B Barristers’ chambers  2.43 C Commercial agents  2.44 D Civil partnerships  2.45 E Clubs and societies   2.46 F Companies limited and unlimited, LLPs and other corporate entities  2.49 G Constructive trust: Pallant v Morgan   2.50 H Employment  2.51 I European Economic Interest Groups   2.52 J Family partnerships  2.53 K Franchises  2.54 L Friendly societies  2.55 M Landlords and tenants   2.56 N Mutual benefit associations   2.57 O Marriage, civil partnership, boyfriends and girlfriends   2.58 P Mining companies in the stannaries   2.59 Q Public-private partnerships  2.60 R Quasi-partnerships  2.61 S Share farmers  2.62 T Sharia law  2.63

A Agents 2.42  An agent paid out of a percentage of the takings is not a partner because (inter alia) his share is a share in gross takings and not a share in net profits1. 48

Other entities akin to partnerships 2.43

Where there is no partnership2 but one person is acting for another, his obligation to the principal is that of an agent, with duties of good faith similar to the duties that partners owe to one another3. The principal is vicariously liable for his acts4. It follows that a person may be liable as a principal where he is not liable as a partner: In Swiss Air Transport Co Ltd v Palmer5 a man called Paris who had been in business with Palmer asked Swiss Air that an air ticket and two shipments of air freight be invoiced to Palmer, and the issue was whether Palmer was liable. Held that there was no partnership between Palmer and Paris, but because Palmer had allowed Paris to pledge his credit on three previous occasions for freight, he had held him out as his agent with authority to charge him for this, and so Palmer was liable for the air freight, but not the air ticket. 1 See Chapter 1. 2 See principles set out in the earlier divisions of this chapter. Agents who share profits need not be partners: Re Fliway-AFA International Pty Ltd (1992) 39 FCR 446. 3 Martin-Smith v Williams [1998] EMLR 334; see the discussion of the agent’s fiduciary duty in Du Boulay v Raggett (1988) 58 P & CR 138. 4 See generally Halsbury’s Laws of England (4th edn), vol 1, ‘Agency’ and Construction Engineering (Australia) Pty Ltd v Hexyl Pty Ltd (1985) 58 ALR 411 (Australia). 5 [1976] 2 Lloyd’s Rep 604.

B  Barristers’ chambers 2.43 Members of barristers’ chambers are professionals practising separately and traditionally share outgoings but not receipts and therefore they are not partners. Although no partnership arises the relationship is akin to a partnership1 and they have the duties of good faith that arise between joint venturers as mentioned earlier in this chapter. Chambers that share net receipts are probably partnerships, notwithstanding that to form any partnership constituted a breach of the barristers’ code of conduct. That code took to an extreme the traditional prohibition upon partnerships with solicitors and other barristers2. But since 26 March 2010 the Bar Code of Conduct prohibition upon a barrister supplying legal services through another person ceased to have effect. He is now permitted to supply legal services as a self-employed practitioner, as an employed barrister, or as a manager or employee of an authorised ‘recognised body’ which can include an LLP or a partnership. So barristers and solicitors can form a partnership regulated by the Solicitors’ Regulatory Authority. All barristers are members of Inns of Court which are voluntary unincorporated associations3 each controlled by a body known as the benchers. 1 Thus all members of the chambers are liable to a pupil on his pupillage contract: Edmonds v Lawson [2000] QB 501 at 505. 2 By the Courts and Legal Services Act 1990, s 66(5) it is declared that no rule of common law prevents a barrister from entering into any unincorporated association with persons who are not barristers, but s 66(6) enables the Bar Standards Board to make rules prohibiting or restricting them from doing so. 3 R v Gray’s Inn (1780) 1 Doug KB 353. As regards Lincoln’s Inn and Gray’s Inn; but probably not Inner and Middle Temple which have a Royal Charter.

49

2.44  Whether there is a partnership and whether a person is a partner

C  Commercial agents 2.44  A commercial agent will usually be a simple agent acting for a principal without any reciprocal rights and so will not be a partner with him. A commercial agent under the Commercial Agents (Council Directive) Regulations 1993 is a self-employed intermediary acting on behalf of a principal and the definition in the regulations specifically exclude ‘a partner who is lawfully authorised to enter into a commitment binding upon his partners’1. 1 Commercial Agents (Council Directive) Regulations 1993, SI 1993/3053, reg 2(1).

D  Civil partnerships 2.45  ‘Civil partnership’ is the name given by the Civil Partnership Act 2004 to the relationship between two people of the same sex which is formed when they register as such under Chapter 1 of that Act. It has none of the characteristics of partnership under the 1890 Act.

E  Clubs and societies (a)  Non profit-making unincorporated societies 2.46  A charitable or social society, such as a railway preservation society1, a football club2 or a rotary club3 is not a partnership4. The property of such a society is either held on charitable trusts or it is held beneficially for its members subject to the provisions of its rules of association5. 1 2 3 4 5

Goddard v Mills (1929) Times, 16 February. Re Witney Town Football and Social Club [1994] BCLC 487. Blackpool Marton Rotary Club v Martin (Inspector of Taxes) [1988] STC 823. Wise v Perpetual Trustee Co [1903] AC 139, 149 per Lord Lindley. Hanchett-Stamford v H M A-G [2009] Ch 173, not following dicta of Walton J in Re Bucks Constabulary Fund [1979] 1 All ER 623.

(b)  A members’ club 2.47  A members’ club1 belongs to its members who finance it by subscription. It will rarely be a partnership2 because usually it neither comprises a business nor is it conducted with a view to profit3. 1 The Athenaeum Club is a members’ club. 2 So it cannot be sued as a firm (CPR, Pt  7  PD 5A): Grossman v Granville Club (1884) 28 Sol Jo 513; Campbell v Thompson [1953] 1 All ER 831; Hibernian Dance Club v Murray [1997] PIQR P46, CA. 3 Pitreavie Golf Club v Penman 1934  SLT  247; Blackpool Marton Rotary Club v Martin (Inspector of Taxes) [1988] STC 823; Flemyng v Hector (1836) 2 M & W 172.

50

Other entities akin to partnerships 2.49

(c)  A proprietary club 2.48  A proprietary club1 is a club that is owned by its proprietor rather than the members, who have only such rights as he may agree with them. They cannot be partners in it because if it were to carry on any business (which would be unusual), it would be he, not they, carrying it on. If it were to be owned by more than one proprietor the proprietors might constitute a partnership between themselves2 unless they were resolved to be a non profitmaking body; the ‘view of profit’ is an essential ingredient of partnership3. Often the club premises are held by a holding company; then the directors owe no fiduciary duty to the club members4. 1 Pratts is a proprietary club. 2 So they could then be sued in the firm name: Firmin & Sons Ltd v International Club (1889) 5 TLR 612 at 694, CA; but see Chapter 21 on actions against a firm in its own name. 3 This is mentioned at para 2.15 above. 4 Peskin v Anderson [2001] 1 BCLC 372 (‘The RAC Club’).

F Companies limited and unlimited, LLPs and other corporate entities 2.49  The distinction between a partnership and a company or other corporate body is seldom in dispute1. A corporate entity is a fictional person separate from its members whereas a partnership is not. ‘There is no real analogy between a partnership and a limited company’2; on the other hand ‘Company Law has developed seamlessly from the law of partnership’3. No body, company or association (whether it is limited or unlimited or has a share capital or not) is a partnership if it is registered under the Companies Acts4 or formed by any other statute (such as the LLP legislation)5 or letters patent or royal charter. Section 1(2) of the Partnership Act 1890 excludes the following from the statutory definition of partnership6: … the relation between members of any company or association which is – (a) Registered as a company under the Companies Act 1862 or any other Act of Parliament for the time being in force and relating to the registration of joint stock companies, or (b) Formed or incorporated by or in pursuance of any other Act of Parliament or letters patent, or Royal Charter …

When a business that has been run by a partnership is transferred to a company, the natural7, but not the inevitable8, conclusion will be that dissolution of the partnership is implicit. Although the relation between company directors and shareholders is not a partnership, a company can itself be a partner (see para 3.1 below). Where an individual partner controls a company which acts for him in relation to the business, that company becomes accountable as much as he9. 51

2.50  Whether there is a partnership and whether a person is a partner

The incorporation or intended incorporation of a company or LLP or other corporate entity will rarely create an 1890 Act partnership between the persons behind it. The 1890 Act: … requires that the putative partners should carry on business themselves, not that they should have an economic interest in a business to be carried on by some other entity10.

The court is reluctant to pierce the corporate veil and find a partnership behind a structure of companies11.   1 As to this distinction see J H Rayner (Mincing Lane) Ltd v Department of Trade and Industry (The Tin Council case) [1990] 2 AC 418; Schacfer v Schrieber (1899) 25 VLR 254 (Australia); Smith v Anderson (1880) 15 Ch D 247; New Brunswick and Canada Rly and Land Co v Muggeridge (1859) 4 Drew 686.   2 Per Lord Fitzgerald in Birch v Cropper, Re Bridgewater Navigation Co Ltd (1889) 14 App Cas 525.   3 Per Lord Hoffmann, in O’Neill v Phillips [1999] 1 WLR 1092 at 1098H.   4 See the Partnership Act 1890, s 1(2) (printed in Appendix A below); for foreign firms and companies see Chapter 1.   5 For LLPs see Chapter 25.  6 The statutory definition also excludes reference to Stannaries companies (see below, and Dunbar v Harvey [1913] 2 Ch  530, CA). This is now obsolete under the Companies Consolidation (Consequential Provisions) Act 1985, s 28.  7 Nirmal Singh Chahal v Mahal (15  July 2005, unreported), CA. Implied dissolution is considered at para 16.14.  8 National Westminster Bank plc v Jones [2001] 1 BCLC 98.  9 Medcalf v Mardell [2000] EWCA Civ 63, a case which later went to the House of Lords on the question of wasted costs orders against counsel. 10 Per Nugee J in Dutia v Geldof [2016] 2 BCLC 252 at para 6. 11 Rummery v Matthews (2000) 9 WWR 286 (Canada).

G  Constructive trust: Pallant v Morgan1 2.50  The acquisition of property by one person who has agreed to the acquisition and of exploitation of it as a joint adventure, will be regarded by the Court as creating a trust for the adventurers2. but only if in reliance on the arrangement or understanding, the non-acquiring parties do something which confers an advantage on him in relation to the acquisition of the property or is detrimental to their ability to acquire the property themselves so it would be inequitable or unconscionable to allow him to retain the property for himself3. 1 [1953] Ch 43. 2 The elements of a ‘Pallant v Morgan’ constructive trust were encapsulated by Lord Scott in Cobbe v Yeoman’s Row Management Ltd [2008]  UKHL  55, [2008] 1  WLR  1752; see Jonathan Gaunt QC in Kiwak v Chaim Reiner [2017] EWHC 3018 (Ch). 3 Chadwick LJ in Banner Homes v Luff [2000] Ch 372.

H Employment 2.51  The relationship of employer and employee is inconsistent with that of partnership as explained at para  2.32 above, but this does not prevent 52

Other entities akin to partnerships 2.54

the employee and the employer in some circumstances having duties to one another of a fiduciary nature, as mentioned in para 11.10 below. A person in a complex business relationship could be in partnership for some purposes and in employment for others1. Salaried partners are considered at para 12.14 below. 1 Ryan v Mason [2011] 2 NZLR 791.

I  European Economic Interest Groups 2.52  The EU has created1 an entity called a European Economic Interest Group. This is formed by a body of persons (ie companies, firms or individuals) agreeing to facilitate or develop the activities of its members together. It is then treated as a separate legal entity for fiscal purposes and must be registered with the Registrar of Companies. An English partnership can be a member of it, but it does not itself comprise a partnership in English law because the businesses of its members remain separate: they do not carry on business ‘in common’; and if registered in Britain it will be a body corporate2. It must have ‘European Economic Interest Grouping’ or ‘EEIG’ as part of its name. The discerning reader will not confuse this entity with the ‘single economic unit’ which by its nature is excluded from the provisions of Article 81 EC which render illegal agreements that may prevent, restrict or distort competition within the EU. In Viho Europe BV  v EC  Commission3 a company owned subsidiaries through whom it exported, and it required them to restrict the distribution of its products to their allocated territories. Held by the ECJ, this was not an agreement to which Article 85 was applicable because the subsidiaries and the parent company formed one economic unit within which the subsidiaries had no real autonomy. 1 Council Regulation No 2137/85 introduced into English law on 1 July 1989 by the European Economic Interest Grouping Regulations 1989, SI 1989/638, which regulate the relations of the members of the group in so far as these are not provided for in the agreement. 2 See the European Economic Interest Grouping Regulations 1989, SI 1989/638, reg 3. 3 [1997] All ER (EC) 163.

J  Family partnerships 2.53  A family partnership (or family limited partnership, as the case may be) is a partnership which is formed for the primary purpose of holding family assets. It needs all the characteristics of partnership.

K Franchises 2.54  Often a business is conducted under a franchise agreement. No partnership is likely between the owner of a business and its operator because 53

2.55  Whether there is a partnership and whether a person is a partner

the standard franchise agreement will give the franchisor a share in the gross returns of the franchisee business but not in its net profits.

L  Friendly societies 2.55  Friendly societies are not partnerships1. A working man’s club will not be a partnership if it has procured registration under the Friendly Societies Acts 1974 and 1992 because of the definition of working men’s clubs in those Acts. If registered under the Co-operative and Community Benefit Societies Act 2014, it will have become statutorily incorporated2. 1 Re Lead Co Workmens’ Funds Society [1904] 2 Ch 196. 2 See the Co-operative and Community Benefit Societies Act 2014, s 3(3) though such a society may sue in its own name.

M  Landlords and tenants 2.56  The whole firm cannot be a landlord or tenant of itself1 but one partner may be the landlord or the tenant of another partner or of the firm. The firm as a tenant of a partner is discussed at para  8.43, and a partner’s right to renew a partnership lease in his own name for his own benefit is discussed at paras 11.8 and 11.29. 1 Rye v Rye [1962] AC 496 and see para 8.43 below.

N  Mutual benefit associations 2.57  Mere co-owners of property are not partners because they have no ‘business’1, so members of a mutual land society who subscribe to a fund to buy land for themselves are not partners2, nor are those who associate to buy shares3, or to pool their money to provide pensions4 or to help those of them that fall sick5. But the members of an unincorporated association can own property collectively, on the basis of contractual arrangements between the members6. And a mutual loan society7 and a mutual insurance society carry on business8. In Jennings v Hammond9 a mechanics’ mutual benefit society was held to be carrying on business lending money, although its primary purpose was to enable money to be saved by mechanics, and under its rules loans could only be made to members and not to the public generally. 1 See para 2.39 above. 2 Wigfield v Potter (1881) 45 LT 612. 3 Dominion Iron and Steel Co Ltd v Invernairn [1927] WN 277; Smith v Anderson (1880) 15 Ch D 247, CA, overruling Sykes v Beadon (1879) 11 Ch D 170; Brownlie v Russell (1883)

54

Other entities akin to partnerships 2.59

4 5 6 7 8 9

8 App Cas 235. For a discussion of the limited partnerships that are used as venture capital investment funds, see Chapter 24. Armour v Liverpool Corpn [1939] Ch 422. Re One and All Sickness and Accident Assurance Association (1909) 25 TLR 674. Artistic Upholstery Ltd v Art Forma (Furniture) Ltd [1999] 4 All ER 277, Ch D. Shaw v Benson (1883) 11 QBD 563, CA; Jennings v Hammond (1882) 9 QBD 225. Re Padstow Total Loss and Collision Assurance Association (1882) 20 Ch D 137, CA. (1882) 9 QBD 225.

O Marriage, civil partnership, boyfriends and girlfriends 2.58  The existence of marriage or any quasi-marriage relationship is irrelevant to the question whether the parties are partners as a matter of law1, save that no partnership arises if the arrangement is so domestic that there is no intention to create legally binding relations2. The existence of a partnership between spouses may be challenged as a sham by HMRC3. For such shams, see para 2.5 above. On divorce, the court dealing with the ancillary relief application must start with the respective financial position of the spouses, and as between partners this will require at least a broad assessment of their rights as partners if they are partners4. Unmarried couples are commonly called ‘partners’5 but their personal relationship does not make them partners in the legal sense. This unhappy misuse of language only became general after the first edition of this book went to press. 1 Nixon v Nixon [1969] 1 WLR 1676; Patter v Zeller (1997) 30 OR (3d) 796; Marx v Marx [1964] SCR 653 (Canada). 2 See para  2.26 above and Saywell v Pope [1979]  STC  824; Britton v Customs and Excise Comrs [1986] VATTR 209; Parrington v Parrington [1951] 2 All ER 916. 3 Taste of Bangladesh v HMRC [2000] SWTI 554. 4 White v White [1999] Fam 304, CA; affd [2001] 1 AC 596, HL. 5 See the speech of Lord Bridge in Lloyds Bank plc v Rosset [1991] 1 AC 107.

P  Mining companies in the stannaries 2.59  Section 1(2) of the Partnership Act 1890 specifically excludes from the definition of ‘partnership’ a company ‘engaged in working mines within and subject to the jurisdiction of the Stannaries’. The need for this provision arose because such companies (comprising tin-miners in Devon and Cornwall) did not fall within the scope of the definition of the other corporations mentioned in section  1. The Stannaries Court was abolished in 18961. All mining companies subject to the stannaries jurisdiction were unincorporated cost book companies with unlimited liability and had disappeared by 19202 but their memory quaintly survived in RSC Ord 81, r 10(4) which was preserved in Sch 1 to the CPR and in force until 2006. 1 See the Stannaries Court (Abolition) Act 1896. 2 According to the notes to the Stannaries Act 1855, s 1 in Halsbury’s Statutes (4th edn), vol 29, which gives the history.

55

2.60  Whether there is a partnership and whether a person is a partner

Q  Public-private partnerships 2.60  Public bodies are frequently encouraged to act in conjunction with private sector entities, for instance under the Local Government and Public Involvement in Health Act 2007. Whether a true partnership is created will depend upon the terms of the arrangement.

R Quasi-partnerships 2.61  Private companies which are managed in a way akin to partnerships – with a personal relationship between the members who all contribute to the management – are called quasi-partnerships1. The intimate nature of such companies means that the members repose more trust and confidence in one another than is the case in other companies, and this will assist an oppressed minority member to obtain relief from the court by petition under section 994 of the Companies Act 2006, and to be bought out on an equal assets basis rather than under a reduced valuation to reflect a minority shareholding. All of this has nothing to do with partnership law. 1 Ebrahimi v Westbourne Galleries Ltd [1973]  AC  360; Re Bird Precision Bellows [1984] Ch 419; contrast Irvine v Irvine [2006] EWHC 406 (Ch) and Shanmugathaas v Paramanirupan [2018] NSWSC 1219.

S  Share farmers 2.62  Share farming is where a landowner agrees with the agricultural operator that the produce will be owned by them in certain shares, whether the enterprise is profitable or not. Because what they share is the gross output and not the net profit they are not partners1; if they share net profits they are partners2. A share farming arrangement relating to milk only was explained and discussed by Dillon LJ in McCarthy v Bence3. 1 Wish v Small (1808) 1 Camp 331n; Cribb v Korn (1911) 12 CLR 295. 2 George Hall & Sons v Platt (1954) 35 TC 440. 3 [1990] 1 EGLR 1, CA.

T  Sharia law 2.63  If it is the intention of all the parties, the court will recognise that they hold family assets according to Sharia shares and not as partnership assets1, but the English court will not interpret Sharia law, as such, as explained in para 7.12 below. 1 Choudhury v Choudhury [2006]  EWHC  1837 (Ch  D, Kitchin J); Abdel Hadi Abdallah al Qahtani & Sons Beverage Industry Co (A company incorporated under the laws of Saudi Arabia) v Andrew Antliff [2010] EWHC 1735 (Comm).

56

3 Capacity Contents

para 1 Those entities and persons that have capacity to be partners A Those with capacity to be partners�����������������������������������������������3.1 B Those who may lack capacity to be partners������������������������������3.11 2 Minors A The minority of a partner�����������������������������������������������������������3.22 B Affirmation of the partnership����������������������������������������������������3.23 C Judgment and execution�������������������������������������������������������������3.24 3 Mental incapacity: dementia, madness and drunkenness A The partner mentally incapable when commencing partnership�3.25 B Patients of the Court of Protection���������������������������������������������3.26 C Loss of mental capacity during the course of the partnership�����3.27 4 Disqualification, bankruptcy and insolvency A Disqualification under the Company Directors Disqualification Act 1986�����������������������������������������������������������3.28 B A partner’s bankruptcy���������������������������������������������������������������3.29 C Solicitors’ practising certificates��������������������������������������������������3.30

1 THOSE ENTITIES AND PERSONS THAT HAVE CAPACITY TO BE PARTNERS A Those with capacity to be partners   3.1 B Those who may lack capacity to be partners   3.11

A  Those with capacity to be partners 3.1  Generally speaking any legal person capable of entering into a contract can be a member of an English partnership, save as is mentioned below. The following in particular have capacity: 57

3.2  Capacity

(a)  Corporations of England and Wales 3.2  Any UK company or other corporation may be a partner in an English firm provided that its memorandum or other constitution permits this1. Since the validity of an act done by a company formed and registered under the Companies Acts2 shall not be called into question on the ground of lack of capacity by reason of anything in the company’s memorandum or constitution3, the validity of a partnership formed with such a company as a member cannot be challenged. Notwithstanding this, where directors of a company enter into a partnership on behalf of the company, that agreement may be so disadvantageous to the company as to be outside the powers of its directors to effect; if another party to the agreement knows this then he will not be able to enforce its terms4. The accounts of a mixed partnership that has a corporate partner take a different form because two sets of accounts are required, one under the income tax rules and the other under the corporation tax rules; see para 12.21 below. The relationship between shareholders is not itself a partnership as discussed at para 2.49 above. 1 Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 653; Pinkey v Sandpiper Drilling Ltd [1989] ICR 389, EAT; Newstead v Frost [1980] 1 WLR 135; Hogar Estates Ltd in Trust v Shebron Holdings Ltd (1979) 25 OR (2d) 543; Re European Society Arbitration Acts (1878) 8 Ch D 679 at 704, CA. For the liability of a corporate partner see Woodgate v Davis (2002) 42 ACSR 286. 2 Companies Act 2006, s 1(1). 3 Companies Act 2006, s 39. 4 Criterion Properties v Stratford UK  Properties [2003] 1  WLR  2108, reversed on other grounds, HL.

(b) Convicts 3.3  The partnership share of a convict partner is no longer liable to forfeiture1, and there is accordingly no legal ban upon a person in prison being a partner. 1 The Criminal Justice Act 1948, s 70(1) repealed the Forfeiture Act 1870, ss 6–30.

(c)  State immunity; foreign diplomats and heads of state 3.4  A foreign diplomatic agent1 may be an English partner because his immunity does not extend to any action relating to any commercial and professional activity which he may exercise in the UK outside his official function2, but it would be a breach of his diplomatic obligations if in fact he was conducting any such activity for personal profit3. He cannot be sued in England in respect of such a partnership without his consent4, but if he can successfully plead immunity the limitation period is suspended. A head of 58

Those entities and persons that have capacity to be partners 3.8

State is in a similar position5, but he or a foreign State is bound by the award in a foreign arbitration to which it has been submitted6. 1 Ie the head of the mission or a member of the diplomatic staff (Diplomatic Privileges Act 1964, s 2(1), Sch 1, Art 1(c)); the members of his family enjoy similar privileges (Diplomatic Privileges Act 1964, s 2(1), Sch 1, Art 37). 2 Diplomatic Privileges Act 1964, s 2(1), Sch 1, Art 31. 3 Vienna Convention on Diplomatic Relations, Art 42. 4 Musurus Bey v Gadban [1894] 2 QB 352, CA. 5 State Immunity Act 1978, s 20(1)(a), including his family. 6 Svenska Petroleum Exploration AB v Lithuania [2007] 2 WLR 876.

(d)  Foreigners other than foreign enemies 3.5  A foreigner may be a member of an English partnership1 although an enemy alien may not2. 1 Johnstone v Pedlar [1921] 2 AC 262; Porter v Freudenberg [1915] 1 KB 857 at 869, CA. 2 See para 3.18.

(e)  Foreign corporations 3.6  A foreign corporation has capacity to become an English partner according to its native constitution1 which will be recognised by the English courts as discussed in para  1.14 above. The status of a foreign limited partnership is considered at para 24.8 below. 1 Hugh Stevenson & Sons Ltd v AG für Cartonnagen-Industrie [1918] AC 239, HL.

(f)  Local authorities 3.7  A local authority may be a partner1. 1 Jones v Secretary of State for Wales (1974) 28 P & CR 280, CA.

(g)  Scottish firms 3.8  A Scottish firm is a legal person distinct from the partners of whom it is composed1, and it may therefore be a member of an English firm2. 1 See the Partnership Act 1890, s 4(2), which is printed in Appendix A below. 2 It follows that if an individual is a member of an English firm and the other member is a Scottish firm, the individual is not a member of the Scottish firm: Mortgage Express Ltd v Dunsmore Reid & Smith (6 December 1996, unreported), Ct of Sess.

59

3.9  Capacity

(h)  Trustees and personal representatives 3.9  If personal representatives or trustees sign a partnership agreement or otherwise embark upon trading they will make themselves liable as partners, and the mere fact that they describe themselves as acting ‘as trustees’ in the partnership agreement will not absolve them from personal liability1. By contrast if their capacity is merely that of representatives of a dead partner and recipients of his profit share, they are not carrying on the partnership business in common with the other partners and are consequently not partners2. Nor are they partners if they are executors who carry on the business of a dead sole trader3. Whether trustees can bind their beneficiaries by acting as partners will depend upon the terms of their trust deed: without specific authorisation they may not. The status of a partnership share held upon trust is considered at para 10.20 below. 1 Muir v City of Glasgow Bank (1879) 4 App Cas 337. 2 Holme v Hammond (1872) LR 7 Exch 218. See also para 2.19 above. 3 Re Fisher & Sons [1912] 2 KB 491. Unfortunately Phillimore J did not call upon counsel for the executors, but himself dismissed the claim against them in a judgment of only seven lines, so his reasoning is a little obscure.

(i)  Women (married or not) 3.10  No legal disadvantage against women survives1 and discrimination within a partnership on grounds of sex is unlawful2. For a lender to be married to a partner is disadvantageous because the lender ranks behind the other creditors as mentioned in Chapter 23. Marriage as a status is contrasted with partnership above3. 1 For the old law see Lamphir v Creed (1803) 8 Ves 599. 2 See Chapter 13. 3 See para 2.58 above.

B  Those who may lack capacity to be partners 3.11  The following do (or may) suffer a degree of incapacity which is discussed in the following pages.

(a) Bankrupts 3.12  See para 3.29 below. 60

Those entities and persons that have capacity to be partners 3.17

(b) Barristers 3.13  Barristers are legally capable of entering into partnerships although their Code of Conduct restricts the propriety of their doing so1, though it is now possible for a barrister to act as manager or employee of an authorised ‘recognised body’, which can include an LLP or partnership. 1 See the Courts and Legal Services Act 1990, s 66(5) and ‘Barristers Chambers’ discussed at para 2.43 above.

(c) Clergymen 3.14  The Statute Law (Repeals) Act 2004 repealed the former restriction on a clergyman holding office from trading1 save as a schoolmaster or as a manager, director, partner or shareholder in any benefit society or fire or life assurance society2 without licence of his bishop granted after consultation with the parochial church council3. A partnership with a clergyman in breach of these provisions was illegal4. 1 See the Trading Partnerships Act 1841, s 1 (repealed). 2 See the Pluralities Act 1838, ss 29 and 30. No doubt the restriction did not extend to such a fishing partnership as was carried on by St Peter with the sons of Zebedee: Luke 5 v 10. 3 See the Clergy (Ordination and Miscellaneous Provisions) Measure 1964, s 11. 4 Although contracts made with the clergyman himself were not void: the Trading Partnerships Act 1841, s 1; Lewis v Bright (1855) 4 E & B 917.

(d)  Disqualified company directors 3.15  See para 3.28 below.

(e) Drunks 3.16  See para 3.25ff below.

(f)  English firms 3.17  An English firm, not being a legal person, cannot be a partner1, in contrast to a Scottish partnership mentioned above. 1 Jai Dayal Madan Gopal (1932) ILR 54 All 846 (India).

61

3.18  Capacity

(g)  Foreign enemies 3.18  A partnership with an ‘enemy alien’, which means a subject of a country with which Britain is at a declared state of war, is illegal1, as discussed in Chapter 4. 1 Hugh Stevenson & Sons Ltd v AG für Cartonnagen-Industrie [1918] AC 239, HL.

(h)  Mental patients 3.19  See para 3.25ff below.

(i) Minors 3.20  See para 3.22 below.

(j)  Professionals who are disqualified 3.21  The effect of a member of a professional firm being disqualified or unqualified is discussed in Chapter 4.

2 MINORS A The minority of a partner   3.22 B Affirmation of the partnership   3.23 C Judgment and execution   3.24

A  The minority of a partner 3.22  An individual under the age of 18 years1 cannot contract business debts2 or face bankruptcy on them3. He can become a partner4 with a right to profits5 and power to bind the firm, but he can disaffirm the partnership relationship at any time until after he attains his majority6 and the fact that it has been held for him by a nominee will make no difference. He cannot be liable for his proposed contribution to capital7 or for firm debts incurred during his minority8 save as mentioned below. His adult partners alone are liable for them, even if it was he that bound the firm by them; they cannot evade liability merely because he is a minor9. But he is liable for his own wrongs10, though not for fraud in misrepresenting that he is an adult; such representation will not be implied merely from his carrying on trade11. Nor 62

Minors 3.24

will a claim against him in tort succeed if it is essentially of a contractual nature12. He cannot take a share in the profits and assets whilst rejecting the liability; so the adult partners can insist that the partnership assets are applied in discharging the partnership liabilities before anything is paid to the minor13. If the minor has acquired any property either from his partners or from an outsider, the court may require him to transfer it back or the property representing it if it is just and equitable to do so14.   1 See the Family Law Reform Act 1969, s 1(1).   2 Per Lord Herschell in Lovell & Christmas v Beauchamp [1894] AC 607 at 611.  3 Re A and M [1926] Ch 274.  4 Hawkins v Duché [1921] 3 KB 226.  5 Lovell & Christmas v Beauchamp [1894] AC 607 at 611.  6 Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452.  7 Wright v Tanner (1869) 20 LT 427.  8 Re Lees and Smith (1836) 1 Deac 705; Re A and M  [1926] Ch  274 where all parties were minors.   9 Per Lord Ashbourne in Lovell & Christmas v Beauchamp [1894] AC 607 at 614. 10 Woolf v Woolf [1899] 1 Ch  343; Re Jones, ex p Jones (1881) 18 Ch  D  109; Lemprière v Lange (1879) 12 Ch D 675; Wright v Snowe (1848) 2 De G & Sm 321. 11 R Leslie Ltd v Sheill [1914] 3 KB 607, CA, not following decisions before the Infants Relief Act 1874 such as Re King, ex p Unity Joint Stock Mutual Banking Association (1858) 3 De G & J 63, and reviewing the earlier authorities. 12 R Leslie Ltd v Sheill [1914] 3 KB 607, CA. 13 Lovell & Christmas v Beauchamp [1894]  AC  607; London and North Western Rly Co v M’Michael (1850) 5 Exch 855; Burgess v Merrill (1812) 4 Taunt 468. 14 See the Minors’ Contracts Act 1987, s 3.

B  Affirmation of the partnership 3.23  On attaining his majority the minor must elect to affirm or disaffirm the partnership1, but if he disaffirms he can only recover a premium2 that has been paid for his entry into the partnership if there has been a total failure of consideration3. If he fails to disaffirm he will be liable for partnership debts and obligations not incurred during his minority but incurred thereafter4. As against his partners, however, if he affirms he cannot claim the profits without sharing the losses also5. 1 Goode v Harrison (1821) 5 B & Ald 147. 2 The recovery of premiums is discussed in para 18.62 below. 3 Hamilton v Vaughan-Sherrin Electrical Engineering Co [1894] 3 Ch 589; Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452; Pearce v Brain [1929] 2 KB 310; Everett v Williams (1874) 29 LT 846; Corpe v Overton (1833) 10 Bing 252. 4 Goode v Harrison (1821) 5 B & Ald 147. 5 Ebbetts’ Case (1870) 5 Ch App 302; North Western Rly Co v M’Michael (1850) 5 Exch 114.

C  Judgment and execution 3.24  Judgment against a minor partner cannot be obtained for a firm debt. Judgment against a firm which has a minor partner as a member must 63

3.25  Capacity

specifically exclude him1, the judgment being against ‘Smith & Co, other than J Brown a minor partner’, and is enforceable only against the assets of the firm or (with leave) against the other partners2. 1 Lovell & Christmas v Beauchamp [1894]  AC  607; Harris v Beauchamp Bros [1893] 2 QB 534; Re Toper (1920) 89 LJKB 477. 2 See para 21.38ff.

3 MENTAL INCAPACITY: DEMENTIA, MADNESS AND DRUNKENNESS A The partner mentally incapable when commencing partnership   3.25 B Patients of the Court of Protection   3.26 C Loss of mental capacity during the course of the partnership   3.27

A The partner mentally incapable when commencing partnership 3.25  A partnership entered into by a person who lacks mental capacity is not void. It is enforceable by him against his partners1. If they seek to enforce it against him, it is voidable at his instance only if the other parties were aware of the fact of the incapacity when they entered into the agreement with him2. The test of incapacity is whether the partner is incapable of making a decision in relation to it because of an impairment or a disturbance in the functioning of his mind or brain3, a question which depends upon the circumstances of the case4. If they were unaware of the incapacity then the partnership is binding upon him: The validity of a contract entered into by a lunatic who is ostensibly sane is to be judged by the same standards as a contract by a person of sound mind, and is not voidable by the lunatic or his representatives by reason of ‘unfairness’5.

If the partnership agreement is voidable by him in these circumstances it may be ratified by words or conduct6 or the Court of Protection has power to direct that the partnership be carried into effect and to give consequential directions7. The Court of Protection may no longer exercise its former power to dissolve the partnership under section 96(1)(g) of the Mental Health Act 1983,8 but on the partner’s behalf may only take a decision in relation to dissolution for him.This is discussed at para  17.10 below. Dissolution presupposes that the partnership agreement was valid in the first place. Quite separate is the right of any other member of the firm to petition for its dissolution on the grounds of his incapacity under section  35(b) of the Partnership Act 1890: see Chapter 17. 64

Mental incapacity: dementia, madness and drunkenness 3.27 1 Jones v Noy (1833) 2 My & K 125. 2 Imperial Loan Co v Stone [1892] 1 QB 599; Molton v Camroux (1848) 2 Exch 487; affd (1849) 4 Exch 17. A voluntary document given by a patient of the Court of Protection for no consideration is wholly void (Re Marshall [1920] 1 Ch 284), but for a partnership agreement there is always consideration. 3 Mental Capacity Act 2005, s 2(1); Jenkins v Morris (1880) 14 Ch D 674; Scott v Wise (1986) 2 NZLR 484, CA. 4 Manches v Trimborn (1946) 115 LJKB 305. 5 Per Lord Brightman giving the judgment of the Privy Council in Hart v O’Connor [1985] AC 1000 at 1027G. 6 Matthews v Baxter (1873) LR 8 Exch 132, a case of drunkenness. 7 See the Mental Capacity Act 2005, s 18(1)(f), replacing the Mental Health Act 1983, s 96(1) (h). 8 See Re Plenderleith [1893] 3 Ch 332; Re Seager Hunt [1906] 2 Ch 295.

B  Patients of the Court of Protection 3.26  It was formerly said that after proceedings have been taken to subject the affairs of the person concerned to the jurisdiction of the Court of Protection, any contract entered into by him would purportedly interfere with the powers of control and management vested in the court, and consequently must be void1. This view was always questionable. Now that the Mental Capacity Act 2005 establishes that mental capacity is to be decided according to the function in question, the position must be the same whether he is a ‘patient’ of the Court of Protection or any other mentally disordered person. 1 Re Marshall [1920] 1 Ch 284 following Re Walker [1905] 1 Ch 160, but neither of those cases was concerned with transactions by the patient of a purely contractual nature.

C Loss of mental capacity during the course of the partnership 3.27  If in a validly constituted partnership one member loses mental capacity, this may be grounds for a dissolution by the court1, and a well-drawn partnership agreement provides for the eventuality. But until dissolution his rights, duties and liabilities as a partner continue2 as long as his capability allows, and an ordinary partnership notice served upon him will be valid even if he cannot understand it3, even though he is incapable of serving one himself4. A deputy appointed by the Court of Protection may (if specially authorised) exercise his rights on his behalf5; see para  10.24 below for Enduring and Lasting Powers of Attorney. The court will intervene to protect his partnership interest6 or to prevent his interfering with the management so as to injure the business or assets of the firm7. Conversely his partners may be restrained from excluding him from the business if he has been mentally incapable but is recovering8. 1 See Chapter 17.

65

3.28  Capacity Sadler v Lee (1843) 6 Beav 324; so he must share the firm’s liabilities. Robertson v Lockie (1846) 15 Sim 285. Dibbins v Dibbins [1896] 2 Ch 348. Dibbins v Dibbins [1896] 2 Ch 348; see the Mental Capacity Act 2005, ss 16 and 18. Jones v Lloyd (1874) LR 18 Eq 265. J v S [1894] 3 Ch 72; for restraint on a managing partner see Waters v Taylor (1813) 2 Ves & B 299. 8 Re Anon (1856) 2 K & J 441. 2 3 4 5 6 7

4 DISQUALIFICATION, BANKRUPTCY AND INSOLVENCY A Disqualification under the Company Directors Disqualification Act 1986  3.28 B A partner’s bankruptcy   3.29 C Solicitors’ practising certificates   3.30

A Disqualification under the Company Directors Disqualification Act 1986 3.28  Previous editions of this work suggested that a partner will be disqualified from taking an active part in a firm if a company director’s disqualification order is made against him1. The authors have revised their view2. Although a disqualification order under the Company Directors Disqualification Act 1986 may be made against the member of a firm which has been wound up as an unregistered company under Part V of the Insolvency Act 19861, the order will only bar the member from being a director or otherwise involved in the promotion or management of a company. For these purposes a ‘company’ bears its usual meaning and does not include a firm3. The Limited Liability Partnerships Act 2000, which is discussed in Chapter  25, also incorporates the Company Directors Disqualification Act 1986 with appropriate amendment, and the effect of that legislation is discussed in greater detail there. 1 See article  16 of, and Schedule  8 to, the Insolvent Partnerships Order 1994. Article  16 provides: ‘Where an insolvent partnership is wound up as an unregistered company under Part V of the [Insolvency] Act, the provisions of [certain sections] of the Company Directors Disqualification Act 1986 shall apply …’. 2 The difficulties with the analysis in previous editions was pointed out, inter alia, by Berry & Parry in Law of Insolvent Partnerships and Limited Liability Partnerships (2015), section 6.32. 3 There is nothing in the Insolvent Partnerships Order 1994 which amends or alters the meaning of ‘company’ in section 1 of the Company Directors Disqualification Act 1986; indeed, that section is applied (unamended) by article 16 of that Order.

66

Disqualification, bankruptcy and insolvency 3.30

B  A partner’s bankruptcy 3.29  Bankruptcy does not disqualify a person from being a partner but puts him under many practical disadvantages. The bankruptcy of any of the partners (which is discussed generally in Chapter  22) will lead to the dissolution of the firm1 unless the partnership agreement provides otherwise. It may provide that a bankrupt partner will continue to be a partner, perhaps until the other partners serve upon him notice to retire. The problems for them will be these: (a) his share will have vested in his trustee in bankruptcy, to whom his interest in profits must be paid; (b) any professional body of which he is a member may restrict his right to practise (for solicitors, see para 4.11 below); (c) neither he nor his firm may obtain credit, hire purchase or payment in advance to the extent of £500 or more2 without informing the person from whom it is obtained that he is an undischarged bankrupt3; (d) he may not engage directly or indirectly in any business under a name other than that in which he was adjudged bankrupt without disclosing to all persons with whom he enters into any business transaction the name in which he was so adjudged4. 1 2 3 4

See Chapter 16. See the Insolvency Proceedings (Monetary Limits) (Amendment) Order 2004. See the Insolvency Act 1986, s 360(1), (2) and (4). See the Insolvency Act 1986, s 360(1)(b).

C  Solicitors’ practising certificates 3.30  A solicitor’s practising certificate is automatically suspended if he is adjudicated bankrupt1, with the consequence that he may not practise as a solicitor. But this will not of itself bar him from remaining a sleeping or limited partner in the firm. The suspension ends if the Office for the Supervision of Solicitors restores it even during the course of the bankruptcy2, or if the bankruptcy is annulled3. A solicitor who enters into an individual voluntary arrangement is liable to have an immediate condition imposed upon his certificate4, and it is the view of the Office for the Supervision of Solicitors that a partnership voluntary arrangement under the Insolvent Partnerships Order5 has the same effect6. 1 2 3 4 5 6

See the Solicitors Act 1974, s 15(1). See the Solicitors Act 1974, s 16(3). See the Solicitors Act 1974, s 16(2). See the Solicitors Act 1974, s 13A(2)(c). See para 22.72 below. See Ian Stevens Law Society Gazette 93/95 (25 September 1996).

67

4 Illegality Contents

para 1 Firms that are illegal A Common law illegality�����������������������������������������������������������������4.1 B Statutory illegality������������������������������������������������������������������������4.2 C Fraud and other tort, champerty, corruption, immorality and gambling��������������������������������������������������������������������������������������4.3 D Foreign relations��������������������������������������������������������������������������4.8 E Anti-competitive practice: English and European law�������������������4.9 F Unqualified and disqualified professionals����������������������������������4.11 G Former restriction on firms of more than 20 members���������������4.12 H Financial regulation��������������������������������������������������������������������4.13 2 The effect of illegality A The effect generally��������������������������������������������������������������������4.14 B The relations of outsiders with an illegal firm�����������������������������4.17 C Illegality causes immediate dissolution���������������������������������������4.20 D Enforcement of rights between partners�������������������������������������4.21 E The illegality abandoned������������������������������������������������������������4.24

1  FIRMS THAT ARE ILLEGAL A Common law illegality   4.1 B Statutory illegality  4.2 C Fraud and other tort, champerty, corruption, immorality and gambling  4.3 D Foreign relations  4.8 E Anti-competitive practice: English and European law   4.9 F Unqualified and disqualified professionals   4.11 G Former restriction on firms of more than 20 members   4.12 H Financial regulation  4.13 69

4.1  Illegality

A  Common law illegality 4.1  Where the purpose of the joint venture is to commit a crime, the court will not enforce the rights of any partner against another. The classic authority for this is Everet v Williams, the highwaymen’s case1. Fraud and other torts are discussed in para 4.3 below. Although the arrangement will not be enforced, property that has passed under an illegal partnership may be recovered in the circumstances mentioned later in this chapter. Conversely a partner may not seek from his partnership a payment that he has made on its behalf if he has to rely upon the illegality as a basis for his claim2. 1 (1725) 68 LJQB 549, and apparently first noted in the European Magazine for May 1787 (vol i, 360). William David Evans in his translation of Pothier on Obligations (London, 1806) noted the facts of the case at p  3 but disbelieved them as ‘a tradition’. The view in the nineteenth century was that the case was fanciful, until in 1893 Sir Frederick Pollock in LQR vol ix (1893), no 33, p 197 repented of his previous scepticism (p 105) and obtained and published the original Orders from the Public Record Office. The original bill was in the Equity side of the Exchequer, and is phrased in the language of euphemism. It recited an oral agreement and that the plaintiff was ‘skilled in dealing in several sorts of commodities’. The parties ‘dealt with several gentlemen for divers watches, rings, swords, canes, hats, cloaks, horses, bridles, saddles, and other things to the value of £200 and upwards’, at Bagshot, Salisbury, Hampstead and elsewhere, and the plaintiff prayed for discovery and an account and general relief touching and concerning the partnership. The Orders show that the bill was held scandalous and impertinent; counsel who signed the bill was ordered to pay the defendant’s full costs; the plaintiff’s two solicitors were ordered to pay a fine of £50 apiece, and committed to the Fleet prison until they paid. The European Magazine report also alleges that the defendant was hanged at Maidstone in 1727; the plaintiff at Tyburn in 1730, and that one of the solicitors was condemned for robbing a doctor in 1735, but was reprieved and sentenced to transportation. 2 See para 4.3 below.

B  Statutory illegality 4.2  All firms and other business organisations are subject to statutory regulation on a massive scale, much of it enforced with criminal sanctions; the position of disqualified professionals is discussed later in this chapter. If the activity prohibited by the statute is the very purpose of the partnership then the partnership is illegal1; where, however, the intention of the statute is not to prohibit the activity but to regulate the manner in which it is carried out, the courts have been content to call the activity rather than the firm itself unlawful2. This is a matter of statutory interpretation3 and public policy4. An obligation upon a partner to comply with a regulatory matter does not of itself form an actionable obligation upon him to his firm, but it may give him authority to do the act if otherwise he has no such authority5. A case of unlawful insurance contracts was considered by the Court of Appeal in Phoenix General Insurance Co of Greece v Halvanon Insurance Co Ltd6 where Kerr LJ observed7: Where a statute prohibits both parties from concluding or performing a contract when both of them have no authority to do so, the contract is

70

Firms that are illegal 4.2 impliedly prohibited: Re Mahmoud and Ispahani8 and its analysis by Pearce LJ in Archbolds (Freightage) Ltd v S Spanglett Ltd9 with which Lord Devlin agreed. But where a statute merely prohibits one party from entering into a contract without authority, and/or imposes a penalty upon him if he does so (ie a unilateral prohibition), it does not follow that the contract itself is impliedly prohibited so as to render it illegal and void. Whether or not the statute has this effect depends upon considerations of public policy in the light of the mischief which the statute is designed to prevent, its language, scope and purpose, the consequence for the innocent party, and any other relevant considerations.

The old cases on statutory illegality are stern. In De Begnis v Armistead10 the defendant owned a theatre which lacked the statutory licence. The plaintiff, with whom he had agreed to share profits, paid the costs of the costumes, but his claim for the cost failed because of the illegality of the venture. In Law v Dearnley11 a butcher had placed bets with a bookmaker on behalf of a farmer, and ran into loss. The farmer agreed the computations but refused to pay the butcher on the grounds that their arrangement was illegal under the Gaming Acts. This unattractive argument was accepted by Tucker LJ12 in these words: It is the duty of this court to see that actions which are in reality actions in respect of betting transactions, which are betting transactions only but which are given the guise of legitimate transactions by being described as accounts stated, should not be allowed to continue.

In Shaw v Shaw13 the court refused relief to a plaintiff who was seeking repayment of money he had paid contrary to exchange control requirements14. Today the law may take a less harsh line. A breach of a firm’s obligations under the Companies Acts will not usually lead to the firm itself being held illegal. In SCF Finance Co Ltd v Masri (No 2)15 the plaintiffs were financial dealers who took a deposit from a defendant and after trading sued him for the deficit. He claimed that their activity was deposit-taking and was illegal under the Consumer Credit Act 1974. The argument was rejected but the Court of Appeal opined that even if the activity had been unlawful, the plaintiffs would still have succeeded in their claim; Slade LJ (giving the judgment of the court) held that the legislation made plain that: … the respective rights and remedies of the parties under the ordinary law of contract should not be affected even though a deposit had been taken in contravention of the section16.

Section  170(1) of the Consumer Credit Act 1974 provides that failure of a partner to comply with the licensing requirements of the Act does not render the firm illegal. The statutes and orders regulating financial services17 unfortunately do not deal with the question, but the likely answer is that a firm carrying on an activity which is prohibited or unauthorised by the FCA is illegal. A joint venture trading in breach of a regulation prohibiting certain trade with Iran was held to be illegal18.   1 See for instance the prohibition on collective investment schemes unless they are registered (discussed at para  20.3 below) and Mohamed v Alaga & Co [2000] 1  WLR  1815 where

71

4.3  Illegality the Court of Appeal held void a fee-sharing scheme that was illegal under the Solicitors Act 1974, s 31(1), and Continental Bank Leasing Corp v Canada (1998) 163 DLR (4th) 385, SC of Canada.  2 Smith v Anderson (1880) 15 Ch  D  247. See also Sharp v Taylor (1849) 2 Ph 801; R  v Whitmarsh (1850) 15 QB 600; Re One and All Sickness and Accident Assurance Association (1909) 25  TLR  674; St John Shipping Corpn v Joseph Rank Ltd [1957] 1  QB  267. Thus a money-lending company that breached statutory restrictions was not illegal: Macnee v Persian Investment Corpn (1890) 44 Ch D 306; cf its loans: Re Charles Taylor (London) Ltd (1916) 86 LJ Ch 49.  3 Barclay v Pearson [1893] 2 Ch  154, 167–8; Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410, High Court of Australia.  4 Phoenix General Insurance Co of Greece SA v Halvanon Insurance Co Ltd [1988] QB 216, CA.  5 Zeckler v Assigned Risk Pool Manager (2013) App Ref Ch/2011/0606 (N  Strauss QC), [2012] EWHC 3591 (Ch).   6 [1988] QB 216.   7 [1988] QB 216 at 273.   8 [1921] 2 KB 716.   9 [1961] 1 QB 374. 10 (1833) 10 Bing 107. 11 [1950] 1 KB 400. 12 [1950] 1 KB 400 at 416. 13 [1965] 1 WLR 537. 14 This was a case in which both parties were involved in the illegality. By contrast, in Shelley v Paddock [1980] QB 348, the Court of Appeal allowed a claim in fraud to succeed by one who had paid a deposit for a house in Spain, ignorant that such an agreement was illegal under the exchange control provisions; but the reasoning of the court was not that the agreement was not illegal, but that the parties were not in pari delicto and the principle of public policy against the innocent plaintiff did not apply. 15 [1987] QB 1002, approving Alberg v Chandler (1948) 64 TLR 394. 16 [1987] QB 1002 at 1026C. See also Dodge v Eisenman (1985) 23 DLR (4th) 711. 17 Under the Financial Services and Markets Act 2000 which, since it affects limited partnerships more than ordinary partnerships, is discussed at para 24.35 below. 18 Shanshal v Al-Kishtaini [2001]  EWCA  Civ 264, [2001] 2  All ER (Comm) 601, following Royal Boskalis Westminster v Mountain [1999] QB 674.

C Fraud and other tort, champerty, corruption, immorality and gambling (a)  Fraud and other tort 4.3  A partnership or other agreement to commit a fraud or other tort is unenforceable, as is any agreement contemplating civil injury to third persons1, such as the perpetration of a fraud on the bankruptcy laws2, so a partnership for the dissemination of libels is illegal3. Where the purpose of a venture was to purchase shares at a premium to induce the public to believe that there was a real market for shares whereas in fact there was not, the arrangement was held illegal and unenforceable4, as it was where the intention of the partnership was to produce a play without the then requisite licence of the Lord Chamberlain5. An arrangement intended to defraud anyone, for instance HMRC6 or creditors7, is illegal. But a payment by a partner for the purchase of partnership property which was made in cash at the request of a vendor who probably wanted to evade tax, is not so tainted that the partner cannot 72

Firms that are illegal 4.4

claim repayment from the firm for his expenditure; he does not have to rely upon the illegality to assert his claim8. Pleading illegality is discussed at para 4.16 below. Per Lord Dunedin in Farmers’ Mart Ltd v Milne [1915] AC 106 at 113. See note 1 above. Apthorp v Nevill & Co (1907) 23 TLR 575. Scott v Brown, Doering, McNab & Co [1892] 2 QB 724. Ewing v Osbaldiston (1837) 2 My & Cr 53; De Begnis v Armistead (1833) 10 Bing 107. See also Ybasco v Dakas (1948) 51  WALR  22 (Aust) where an alien (disqualified thereby by statute from engaging in the pearl industry) claimed unsuccessfully to be a partner in a pearling firm. 6 Hall v Woolston Hall Leisure Ltd [2001] 1 WLR 225, followed in Payne v Enfield Technical Services [2008] EWCA Civ 393 where an employment contract was said to be illegal because the parties had claimed to HMRC that there was no employment. For the effect of this, see para 4.22 below. 7 See Scott LJ in Rowan v Dann (1991) 64 P & CR 202, CA following Millett J at first instance. 8 Miah v Islam [2010]  EWHC  1569 (Ch), Judge Purle, citing Tinsley v Milligan [1994] 1 AC 340, but see now Patel v Mirza [2017] AC 467 considered in para 4.21 below. 1 2 3 4 5

(b) Champerty 4.4  A champertous arrangement between a litigant and another (usually his solicitor) for the provision of funds or support for litigation is no longer a crime1 but is usually2 void as contrary to public policy3. The test is whether there is ‘officious intermeddling with the disputes of another in which the meddler has no interest’, or whether he does in fact have an interest in the claim4. A solicitor who sought to raise the champertous nature of his own retainer as a defence to a claim for an account of the fees he had been paid in Re Thomas5 received a sharp rebuke from the Court of Appeal, which invoked against him his duty as an officer of the court, and caused Lindley LJ to enquire: Is every rascally solicitor to invoke his own rascality as a ground of immunity from the jurisdiction of the Court?6

Under Chapter  9 of the Solicitors’ Code of Conduct 2011, the former prohibition on fee-sharing is relaxed and such fee-sharing is permitted provided the solicitor ensures that certain ‘outcomes’ are achieved, including the provision of information about the arrangement to the client, the protection of the client’s interests and the maintenance of the solicitor’s independence. The payment of contingency fees is only lawful as permitted by statute7, and otherwise is generally unlawful as against public policy. This will be the case where a contingency fee is being paid to a witness but not necessarily if it is being paid to one who is helping with the back-up of litigation8. 1 See the Criminal Law Act 1967, Sch 4, subsequently itself repealed. 2 See the Courts and Legal Services Act 1990, s  58, which legalised certain conditional fee agreements. 3 Hughes v Kingston upon Hull City Council [1999] QB 1193; Re Trepca Mines Ltd (No 2) [1963] Ch 199.

73

4.5  Illegality 4 Crittenden v Bayliss [2002] All ER (D) 92 (Jan), applying Giles v Thompson [1994] 1 AC 142 and not following Awwad v Geraghtly & Co [2001] QB 570. 5 [1894] 1 QB 747. 6 [1894] 1 QB 747 at 749. 7 See the Access to Justice Act 1999, ss 27–28. 8 R (on the application of Factortame) v Secretary of State for Transport (No 2) [2002] EWCA Civ 932, [2002] All ER (D) 41 (Jul).

(c) Corruption 4.5  A partnership in the profits of (inter alia) a government office is not necessarily illegal1, but one that tends to induce the officer to act in a certain way will be2, and a partnership in the profits of a government contract will be if it amounts to a fraud on the government3. An agreement for the share of profit between a contractor and a civil servant supervisor of the works is illegal4. 1 2 3 4

Sterry v Clifton (1850) 9 CB 110 and see para 11.31 below. Hughes v Statham (1825) 4 B & C 187. Osborne v Williams (1811) 18 Ves 379. Noble v Maddison (1912) 12 SRNSW 435.

(d) Immorality 4.6  A partnership in prostitution or its furtherance is illegal1 but not if the purpose is for immorality2 of a slighter nature. Then the question is one of degree. The Court of Appeal has held that a contract for facilitating live oneto-one sex conversations on the telephone was not illegal under this head3. The courts were once more ready than today to declare illegal a firm which existed for a purpose which is offensive rather than illegal, for instance one formed to exhibit a human freak4, but such firms may be wound up on the petition of the Department for Business, Innovation & Skills under the ‘Just and equitable’ principle discussed in Chapter 225. 1 Pearce v Brooks (1866) LR 1 Exch 213; Hamilton v Grainger (1859) 5 H & N 40. 2 Which here always means sexual immorality. 3 Armhouse Lee Ltd v Chappell (1996) Independent, 26 July. Simon Brown LJ was at pains to dissociate himself from any enthusiasm for the activities in question. 4 Herring v Walround (1682) 2 Cas in Ch 110. 5 Re Senator Hanseatische Verwaltungsgesellschaft mbH [1996] 4 All ER 933 was a case in which the activities in question were undesirable rather than illegal.

(e) Gambling 4.7  Under the Gaming Act 1845 all gaming and wagering contracts (other than those regulated by the Financial Services and Markets Act 20001) were void although not necessarily illegal. Under the Gambling Act 2005 the mere 74

Firms that are illegal 4.8

fact that a contract relates to gambling does not prevent its enforcement2, although some forms of gambling contracts need to be licensed in order to be enforceable3. The following principles emerge: (a) a partnership to carry on lawful betting or gambling is not illegal4; where it involves unlawful betting, it is illegal at common law5. There is no illegality in bookmaking if licensed6, and a sleeping or limited partner in a bookmaking partnership does not need a licence7; (b) to promote a lottery other than as licensed under the Gambling Act 2005 is illegal8, and the word ‘lottery’ has been given a wide meaning9; (c) the court will not order an account to be taken between the parties to a void gambling contract themselves10, but there is no objection to an account of profits being taken between the partners of a lawful bookmakers’ firm or football pool consortium11.   1 Section 412 provided that a contract was not void or unenforceable if it was entered into by each party by way of business and was ‘specified’ by the Treasury.   2 Section 335(1) of the Gambling Act 2005.   3 For example, lotteries (other than exempt lotteries), as referred to below.  4 Jeffrey v Bamford [1921] 2 KB 351.  5 Jeffrey v Bamford [1921] 2 KB 351; Thwaites v Coulthwaite [1896] 1 Ch 496; but contrast Hyams v Stuart King [1908] 2 KB 696 at 718, CA; O’Connor and Ould v Ralston [1920] 3 KB 451; and Dungate v Lee [1969] 1 Ch 545. This also becomes a question of statutory construction; see Law v Dearnley [1950] 1 KB 400, and para 4.2 above.   6 See the Gambling Act 2005, s 33(2).  7 Dungate v Lee [1969] 1 Ch 545. See also Harvey v Hart [1894] WN 72.   8 See the Gambling Act 2005, s 258, replacing the National Lottery etc Act 1993, s 2(1). Other lotteries which are not ‘gaming’ are unlawful.  9 Russell v Fulling QBD (NLC 2990814302) (1999) Times, 23 June; Re Senator Hanseatische Verwaltungsgesellschaft mbH [1996] 4 All ER 933; DPP v Phillips [1935] 1 KB 391; Barnes v Strathern 1929 JC 41. 10 Thomas v Dey (1908) 24  TLR  272; Morgan v Ashcroft [1938] 1  KB  49, in which a bookmaker failed in a claim that he had overpaid a client; Hyams v Stuart King [1908] 2 KB 696; Brookman v Mather (1913) 29 TLR 276; and Keen v Price [1914] 2 Ch 98. 11 Thwaites v Coulthwaite [1896] 1 Ch 496; Dungate v Lee [1969] 1 Ch 545; Stevens v White (1938) LJ NCCR 356.

D  Foreign relations 4.8  A partnership between a British citizen and an enemy alien is illegal1, unless licensed by the Crown2 but ‘enemy alien’ postulates a formal state of war with the Sovereign of England3, which today is very rare4. The inability of an ‘enemy alien’ to be a partner is discussed at para 3.18 above. A partnership for purposes which are illegal or contrary to public policy in the place where they are to be performed is illegal in England if the infringement is of the substantive law rather than the revenue laws of the foreign country5. As Lawrence LJ observed in Foster v Driscoll6 a partnership purposing to ship whisky to the United States of America contrary to the prohibition laws: 75

4.9  Illegality … would be contrary to our obligation of international comity as now understood and recognised, and therefore would offend against our notions of public morality.

The decision in Re Grazebrook7 that a partnership in blockade-running was not illegal, is doubtful authority today. 1 Rodriguez v Speyer Bros [1919]  AC  59. In R  v Kupfer [1915] 2  KB  321 Lord Reading observed at 338: ‘It is impossible for the relationship of partners to subsist, at any rate during the war’. He took the view that the moment the partnership became illegal it was dissolved (per Waller LJ in Hudgell Yeates & Co v Watson [1978] QB 451 at 466). 2 V/O Sovfracht v Van Udens Scheepvaart en Agentuur Maatschappij [1943] AC 203 at 218. 3 Porter v Freudenberg [1915] 1 KB 857 at 867; Amin v Brown [2005] EWHC (Ch) 1670. 4 The last time that the UK declared war was in 1942, against Siam. Lawrence Collins J rejected the contention that the invasion of Iraq was ‘war’ in Amin v Brown [2005] EWHC (Ch) 1670 and held that the question of whether there was a state of war was a technical one reserved for the executive. 5 Brown v Duncan (1829) 10  B & C  93 (‘mere revenue regulations’); Foster v Driscoll [1929] 1 KB 470, CA; Lemenda Trading Co Ltd v African Middle East Petroleum Co Ltd [1988]  QB  448 following Foster v Driscoll [1929] 1  KB  470 and Regazzoni v K  C Sethia (1944) Ltd [1958] AC 301; see also EC Art 10 (formerly Art 16 of the Treaty of Rome). In Biggs v Lawrence (1789) 3 Term Rep 454 a partnership agreement based upon smuggling abroad was not enforced by the court. See also Euro-Diam Ltd v Bathurst [1990] 1 QB 1 at 17, where Staughton J considered the phrase ‘tainted with illegality’. 6 [1929] 1 KB 470 at 510. 7 (1865) 4 De GJ & Sm 655; similarly Biggs v Lawrence (1789) 3 Term Rep 454 and Clugas v Penaluna (1791) 4 Term Rep 466 must now be regarded with scepticism.

E Anti-competitive practice: English and European law (a)  English law 4.9  Section  2 of the Competition Act 1998 prohibits agreements between undertakings (which will include corporate and other partners) which prevent, restrict or distort competition. A partnership is illegal at common law if its purpose is to cause the control of a trade or industry to pass into the hands of a group of individuals and thereby enhance prices unreasonably1. A firm is not illegal merely because some of its partners are in breach of their covenants with an outsider not to compete with him or to be restricted in trade in some other way. If such a covenant is valid it will be enforceable by the outsider against the partner concerned which may have repercussions on the firm. Also such covenants in restraint of trade are prima facie void at common law; that is, where: … a party agrees with any other party to restrict his liberty in the future to carry on trade with other persons not parties to the contract in such manner as he chooses2.

76

Firms that are illegal 4.11

But such restraints are valid if they satisfy the test of reasonableness, namely they are both no more than necessary to protect the interests of the covenantee and not against the public interest. If such covenants are made between partners during the pendency of the partnership they will be valid as between the partners3; those binding ex-partners may also be and are considered in Chapter 18. But such covenants may yet be void as not in the public interest, for instance because they are monopolistic4 or in breach of the provisions of the Competition Acts 1980 and 1998. 1 North-Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1913] 3 KB 422, CA, reversed on other grounds [1914] AC 461, HL. How far the doctrine has been replaced by Community law was discussed in Days Medical Aids Ltd v Pihsiang Machinery Manufacturing [2004] EWHC 44 (Comm). A clause in the rules of a co-operative society can be illegal although the society itself is not illegal: McEllistrim v Ballymacelligott Co-operative [1919] AC 548. 2 Per Diplock LJ in Petrofina (Great Britain) Ltd v Martin [1966] Ch 146 as adopted by Lord Hodson in Esso Petroleum Co Ltd v Harper’s Garage (Southport) Ltd [1968] AC 269 at 317. 3 See the obligation of a partner not to compete with the firm in Chapter 11. 4 E Underwood & Son Ltd v Barker [1899] 1 Ch 300 at 305.

(b)  EU law 4.10  A partnership or other joint venture agreement is void1 under Article  81  EC  Treaty if it amounts to an agreement between two or more ‘undertakings’ which might affect trade between member states or have as its object or effect ‘the prevention, restriction or distortion of competition’ within the European Union, as widely defined2. But when two persons become partners they will usually form a single ‘economic unit’3 and so cease to be separate ‘undertakings’. Moreover, exemptions are available under Article 81 and are generous to small and medium-sized undertakings4. 1 So a nullity: First County Garages Ltd v Fiat Auto (UK) Ltd [1997] Eu LR 712; Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd [2004] EWHC 44 (Comm). 2 Formerly Art 85(1) of the Treaty of Rome; discussed in Courage Ltd v Crehan [2002] QB 507, ECJ. 3 Case 22/71 Béguelin Import Co v GL Import Export SA [1971] ECR 949, [1972] CMLR 81. 4 Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd [2004] EWHC 44 (Comm).

F  Unqualified and disqualified professionals 4.11  A lack of personal qualifications may prevent a person from entering into or remaining in certain partnerships. One member’s lack of professional qualifications or certification may render his firm illegal as discussed below. Where statute requires those who practise a profession to be qualified and hold the requisite certificates, a firm comprising members of that profession will be illegal if a member is unqualified1. A distinction must be drawn between that case where the involvement with the firm by the unqualified partner is illegal2 and where it is merely in breach of his professional rules3, for in the latter case the firm itself does not become illegal. Thus a solicitor 77

4.11  Illegality

who practises without a practising certificate4 or in breach of a suspension or condition of practice imposed under section  47 of the Solicitors Act 19745 does not render his firm illegal6, but a person makes it so if he calls himself a solicitor when he is not7. So the lack of professional qualification or certification of a member does not render illegal a firm of accountants8, architects9, those requiring a licence under the Consumer Credit Act 197410, bookmakers11, patent agents12, those conducting a retail pharmacy business13 or nurses, midwives or health visitors14 or bankers15. On the other hand an unqualified medical practitioner will make his firm illegal16, as will a dentist17, vet18, unqualified financial adviser19 and disqualified estate agent20. A firm that itself seeks to qualify to act as a company auditor must comprise exclusively members who are themselves so qualified21, but authorisation under the Financial Services and Markets Act 2000 may be granted to the firm itself and will then pass to successors of the business and new partners22. In each case it will depend upon whether the practice is prohibited by the statute in question which is a question of construction. In Young (M) Associates v Zahid23 the issue was whether a person was a partner. The Court of Appeal held that it evidenced that he was, that if he had not been the firm would have been trading illegally since Rule 13 of the Solicitors’ Practice Rules required each firm to have at least one principal with three years’ post-qualification experience, which only he did. Similarly, a solicitors’ firm becomes illegal where an intervention under Schedule 1 to the Solicitors’ Act 1974 has removed from the partners any power to act in the practice. Lord Wright in Vita Food Products Inc v Unus Shipping Co Ltd24 warned against zeal in calling any contractual relationship void: The rule by which contracts not expressly forbidden by statute or declared to be void are in a proper case nullified for disobedience to a statute is a rule of public policy only, and public policy understood in a wider sense may at times be better served by refusing to nullify a bargain save on serious and sufficient grounds.

Although a lack of professional qualification may sometimes render a firm illegal, there is no illegality if the firm pays part of its profits to an unqualified non-member25 or uses his name in the firm name26.  1 Rose v Dodd [2005] EWCA Civ 957; Hudgell Yeates & Co v Watson [1978] QB 451; Scott v Miller (1859) John 220; Williams v Jones (1826) 5 B & C 108; Edmonson v Davis (1801) 4 Esp 14.   2 As in Hudgell Yeates & Co v Watson, but this part of this decision has been reversed by the legislation relating to solicitors noted below.  3 SCF Finance Co Ltd v Masri (No 2) [1987] QB 1002; St John Shipping Corpn v Joseph Rank Ltd [1957] 1 QB 267, CA. Rules made under the Solicitors Act 1974 have the force of statute: Swain v Law Society [1983] 1 AC 598, and no doubt the same applies to the Code of Conduct which is made under the Courts and Legal Services Act 1990.   4 See the Courts and Legal Services Act 1990, s  66, repealing the Solicitors Act 1974, s  39 which had re-enacted the Solicitors Act 1957, s  23 with which the Court of Appeal had been concerned in Hudgell Yeates (see note 1 above); Martin v Sherry [1905] 2  IR  62; Williams v Jones (1826) 5 B & C 108. A certificate is a requirement of the Solicitors’ Code of Conduct 2011.

78

Firms that are illegal 4.12   5 For the width of the power of the Solicitors’ Disciplinary Tribunal to impose conditions see Camacho v Law Society [2004] EWHC 1673 (Admin).  6 Rose v Dodd (UKEAT/05/17/04/1LB).   7 See the Solicitors Act 1974, s 21. The employment tribunal (at first instance) took a different view in Bower v Stevens [2004] EWCA Civ 496.   8 But if a member of a firm of accountants which is itself qualified to act as an auditor himself ceases to be professionally qualified the whole firm ceases to be qualified: Horner v Hasted (Inspector of Taxes) [1995] STC 766n.   9 Under the Architects Act 1997, s 20(1) only a registered person may carry on business under any style or title containing the word ‘architect’. 10 By the Consumer Credit Act 1974, s 170(1). 11 See the Gambling Act 2005; Dungate v Lee [1969] 1 Ch 545. 12 See the Copyright, Designs and Patents Act 1988, ss 275 and 276. 13 See the Medicines Act 1968, s 69, as amended. 14 See the Nursing and Midwifery Order 2001, SI 2002/253, Article 44(1). 15 See the Financial Services and Markets Act 2000. 16 See the Medical Act 1983, s 46, which prevents recovery of fees by an unqualified medical practitioner. 17 See the Dentists Act 1984, s 41; Hill v Clifford [1907] 2 Ch 236 per Sir John Govell Barnes P at 255. 18 See the Veterinary Surgeons Act 1966, ss 19 and 20. 19 See the Financial Services and Markets Act 2000. See Chapter 24 for a discussion of this under regulation of limited partnerships. 20 See the Estate Agents Act 1979, ss 3 and 7. As to how he may be disqualified see Antonelli v Secretary of State for Trade and Industry [1995] NPC 68, Buxton J. 21 Horner v Hasted [1995] STC 766n. 22 See note 19 above. 23 [2006] EWCA Civ 613. 24 [1939] AC 277 at 293. 25 Candler v Candler (1821) Jac 225 at 231; Bunn v Guy (1803) 4 East 190. 26 Aubin v Holt (1855) 2 K & J 66.

G Former restriction on firms of more than 20 members 4.12  Subject to numerous exceptions, a firm of more than 20 persons that was not registered under the Companies Acts was prohibited by section 716 of the Companies Act 19851 until this restriction was lifted in 20022. As a consequence there is now no restriction on the number of partners in a firm. The old law was that registration turned the association or firm into a company properly so called; the provisions of the Companies Act 1985 would then apply to it and its members, contributories and creditors as if it had been formed under that Act, subject to some minor provisos3. Any association or firm might register4 provided that they either existed before 1862 or were formed after that date under the Companies Acts or other statute or letters patent or ‘being otherwise duly constituted according to law’5. A firm which originally had more than 20 members or grew to exceed that size6 was illegal because of its excess numbers unless it was a limited partnership7 or comprised one of the professional firms listed below. The former limit of ten persons in a banking partnership was abolished in 19798. This form of illegality was distinct from the illegality arising when a member 79

4.13  Illegality

of a professional firm lacked the proper qualifications for that profession, as discussed earlier. The exceptions were in favour of partnerships of certain qualified professionals, for details of whom the interested reader is referred to the second edition of this book. 1 The courts said that they would take no cognisance of a partnership that infringed this rule: Re Padstow Total Loss and Collision Assurance Association (1882) 20 Ch  D  137; Re Thomas (1884) 14  QBD  379; but see below as to the effect of illegality. Instances of associations being held illegal under this provision are Greenberg v Cooperstein [1926] Ch 657; Smith v Anderson (1880) 15 Ch D 247 (at first instance); Jennings v Hammond (1882) 9 QBD 225. 2 Regulatory Reform (Removal of 20 Member Limit in Partnerships etc) Order 2002, SI 2002/3203 which came into immediate effect on 21 December 2002. 3 See the Companies Act 1985, s 689 and Sch 21, para 6. 4 Subject to some statutory exceptions in the Companies Act 1985, ss 680 and 681, which were unlikely to apply to partnerships. 5 See the Companies Act 1985, s 680; R v Registrar of Joint Stock Companies, ex p Johnston [1891] 2 QB 598. 6 Re Thomas, ex p Poppleton (1884) 14 QBD 379. 7 See Chapter  24; the Limited Partnerships Act 1907, s  4(2) and the Companies Act 1985, s 717. 8 See the Banking Act 1979, s 46.

H  Financial regulation 4.13  Professional firms which do not carry on mainstream investment business may carry on regulated activities in the course of other work such as conveyancing, corporate, matrimonial, probate and trust work. Firms of solicitors which meet certain conditions can be treated as exempt professional firms and carry on activities known as exempt regulated activities under the supervision of and regulation by the Solicitors Regulation Authority1. The issue of financial regulation by the FCA is more relevant to limited partners than to ordinary partners and so is dealt with in para 24.38ff below. 1 Financial Services and Markets Act 2000, Pt XX.

2  THE EFFECT OF ILLEGALITY A B C D E

The effect generally   4.14 The relations of outsiders with an illegal firm   4.17 Illegality causes immediate dissolution   4.20 Enforcement of rights between partners   4.21 The illegality abandoned   4.24 80

The effect of illegality 4.16

A  The effect generally (a)  The nature of the illegality 4.14  A distinction can be drawn between a partnership which was illegal from the start, and the case where it fell into illegality during its course; in the latter case the illegality may not affect the venture at all1. An illegal firm may either be illegal in its purpose, or innocent in its purpose but conducted in an illegal way. A contract of partnership is illegal if the purpose for which the partnership is intended to be formed is illegal or if, although that purpose is one which could be attained by legal means, it is the intention of the parties that it should be attained in an illegal way2.

Whether the court will enforce the rights of the members of an illegal firm or those outsiders who deal with it will depend upon the nature of the claim and of the illegality and the mischief at which the prohibition is aimed3, as discussed below. A provision in a partnership agreement may be illegal although the firm itself is not illegal4. The fact that a partnership business is illegal does not mean that it is not liable to tax5. 1 2 3 4 5

St John Shipping Corpn v Joseph Rank Ltd [1957] 1 QB 267. Per Buckley J in Dungate v Lee [1969] 1 Ch 545 at 548. Rodriguez v Speyer Bros [1919] AC 59. McEllistrim v Ballymacelligott Co-operative [1919] AC 548. IRC  v Aken [1988]  STC  69; Lindsay, Woodward and Hiscox v IRC  (1933) 18  TC  43; Minister of Finance v Smith [1927] AC 193; Southern (Inspector of Taxes) v AB Ltd [1933] 1 KB 713.

(b)  Statutory illegality 4.15  Some statutes that render a business or firm illegal will also define the consequences. More often the statute fails to identify what effect the illegality will have on the firm, and the question must therefore be considered in the light of the principles set out below.

(c) Pleading 4.16  The former rule was that the court would decline to enforce rights between the parties under an illegal contract whether the point was taken by the defendant or not1, so if a partnership agreement was on its face illegal the point did not need to be pleaded2. But if the illegality only arose from surrounding circumstances, then the point could not be taken unless pleaded3 as required under the old RSC Ord 18, r 8. 81

4.17  Illegality

Under the CPR the position is less clear but probably remains the same. The Practice Direction supplementing Pt 16 requires in mandatory terms that a claimant must specifically set out ‘the fact of an illegality’4 where he wishes to rely on it, but there is no equivalent obligation on a defendant. In Pickering v Deacon5 the Court of Appeal held that a judge should not take a point on illegality on his own, nor should he rely upon the evidence of one party only on the point if the point had not been pleaded. The effect of the illegality being abandoned is dealt with at the end of this chapter. 1 Scott v Brown, Doering, McNab & Co [1892] 2  QB  724, CA; see observations of Lord Browne-Wilkinson on this in Tinsley v Milligan [1994] 1 AC 340 at 377. 2 Bedford Insurance Co Ltd v Instituto de Resseguros do Brasil [1985] QB 966; Gedge v Royal Exchange Assurance Corpn [1900] 2 QB 214; Thomson v Thomson (1802) 7 Ves 470. 3 North-Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461, HL; Ladup Ltd v Shaikh [1983] QB 225. 4 See para 8.2 of the Practice Direction. 5 (2003) Times, 19 April, CA.

B  The relations of outsiders with an illegal firm (a)  Claim by an innocent outsider 4.17  A third party such as a creditor, ignorant of the illegality, is not jeopardised in his rights against the firm1. Thus where a plaintiff did not know that effecting a contract of insurance would involve the defendants in contravening the provisions of the Insurance Companies Acts, he was held entitled to enforce the contract2. The question to what extent his claim may be ‘tainted’ by the illegality is one of degree3. 1 Re Cavalier Insurance Co Ltd [1989] 2 Lloyd’s Rep 430; Phoenix General Insurance Co of Greece SA v Halvanon Insurance Co Ltd [1988] QB 216; Newland v Simons and Willer (Hairdressers) Ltd [1981] ICR 521. 2 Stewart v Oriental Fire and Marine Insurance Co Ltd [1985] QB 988. 3 Euro-Diam Ltd v Bathurst [1990] 1 QB 1.

(b)  Claim by or against a knowing outsider: property claim 4.18  Even if he is aware of the illegality he can enforce his proprietary rights against the firm provided he does not have to plead the illegality or give evidence of it in support of his claim1. Thus those who put property into an illegal association do not lose it2 but may recover it in a restitutionary claim provided that they do not have to rely upon the illegality. A deposit made to an illegal banking partnership is recoverable by statute3, and a gift to an illegal firm is valid4. 82

The effect of illegality 4.18 So in Palaniappa Chettiar v Arunasalam Chettiar5 a father transferred land to his son for an illegal purpose; he later sought to recover it under a resulting trust. He failed; there is a presumption of advancement (ie of intended gift) where property passes from father to son, and to rebut this presumption the father had to give evidence of the true intention of the transfer, and so he was obliged to rely on his own illegal purpose. But in Bowmakers Ltd v Barnet Instruments Ltd6 the defendant acquired machine tools by a contract which was illegal under Defence Regulations, the finance coming from hire-purchase agreements with the plaintiff which took a charge over the tools. The plaintiff succeeded in a claim for conversion notwithstanding that the pleadings and evidence showed that the defendant had thus acquired the tools under the illegal contract. Du Parcq LJ stated in the judgment of the court at p 71: ‘A man’s right to possess his own chattels will as a general rule be enforced against one who, without any claim of right, is detaining them, or has converted them to his own use, even though it may appear from the pleadings, or in the course of the trial, that the chattels in question came into the Defendant’s possession by reason of an illegal contract between himself and the Plaintiff, provided that the Plaintiff does not seek, and is not forced, either to found his claim on the illegal contract or to plead its illegality in order to support his claim.’ In Singh v Ali7 a plaintiff acquired legal title to a lorry under an illegal transaction. He succeeded in claiming against the defendant for detinue and trespass; to do so he did not have to assert the origin of his own title. In Rowan v Dann8 the plaintiff was a farmer in financial difficulties. He was in discussion with the defendant for a joint venture in cattle embryo transplanting on his land. To protect that land against his creditors he had granted sham tenancies over it to the defendant. When negotiations broke down, he sought to recover the land from the defendant. The Court of Appeal upheld the judgment of Millett J to the effect that his intention to defeat his creditors by granting the tenancies was dishonest and implicitly illegal, but that he could still recover the land under the resulting trust which arose from the fact that it had been transferred to the defendant for no consideration. To rely upon the resulting trust did not involve reliance upon the illegality itself. 1 Tinsley v Milligan [1994] 1 AC 340, and see Lord Templeman in Lipkin Gorman v Karpnale Ltd [1992] 4 All ER 512 at 521a, following Aubert v Walsh (1810) 3 Taunt 277. 2 R v Frankland (1863) Le & Ca 276, CCR; Greenberg v Cooperstein [1926] Ch 657. 3 See the Financial Services and Markets Act 2000. 4 ‘It is well settled’, per Lord Parker of Waddington (obiter) in Bowman v Secular Society Ltd [1917] AC 406 at 438. 5 Palaniappa Chettiar v Arunasalam Chettiar [1962] AC 294. See also Haigh v Kaye (1872) 7 Ch App 469 and Shephard v Cartwright [1955] AC 431, 445. 6 [1945] KB 65, approved in Tinsley v Milligan (see note 1 above). 7 [1960] AC 167. 8 (1991) 64 P & CR 202, CA.

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4.19  Illegality

(c) Claim by or against the knowing outsider: non-proprietary claims 4.19  The court would not enforce claims by or against an illegal firm which were of a personal or contractual (rather than proprietary) nature1 if the claim was tainted by the illegality2. So solicitors did not succeed in their claim for the costs of forming an illegal association3. In Greenberg v Cooperstein4 subscriptions were paid to an association which was later held to be illegal under the Companies Acts; the subscribers were held entitled to the return of their subscriptions. It might then have been otherwise if the illegal association had itself been the plaintiff trying to obtain the return of money it had lent5.

A petition to wind up an illegal partnership would not be allowed if the creditor had knowledge of the illegality6. 1 Jennings v Hammond (1882) 9 QBD 225. 2 The phrase ‘tainted by illegality’ was helpfully considered by Staughton J in Euro-Diam Ltd v Bathurst [1990] 1 QB 1 at 15. 3 Re South Wales Atlantic Steamship Co (1876) 2 Ch D 763, CA. 4 [1926] Ch 657. 5 Per Tomlin J at 665, citing Jennings v Hammond (1882) 9  QBD  225 and Shaw v Benson (1883) 11 QBD 563, but see Tinsley v Milligan [1994] 1 AC 340 and SCF Finance Co Ltd v Masri (No 2) [1987] QB 1002. 6 Re Padstow Total Loss and Collision Assurance Association (1882) 20 Ch D 137, CA.

C  Illegality causes immediate dissolution1 4.20  Section 34 of the Partnership Act 1890 provides: A partnership is in every case dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for members of the firm to carry it on in partnership.

Thus at first instance in Smith v Anderson2 an association of more than 20 members was held illegal under section 4 of the Companies Act 18623 and consequently it was ordered by Jessel MR to be wound up4. If a partnership becomes illegal, it is dissolved by operation of law without any court order; and this may be so even though one or more members may be unaware of the illegality5, and even though the illegal business may be only one of its several activities. The harshness of this rule is mitigated by the fact that upon such a dissolution, a new firm comprising the innocent partners often comes into existence by operation of law6, and it has even been suggested that once the illegality ceases then the firm can reconstitute itself7, but this will require the consent of all continuing partners. When a firm is dissolved for illegality the partners are obliged to wind it up in the usual way8 and the partner in default does not forfeit any rights although if he has broken the terms of the partnership agreement he may possibly be liable to compensate his partners9. 84

The effect of illegality 4.21 1 As to this see Chapter 16. 2 (1880) 15 Ch D 247. See also Re Thomas (1884) 14 QBD 379 and Re Padstow Total Loss and Collision Assurance Association (1882) 20 Ch D 137. 3 This provision survived as Companies Act 1985, s 716, until abolished in 2002 as mentioned in para 4.12 above. 4 The decision was reversed on the facts, pp 269ff. 5 Hudgell Yeates & Co v Watson [1978] QB 451, CA, especially Waller LJ at 467A B. 6 Hudgell Yeates & Co v Watson [1978] QB 451. But circumstances will not always permit a replacement firm to come into existence in this convenient way; after all, the obligation of the continuing partners to wind it up (see Chapter 18) is inconsistent with their using the old assets for a new firm. This difficulty did not arise in Hudgell because in that case the ‘guilty’ partner was content for the firm to continue in existence in a new form. If this had not been so the outcome would have been different. 7 Per Bridge LJ in Hudgell Yeates & Co v Watson [1978] QB 451 at 462. 8 Hugh Stevenson & Sons Ltd v AG für Cartonnagen-Industrie [1918] AC 239. 9 See Chapter 14.

D  Enforcement of rights between partners (a)  Where the claimant is involved in the illegality 4.21  A partner in an illegal firm may recover his property from the partnership1 but formerly might not enforce partnership rights against his partners2 unless statute envisages otherwise3. Neither at law nor in equity would the court enforce an agreement which was in itself illegal4; ‘In pari delicto potior est conditio possendis’5. In Everet v Williams6 the plaintiff and the defendant were highwaymen who had agreed to share profits. Everet sued Williams for an account of profits; the claim was dismissed because the whole partnership was illegal.

Where the partnership was for an illegal purpose, ‘if the illegality is duly brought to the notice of the court, and if the person invoking the aid of the court is himself implicated in the illegality’7, then the court would not enforce rights under it by way of an account8, or specific performance9, or damages10, or contribution11, or division of proceeds12, or winding up13, or rescission14. Recovery of legal fees under a conditional fee arrangement not sanctioned by statute would not be allowed15. An arbitration award between the partners was unenforceable16, as was a settled account between them17. The court will not allow the petition of the firm or of a member to wind up the firm if the firm was illegal18. But the law in this field was reviewed by the Supreme Court in Patel v Mirza19 and the absolute principle that a party might not enforce a claim if he has to rely on his own illegal contract was held to be wrong; instead, the court must assess whether the public interest will be harmed by enforcement of the illegal contract, and consideration of the underlying purpose of the prohibition, public policy and disproportionality. The claim in that case, for recovering money paid towards an illegal purpose but not actually spent on it, succeeded. 85

4.21  Illegality

Where a partner had performed services under an illegal contract he might have been able to recover the value of his work in quantum meruit, even if he could not recover a share in the illegal contract20. Similarly, one of two joint tortfeasors could validly agree to pay the costs of the other in defending the claim or satisfying the judgment if that defence was unsuccessful21.  1 Hugh Stevenson & Sons Ltd v AG für Cartonnagen-Industrie [1918]  AC  239; see also para 4.23 below.  2 Pham v Doan (2005) 63 NSWLR 370; Taylor v Bhail [1996] CLC 377; Boissevain v Weill [1950] AC 327; Mohamed v Alaga & Co [2000] 1 WLR 1815 where the Court of Appeal refused to make any award in contract in favour of a party to a fee-sharing arrangement which was illegal under the Solicitors Act 1974, s 31(1); Foster v Driscoll [1929] 1 KB 470; Renowden v Hurley [1951] VLR 13.  3 Courage Ltd v Crehan [2002] QB 507, ECJ; unlawful restriction on competition.  4 Tinsley v Milligan [1994] 1  AC  340 at 369, per Lord Browne-Wilkinson, but see Patel v Mirza discussed later in this section; Shanshal v Al-Kishtaini [2001] EWCA Civ 264, [2001] 2 All ER (Comm) 601, following Royal Boskalis Westminster v Mountain [1999] QB 674 and Soleimany v Soleimany [1999] QB 785; Jeffrey v Bamford [1921] 2 KB 351; Higginson v Simpson (1877) 2 CPD 76. The classic case of an illegal partnership is that of the claim by one highwayman against another for a share in their profits: Everet v Williams (1725) 68 LJQB 549 (see para 4.1 above). In the light of developments in the law discussed in this section, the rather wide statements as to the effect of illegality in the earlier cases must be treated with caution: Booth v Hodgson (1795) 6 Term Rep 405; Aubert v Maze (1801) 2 Bos & P 371; Knowles v Haughton (1805) 11 Ves 168; Re Scott (1813) 1 M & S 751.   5 Per Lord Goff at [1994] 1 AC 355, following Mellor J in Taylor v Chester (1869) LR 4 QB 309 at 313 and Lord Mansfield in Holman v Johnson (1775) 1 Cowp 341, 343 who observed: ‘No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act. If, from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and the defendant were to change sides, and the defendant were to bring his action against the plaintiff, the latter would have the advantage of it …’ See also Saffery v Mayer [1901] 1  KB  11, CA and cases cited in the last note and in Law Commission Consultation Paper No 154 Illegal Transactions: The Effect of Illegality on Contracts and Trusts (1999).  6 (1725) 68  LJQB  549; see para  4.1 and note 3 above. See also Foster v Driscoll [1929] 1 KB 470 at 510; but see Patel v Mirza [2017] AC 467 discussed below.  7 Scott v Brown [1892] 2 QB 728 per Lindley LJ; Russell v Fulling (NLC 2990814302) (1999) Times, 23 June, QBD.  8 Farmers’ Mart Ltd v Milne [1915] AC 106; Rawlings v General Trading Co [1921] 1 KB 635; Lipton v Powell [1921] 2  KB  51; Everet v Williams (1725) 68  LJQB  549; Greenberg v Cooperstein [1926] Ch 657; Renowden v Hurley [1951] VLR 13.  9 Ewing v Osbaldiston (1837) 2 My & Cr 53. 10 Duvergier v Fellows (1828) 5 Bing 248; affd (1832) 1 Cl & Fin 39, HL. 11 Fisher v Bridges (1854) 3 E & B 642; Cannan v Bryce (1819) 3 B & Ald 179; cf Petrie v Hannay (1789) 3 Term Rep 418; De Begnis v Armistead (1833) 10 Bing 107; Mitchell v Cockburn (1794) 2 Hy Bl 380. 12 Sykes v Beadon (1879) 11 Ch D 170 at 193 and 196 per Jessel MR. 13 Pham v Doan (2005) 63 NSWLR 370. 14 Scott v Brown, Doering, McNab & Co [1892] 2 QB 724. 15 Mahamed v Alaga & Co [2000] 1 WLR 1815, CA reversing on this point Lightman J [1998] 2 All ER 720, but see Guinness v Saunders [1990] 2 AC 663, HL. 16 Aubert v Maze (1801) 2 Bos & P  371, but in Westacre Investments Inc v JugoimportSPDR Holding Co Ltd [1999] QB 740 Colman J held that this depended upon the construction of the arbitration clause. 17 Law v Dearnley [1950] 1 KB 400. 18 Re Mexican and South American Mining Co (1858) 26 Beav 177; Re London and Eastern Banking Corpn (1859) 1 De GF & J 17 but see Patel v Mirza [2017] AC 467 discussed below.

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The effect of illegality 4.23 19 [2017] AC 467. 20 Awwad v Geraghty & Co [2001]  QB  570 not following Thai Trading Co v Taylor [1998] QB 781, CA; and see Patel v Mirza [2017] AC 467 discussed above; but see Guinness v Saunders [1990] 2 AC 663, HL. 21 Mulcaire v News Group Newspapers Ltd [2011] EWHC 3469 (Ch).

(b)  Where the claimant is not involved in the illegality 4.22  Unless the statute creating the illegality envisages otherwise, an innocent partner will not be barred from his remedies against a guilty copartner if the reason why the matter is illegal is for his own protection1, or if their partnership is not in itself illegal but was only conducted illegally by the guilty partner2. He will only be able to enforce his rights if he can show that he is ignorant of the illegality in the performance of the agreement by his guilty partner or partners, for instance where his partners have assured him as to the legality of the enterprise3. Under Article 81(2) EC an agreement liable to restrict or distort competition is void and so unenforceable by either party, but a party to it may be able to recover damages against the other for breach of the Article if he himself bears no significant responsibility for the distortion of competition4. Similarly, a discrimination claim will not fail merely because the arrangements between the partners were illegal, if the claimant was not inextricably bound up in the illegality5. An innocent creditor or personal representative of a deceased partner can claim against the illegal firm6. 1 Barclay v Pearson [1893] 2 Ch  154, 167–8; One Life Ltd (in liquidation) v Roy [1996] 2  BCLC  608. For an underpaid medical partner see Freedlander v Bateman 1953  SLT (Sh Ct) 105. 2 Archbolds (Freightage) Ltd v S  Spanglett Ltd [1961] 1  QB  374; Swaine v Wilson (1889) 24 QBD 252, CA; Hall v Woolston Hall Leisure [2001] 1 WLR 225. 3 Saunders v Edwards [1987] 2 All ER 651; Shelley v Paddock [1980] QB 348, CA, applying Kiriri Cotton Co Ltd v Dewani [1960] AC 192, PC and distinguishing Holman v Johnson (1775) 1 Cowp 341. 4 Courage Ltd v Crehgan [2002] QB 507, ECJ. 5 Hall v Woolston Hall Leisure Ltd [2001] 1 WLR 225, followed in Payne v Enfield Technical Services [2008] EWCA Civ 393, where an employment contract was said to be illegal because the parties had claimed to HMRC that there was no employment; and similarly Enfield Technical Services Ltd v Ray Payne; BF Components Ltd v Ian Grace [2008] EWCA Civ 393. 6 Joy v Campbell (1804) 1 Sch & Lef 328; Hale v Hale (1841) 4 Beav 369.

(c)  Proprietary claims 4.23  Where a firm has innocently allowed its money to come into the hands of a member for an illegal transaction, he will not be allowed to assert the illegality and refuse to return the money1: You cannot ask the aid of a Court of Justice to carry out an illegal contract; but in cases where the contract is actually at an end, or is put an end to, the Court will interfere to prevent those who have, under the illegal contract,

87

4.24  Illegality obtained money belonging to other persons on the representation that the contract was legal, from keeping the money2.

The mere fact that a contract between a firm and a member is illegal does not necessarily prevent property passing under it3: The rights of the owner of the legal title thereby acquired will be enforced, provided that the plaintiff can establish such title without pleading or leading evidence of the illegality. It is said that the property lies where it falls, even though legal title to the property was acquired as a result of the property passing under the illegal contract itself4.

The old rule5 that a court of equity will never enforce equitable proprietary interests at the suit of a party to an illegality is incorrect in light of the decision of the House of Lords in Tinsley v Milligan6. So authorities to the effect that a premium or other purchase price payable by an incoming partner is irrecoverable by him where the partnership is illegal7 may no longer be good law. The considerations which are paramount are those set out in Patel v Mirza8. 1 Sykes v Beadon (1879) 11 Ch D 170; Hale v Hale (1841) 4 Beav 369. As to who may be liable for the repayment, see Christchurch Pavilion Partnership v Deloitte Touche [2002] UKPC 4, [2002] All ER (D) 39 (Feb). 2 (1879) 11 Ch D 170 at 193 per Jessel MR. The association was an ‘investment trust’ which was illegal for want of registration under the Companies Acts, having more than 20 members. 3 Tinsley v Milligan [1994] 1 AC 340 at 355C per Lord Goff (following Scarfe v Morgan (1838) 4 M & W 270 at 281, Taylor v Chester (1869) LR 4 QB 309, Alexander v Rayson [1936] 1 KB 169 and Singh v Ali [1960] AC 167 at 176–177). 4 [1994] 1  AC  340 at 369D per Lord Browne-Wilkinson, followed Collier v Collier [2002] EWCA Civ 1095, [2002] All ER (D) 466 (Jul), distinguishing Tribe v Tribe [1995] 3 WLR 913. 5 Muckleston v Brown (1801) 6 Ves 52; Cottington v Fletcher (1741) 2 Atk 155; Curtis v Perry (1802) 6 Ves 739; Ex p Yallop (1808) 15 Ves 60; Groves v Groves (1828) 3 Y & J 163; Cantor v Cox (1976) 239 Estates Gazette 121. These cases must now be treated with caution. 6 [1994] 1 AC 340, disapproving Saunders v Edwards [1987] 1 WLR 1116 and Euro-Diam Ltd v Bathurst [1990] 1 QB 1, CA and Howard v Shirlstar Container Transport Ltd [1990] 1 WLR 1292, CA. 7 Harse v Pearl Life Assurance Co [1904] 1 KB 558; Duvergier v Fellows (1832) 1 Cl & Fin 39; Williams v Jones (1826) 5 B & C 108. 8 [2017] AC 467 discussed in para 4.21 above.

E  The illegality abandoned1 4.24  If a party transfers property for an illegal purpose but repents of the purpose before it is carried through, he may recover his property2. As Scott LJ observed in Rowan v Dann3: If a transaction is entered into for an improper purpose, such as to defeat creditors, but the purpose is not carried out, a party thereto may be entitled to resile from the transaction to the extent that it is still executory and to recover anything paid or transferred under it4.

88

The effect of illegality 4.24

When the innocent party discovers the illegality he must promptly decline to continue with the venture or he will be tainted5 by the illegality6. 1 The questions that arise when a transferor repudiates his fraudulent scheme were discussed in Tribe v Tribe [1996] Ch 107. See also Strachan v Universal Stock Exchange (No 2) [1895] 2 QB 697; Barclay v Pearson [1893] 2 Ch 154; and Herman v Jeuchner (1884) 15 QBD 561. 2 Tribe v Tribe [1996] Ch 107; Taylor v Bowers (1876) 1 QBD 291; Greenberg v Cooperstein [1926] Ch 657; Symes v Hughes (1870) LR 9 Eq 475, approved by Lord Browne-Wilkinson in Tinsley v Milligan [1994] 1 AC 340 at 374B. 3 (1991) 64 P & CR 202 at 209, CA. 4 He cited with approval Taylor v Bowers (1876) 1  QBD  291 and Chettiar v Chettiar [1962] AC 294. 5 The phrase ‘tainted by illegality’ was helpfully considered by Staughton J in Euro-Diam Ltd v Bathurst [1990] 1 QB 1 at 15. 6 Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [1973] 1 WLR 828.

89

5 Holding out Contents

para 1 Liability of one who is held out to be a partner����������������������������������5.1 2 What amounts to a sufficient representation���������������������������������������5.2 A His own representation about himself������������������������������������������5.3 B A shadow partner�������������������������������������������������������������������������5.4 C Another’s representation knowingly suffered by him��������������������5.5 3 To whom he is liable���������������������������������������������������������������������������5.6 4 For what he is liable���������������������������������������������������������������������������5.7 5 The retired, bankrupt or dead partner������������������������������������������������5.8 6 Passing-off: a person falsely representing himself to be a member of the firm�������������������������������������������������������������������������������������������5.9 7 Liabilities between the firm and the person held out�������������������������5.10

1 LIABILITY OF ONE WHO IS HELD OUT TO BE A PARTNER 5.1  A person may make himself liable for a firm’s debt if he represents himself to a creditor to be a partner, or allows the firm to so represent him. When the firm holds out a person to be a partner, it is liable under ordinary principles of agency. But holding out ‘has no application to causes of action independent of contract’1. If the person himself holds himself out to be a partner2 and the firm acquiesces, it is bound; otherwise it is not3. But in any case he makes himself personally liable to those who have acted to their detriment upon his representation, for he will be estopped from denying the status that he has asserted for himself4. He is liable if he makes no representation of his own but knowingly allows himself to be held out as a partner by an individual5 or by the firm6. Section 14(1) of the Partnership Act 1890 provides as follows: 91

5.2  Holding out Every one who by words spoken or written or by conduct represents himself, or who knowingly suffers himself to be represented, as a partner in a particular firm, is liable as a partner to any one who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made.

If he ‘suffers his name to be used, it is of no consequence whether he has a salary, or sum of money, to be paid by others, or to be got out of the profits. It is the use of the name that makes him liable …’7. Thus where an accountant who was in fact in sole practice traded under the name and logo of a national firm with that firm’s agreement, the firm was liable for his default in accounting for mortgage proceeds that had come into his hands in his capacity as a Law of Property Act receiver: ‘This is the clearest possible case of holding out’8. Today the persons most commonly held liable by holding out are former partners9 and salaried partners10 whose names appear on a firm’s writing paper as if they were true partners. Former partners have some statutory protection as mentioned at para 5.8 below.   1 Per Sir F  Pollock (author of the Partnership Act 1890) Digest of the Law of Partnership (1920), p 61.  2 If he so represents himself wrongly, the firm may obtain an injunction against him: see para 5.9 below. If the firm wrongly holds him out as a partner he can obtain an injunction against it: Burchell v Wilde [1900] 1 Ch 551 at 563.  3 Hardman v Booth (1863) 1 H & C 803. The firm is not liable merely because he says it is: Armagas Ltd v Mundogas SA [1986] AC 717.  4 Nationwide Building Society v Lewis [1998] Ch 482, CA; Re Fraser [1892] 2 QB 633 at 637.   5 When in fact there is no partnership at all, but each behaves as if there is: De Berkom v Smith and Lewis (1793) 1 Esp 29. Then they are jointly liable.  6 Hoare v Dawes (1780) 1 Doug KB 371.   7 Per Lord Eldon in Ex p Watson (1815) 19 Ves 459.   8 Per Millett LJ in Bass Brewers Ltd v Appleby (1996) 73 P & CR 165, following Lord Eyre CJ in Waugh v Carver (1793) 2 Hy Bl 235.   9 The liability of ex-partners to outsiders is discussed in Chapter 20. 10 Discussed in Chapter 12.

2 WHAT AMOUNTS TO A SUFFICIENT REPRESENTATION A His own representation about himself   5.3 B A shadow partner   5.4 C Another’s representation knowingly suffered by him   5.5 5.2  For a person to be liable by holding out, the representation must be that he is a partner, not that he merely intends to be1. 1 Fox v Clifton (1830) 6 Bing 776; Bourne v Freeth (1829) 9 B & C 632; but contrast the facts of Martyn v Gray (1863) 14 CBNS 824 given below, and Lake v Duke of Argyll (1844) 6 QB 477.

92

What amounts to a sufficient representation 5.5

A  His own representation about himself 5.3  Where a person is held out it is usually by his name appearing on partnership writing paper or other documentation. Whether there is sufficient representation is a matter of fact, a jury question1. It may even be made by conduct, for instance if he superintends large contracts as if a principal2, or signs firm cheques3, or presides over its meetings4. It may suffice that he acts as a partner, even within a different business5, or as a member of a national association of firms6. But the words or acts must be unambiguous; it is insufficient that a manager does acts of a nature that might be done by either a partner or a manager7, or that a person joins in a conveyance of property used by the partnership in his capacity as joint owner of that property8, or allows the continuing firm to use his name with the addition of ‘& Co’9, or allows himself to be held out as a partner in a firm of the same name but a different address10.  1 Gurney v Evans (1858) 3 H & N 122; Wood v Duke of Argyll (1844) 6 Man & G 928.  2 Pole v Leask (1862) 33 LJ Ch 155.  3 Australian Joint Stock Bank v Steel (No 2) (1890) 11 NSW Eq 328.  4 Lake v Duke of Argyll (1844) 6 QB 477.  5 Mulford v Griffin (1858) 1 F & F 145.  6 Duke Group Ltd v Pilmer (1999) 31 ACSR 213; revsd sub nom Pilmer v Duke Group Ltd [2001] 2 BCLC 773, HC of A.  7 Edmundson v Thompson and Blakey (1861) 2 F & F 564.  8 M’Iver v Humble (1812) 16 East 169.  9 Burchell v Wilde [1900] 1 Ch 551, CA. 10 UCB Home Loan Corp v Soni [2013] EWCA Civ 62.

B  A shadow partner 5.4  A ‘shadow’ partner may be liable as if he were a named partner. Where a nominal partner was a woman of no business experience controlled by her husband, the husband was held to be the real partner and liable for breach of fiduciary duty1. 1 Gallagher v Schultz [1988] 2 NZBLC 103, 196 (New Zealand).

C Another’s representation knowingly suffered by him 5.5  A person is only liable for a firm’s debts by ‘holding out’ if he has represented himself to be a partner or knowingly suffered himself to be so represented1. In Elite Business Systems v Price2 a father provided finance for a son’s business by opening an account for the son in the father’s name. The son told a supplier that he was in partnership with his father, which he had no authority to state. Held by the Court of Appeal, the father had never allowed any representation to be made to the effect that he was a partner, and accordingly was not liable.

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5.5  Holding out

He must ‘knowingly suffer himself to be represented as a partner’ in the particular firm to which the credit is given, and not another of the same name. ‘The representation and the reliance must match one another’3. A representation need not be made by a member of the firm or even anyone connected with it4, provided that the person being referred to acquiesces in it. The representation may be no more than public repute5 and it need not even expressly name him. In Martyn v Gray6 the defendant was interested in buying a share in a mining partnership. He visited the mine and did not dissent when the manager described him as a capitalist from London who had a large interest in the mine and intended to work it vigorously. He was consequentially liable when the manager later obtained goods for the mine on representations to the supplier that the mine owner was a person of substance whose name he was not authorised to give.

A person who is held out against his own volition is in the dangerous position of being potentially liable for debts of which he knows nothing, owed by a firm of which he is not a member. So he will be granted an injunction restraining others from representing him as connected with a firm, even where the representation is itself causing him no loss, for if it continues after he has notice of it he may find himself liable for the consequential liabilities of the firm7. The representation may be by words or conduct, either where a specific representation has been made by the firm as to his authority, or where he has been permitted to assume a particular position that carries a usual authority8. In Bevan v National Bank Ltd9 it was said that where a person carried on trade under another individual’s name with the addition of ‘& Co’, and that individual had been given the entire management of the business, it might amount to a holding out that he was a partner in the business. But the mere words ‘and son’ in a firm name have been held insufficient to render the principal’s son liable10.

The registration of a person’s name as a partner under the Registration of Business Names Act 1916 was sufficient to preserve his liability after he had ceased to be a partner11, where the fact induced a customer to believe he was still a partner12. But if on retiring he merely fails to destroy the old firm writing paper with his name on it, he does not ‘knowingly suffer’ the firm to represent him as a partner if the firm continues to use it without his authority13.   1 See para 5.1 above.   2 (2005) 27 June 2005, CA.  3 UCB Home Loan Corp v Soni (2013) EWCA Civ 62.  4 Dickinson v Valpy (1829) 10 B & C 128 at 140.  5 Ford v Whitmarsh (1840) H & W 53. The continued registration of an ex-partner’s name under the Registration of Business Names Act 1916 was sufficient representation to render him liable: see below: Bishop v Tudor Estates [1952] CPL 807.   6 (1863) 14 CBNS 824; Rosher v Young (1901) 17 TLR 347; contrast Burchell v Wilde [1900] 1 Ch 551.  7 Walter v Ashton [1902] 2 Ch 282; Burchell v Wilde [1900] 1 Ch 551.  8 SEB Trygg Liv v Manches [2006] 1 WLR 2276.   9 (1906) 23 TLR 65.

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To whom he is liable 5.6 10 Kell v Nainby (1829) 10 B & C 20; Spurr v Cass (1870) LR 5 QB 656. 11 Bishop v Tudor Estates [1952] CPL 807. 12 Contrast Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397 where the ex-partner in question was still registered as a partner under the Act but no consequential liability attached to him because the customer in question was unaware of the fact. 13 Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397.

3  TO WHOM HE IS LIABLE 5.6  A claim against the apparent partner is based upon the fact that he is estopped from denying the partnership status that he has asserted or allowed to be asserted1, when the assertion has been acted upon. So the claim can only be made by someone who hears and acts on the representation that he is a partner, an outsider ‘towards whom some act has been done or to whom some statement has been made’2, a person ‘who on the faith of any such representation gave credit to the firm’3. It is sufficient if it comes to his knowledge ‘as a matter of notoriety’4 or from a public register5. But the alleged representations must be made before the credit is given6, and must reach the person giving the credit and not merely to others7. Whether any such representation reached such a person is a question of fact8. It must be proved that he relied upon it9. If he does not believe it or knows that the apparent partner is not a partner, then the apparent partner cannot be liable10. So where an employee was on the firm’s writing paper as if a partner, he was not liable for the firm’s negligence to a building society which had never noticed it there11. But it is not necessary that the outsider notices his identity, rather than his existence. If there is in fact only one principal in the firm and another is held out as a partner, so the appearance is of a two-man firm, the non-partner is liable by holding out if the outsider merely relies upon the firm being a twoman firm12. The outsider may act partly on the specific representation that the quasi-partner is a partner and partly on a belief derived from some other source. Or he may first acquire the erroneous belief from a source for which the quasi-partner is not responsible, and only subsequently have it confirmed by the representation of the quasi-partner. Then the question will be whether his conduct is so influenced by the representation from the quasi-partner that it would be unconscionable for the quasi-partner to deny that he is a partner13. The Solicitors’ Code of Conduct 201114 provides that in those rules a partner means a person who is or is held out as a partner in a partnership. By contrast a non-partner who represents himself as a partner to the VAT authorities is not liable for VAT15.   1 See Megaw LJ in Hudgell Yeates & Co v Watson [1978] QB 451 at 470, citing Lord Blackburn in Scarf v Jardine (1882) 7 App Cas 345 at 357 and Freeman v Cooke (1848) 2 Exch 654, but the reference to a ‘presumption’ is misleading: Nationwide Building Society v Lewis [1998] Ch 482, CA.   2 Per Lord Esher MR in Re Fraser, ex p Central Bank of London [1892] 2 QB 633; considered by Rimer J in Nationwide Building Society v Lewis [1997] 3 All ER 498, reversed on another point [1998] Ch 482, CA.   3 The Partnership Act 1890, s 14(1), quoted at para 5.1 above. HMRC does not ‘give credit’ where a non-partner is registered as a partner: Revenue and Customs Commissioners v Pal [2006] EWHC 2016 (Ch).

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5.7  Holding out  4 Edmundson v Thompson and Blakey (1861) 2 F & F 564.  5 Bishop v Tudor Estates [1952] CPL 807.  6 Walsh v Needleman Treon (2014) EWHC 2554; Baird v Planque (1858) 1 F & F 344.  7 Carter v Whalley (1830) 1 B & Ad 11; Vice v Lady Anson (1827) 7 B & C 409.  8 Wood v Duke of Argyll (1844) 6 Man & G 928, doubted on another point in Keith Spicer Ltd v Mansell [1970] 1 All ER 462.  9 Nationwide Building Society v Lewis [1998] Ch 482, per Peter Gibson LJ at 490D E. 10 McLean v Clark (1893) 20 AR 660 (Canada); Alderson v Pope (1808) 1 Camp 404n. 11 Nationwide Building Society v Lewis [1998] Ch 482, CA; Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64; Hamerhaven Pty Ltd v Ogge [1996] 2 VR 488. 12 Sangster v Biddulph (22 March 2005, unreported) Etherton J, Ch D. 13 Per Robert Goff J in Amalgamated Investment and Property v Texas Bank [1982] QB 84 at 104–105. 14 Chapter 14: Interpretation. 15 Revenue and Customs Commissioners v Pal [2006] EWHC 2016 (Ch).

4  FOR WHAT HE IS LIABLE 5.7  The apparent partner becomes liable for the relevant partnership debt, but his liability is a joint one with the real partners1. Section 14(1)2 makes the apparent partner liable to the extent that the outsider has ‘given credit to the firm’ and those words are construed widely, because they echo the common law doctrine of estoppel which can be wider than section 14(1) itself3. The doctrine of ‘holding out’ is a branch of the law of estoppel. So far as the element of action by the party relying on an estoppel is concerned, it is sufficient if that party acts to his prejudice upon a representation made with the intention that it should be so acted upon, though it is not proved that in the absence of the representation he would not have so acted4.

He who allows himself to be held out as a partner may be liable upon an obligation to a customer of the firm5, to a mortgagee client of a solicitors’ firm6, or to beneficiaries under a settlement whose funds have been misappropriated by the firm7, and perhaps the obligation to pay the partnership tax8. He will be liable for any obligation arising out of any contract or similar arrangement9 with the firm that was entered into in the belief that he was a partner. He may therefore be liable to a person with this belief for the negligence of the firm in contract, but not in tort10. Holding out ‘has no application to causes of action independent of contract’11.  1 Kirkwood v Cheetham (1862) 10  WR  670. Lim His-Wei-Marc v Orix Capital (2011) 3 LRC 695 (HK C of A). It will not be joint if he represented himself to be not a partner but sole trader: Bonfield v Smith (1844) 12 M & W 405.   2 The Partnership Act 1890, s 14(1) is quoted at para 5.1 above.   3 Per Peter Gibson LJ in Nationwide Building Society v Lewis [1998] Ch 482 at 488F citing Lord Esher MR in Re Fraser [1892] 2  QB  633 at 637; Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64. But in Revenue and Customs Commissioners v Pal [2006] EWHC 2016 (Ch), Patten J treated common-law estoppel as separate from statutory holding-out under s 14.   4 Per the High Court of Australia in Lynch v Stiff (1943) 68 CLR 428 at 435, a decision on the Partnership Act 1892 of New South Wales, cited with approval by Peter Gibson LJ in Nationwide Building Society v Lewis [1998] Ch 482 at 488F.   5 See for example Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397.

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The retired, bankrupt or dead partner 5.9  6 Nationwide Building Society v Lewis [1997] 3 All ER 498, [1998] Ch 482, CA.  7 Slack v Parker (1886) 54 LT 212.   8 Sir Raymond Evershed MR in Stevens v Britten [1954] 3 All ER 385 at 386 expressed the view obiter that a person who is held out as a partner is liable for partnership tax. But he is not liable for VAT: Revenue and Customs Commissioners v Pal [2006] EWHC 2016 (Ch).   9 Such as where the outsider deposited money with the apparent partner for investment by the firm: Lynch v Stiff (1943) 68 CLR 428 (High Court of Australia). 10 Smith v Bailey [1891] 2 QB 403, CA. 11 Per Sir F Pollock (author of the Partnership Act 1890) Digest of the Law of Partnership (11th edn, 1920), p 61.

5 THE RETIRED, BANKRUPT OR DEAD PARTNER 5.8  Where a former partner’s name is used by the firm after his retirement, bankruptcy or death, to the knowledge of himself or those representing him, he or his estate would be liable under the rules mentioned above, but the Partnership Act 1890 gives him relief against this which is discussed at para 20.17ff below.

6 PASSING-OFF: A PERSON FALSELY REPRESENTING HIMSELF TO BE A MEMBER OF THE FIRM 5.9  If a person untruthfully holds himself out to be a partner in a firm so that the public may be deceived into believing that his goods or services are those of the firm, he will be liable for the tort of passing-off and the firm can obtain an injunction and damages against him1. A more difficult case is where the goods or services that he is providing are entirely different from those of the firm that he is associating himself with, so he cannot be liable for the tort of passing-off. In those circumstances he may still be restrained by injunction, as was held in Walter v Ashton2: A bicycle-dealer contrived to advertise his bicycles as ‘The Times Cycles’ in a way that suggested that he was connected with the proprietors of a newspaper of that name. Held that the proprietors of The Times might be exposed to litigation as associated with him if they did not seek an injunction restraining him, and an injunction should be granted.

A person who has sold his business may restrain the purchaser from using his name lest it render him liable by holding out: In Chatteris v Isaacson3 a man sold a business that he carried on in the name of his wife, ‘Madame Elise’. The purchaser bought the goodwill and exclusive right to the name ‘Madame Elise & Co’. Held the purchaser might not trade as ‘Madame Elise’ because it might lead people to believe that the business was still being carried on by the vendor.

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5.10  Holding out 1 Reckitt & Colman Products Ltd v Borden Inc [1990] 1  WLR  491 where the necessary elements of the tort were defined by Lord Oliver at 499 and Lord Jauncey at 510. 2 [1902] 2 Ch  282, following Routh v Webster (1847) 10 Beav 561; Ewing v Buttercup Margarine Co Ltd [1917] 2 Ch 1. 3 (1887) 57 LT 177.

7 LIABILITIES BETWEEN THE FIRM AND THE PERSON HELD OUT 5.10  A non-partner who is held out as a partner may either be an employee of the firm or an independent, self-employed outsider engaged on a ‘contract for services’1. In either eventuality his rights and liabilities as against the firm will be ascertained by the contractual or other terms upon which he is performing his work for the firm. In the absence of contrary agreement, the firm owes to such a person an obligation of indemnity as it owes to a true partner. The obligations that a firm might owe to an employee are discussed in para 11.10 below. If the person is a ‘salaried partner’ then his obligations may be practically the same as those of a partner. 1 See Lee Ting Sang v Chung Chi Keung [1990] 2 WLR 1173.

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6 Sub-partnerships and group partnerships Contents

para 1 Sub-partnerships A Sub-partnerships generally�����������������������������������������������������������6.1 B A partnership of a partnership share��������������������������������������������6.2 C Another firm being itself a partner�����������������������������������������������6.3 D A sub-group within a larger entity������������������������������������������������6.4 E Implied terms of the sub-partnership��������������������������������������������6.5 2 Group, parallel and corporate partnerships A Group partnerships����������������������������������������������������������������������6.6 B Parallel partnerships���������������������������������������������������������������������6.7 C Corporate partnerships����������������������������������������������������������������6.8

1 SUB-PARTNERSHIPS A Sub-partnerships generally  6.1 B A partnership of a partnership share   6.2 C Another firm being itself a partner   6.3 D A sub-group within a larger entity   6.4 E Implied terms of the sub-partnership   6.5

A  Sub-partnerships generally 6.1  A sub-partnership is a partnership within a partnership. This can mean one of three slightly different things, as follows: (a) a partnership of a partnership share; (b) another firm being itself a partner; (c) a sub-group within a larger entity. 99

6.2  Sub-partnerships and group partnerships

B  A partnership of a partnership share 6.2  The original meaning of ‘sub-partnership’ was a partnership of a partnership share. Unless the partnership agreement provides otherwise, a partner may charge, assign or declare a trust of his partnership share although the chargee, assignee or beneficiary will not obtain as full rights as the partner himself, as explained in Chapter 10. It follows that the partner may transfer his partnership share into partnership with others thereby creating a subpartnership1 which need not be recognised (or even known to exist) by his original partners2. But usually a transfer of the share to co-owners of which the original partner is one will create co-ownership rather than sub-partnership because usually there will be no ‘business’ in the mere sharing of a share3. The fact that a person is a member of either the main partnership or the subpartnership does not make him a partner in the other4. 1 Re Slyth, ex p Barrow (1815) 2 Rose 255. 2 In Hocking v West Australia Bank (1909) 9  CLR  749 the sub-partnership was that of a partner and his wife. 3 For the need for ‘business’ as an ingredient of a partnership see para 2.15ff above. 4 International Airport Industrial Park Ltd v Tanenbaum (1976) 69 DLR (3d) 1 (Canada); Re Kendall, ex p Dodgson (1830) Mont & M 445; Bray v Fromont (1821) 6 Madd 5; Mortgage Express Ltd v Dunsmore Reid & Smith (6 December 1996, unreported), Inner House Cases – a case of a Scottish partnership.

C  Another firm being itself a partner 6.3  Scottish and certain other foreign firms1 are themselves legal personae which are consequently capable of themselves being partners in a Scottish or English firm2. In Mortgage Express Ltd v Dunsmore Reid & Smith3 a defendant worked in London as a partner in a firm which was held to have two members, himself and a Scottish partnership. Held that he had no liability for the negligence of the Scottish partnership. 1 See para 1.10ff above. 2 Major (Inspector of Taxes) v Brodie [1998] STC 491. 3 (6 December 1996, unreported), Inner House – a Scottish case.

D  A sub-group within a larger entity 6.4  The usual meaning of ‘sub-partnership’ today is a partnership that exists at a local level which is affiliated to a national partnership to which it pays a proportion of its profits1. Some large accountancy firms operate on this basis. The local partners will be partners in the local ‘sub-partnership’ only; the national partners will be partners in the national firm and usually in one or more of the local firms as well. Sometimes the umbrella organisation will 100

Group, parallel and corporate partnerships 6.6

not be a partnership at all, as in Brostoff v Clark Kenneth Leventhal2 which is discussed at para 2.16 above. 1 This was the case in Horner v Hasted [1995] STC 766n. 2 (1996) 11 March NLD, Dyson J.

E  Implied terms of the sub-partnership 6.5  A sub-partnership can arise by express agreement or by operation of law1 like any other partnership. It is possible for the circumstances to be such that the sub-partnership outlives the partnership2. 1 Something rather akin to a sub-partnership arose in Mann v D’Arcy [1968] 1 WLR 893. 2 Frost v Moulton (1856) 21 Beav 596.

2 GROUP, PARALLEL AND CORPORATE PARTNERSHIPS A Group partnerships  6.6 B Parallel partnerships  6.7 C Corporate partnerships  6.8

A  Group partnerships 6.6  An English partnership, not being a legal entity, cannot itself be a partner in another firm1. If two or more English partnerships purport to become partners in each other’s businesses the effect is that all the members become partners with one another. The management of each can be kept separate, and then they are called group partnerships: they are akin to a group of companies, and their management structure should be clearly defined by agreement. Entities that appear to be national accountancy practices often turn out to be group partnerships comprising firms or individuals sharing facilities and a name. The effect of such a structure will normally be to make every member liable for the default of any single other member2. On the other hand, the group may not be a partnership on its own at all, as in the case of Brostoff v Clark Kenneth Leventhal mentioned at para 2.16 above. 1 A Scottish firm, being a legal entity in Scotland, is recognised by the English courts as having a legal persona, and accordingly it can be a member of an English partnership, as discussed in para 3.8 above. 2 Bass Brewers Ltd v Appleby (1996) 73 P & CR 165; see also Chapter 5.

101

6.7  Sub-partnerships and group partnerships

B  Parallel partnerships 6.7  The old rule that in general no English partnerships might usually have more than 20 members1 was circumvented by the use of parallel partnerships, which are separate partnerships virtually identical to one another and operating from the same premises with the same management, but with different members2. It was important that their profit-sharing was kept separate or they became a single partnership by implication of law. 1 Discussed in para 4.12 above. 2 HMRC has accepted that such partnerships are legally separate from one another: see statement approved by the Inland Revenue and the DTI on the use of limited partnerships as venture capital vehicles, 26 May 1987, which is copied at Appendix J below.

C  Corporate partnerships 6.8  A corporate partnership is a partnership composed entirely of companies or other corporations. The rules relating to it are the same as those for any other partnership, save as to its liability to file accounts1. The words ‘association’ or ‘consortium’ do not determine whether or not it has partnership status. 1 See the Partnerships (Accounts) Regulations 2008, SI 2008/569.

102

7 The partnership agreement Contents

para 1 The partnership agreement A The minimum agreement��������������������������������������������������������������7.1 B The duration and continuation of the partnership������������������������7.4 C Construction of the partnership agreement��������������������������������7.11 D Penalties, forfeitures and unfair and onerous conditions������������7.13 2 Variation of the partnership agreement A Express and implied variation between existing members����������7.21 B A new partner joining the firm���������������������������������������������������7.23 C Partnership options��������������������������������������������������������������������7.25 D Mergers��������������������������������������������������������������������������������������7.26

1  THE PARTNERSHIP AGREEMENT A B C D

The minimum agreement   7.1 The duration and continuation of the partnership   7.4 Construction of the partnership agreement   7.11 Penalties, forfeitures and unfair and onerous conditions   7.13

A  The minimum agreement (a)  Express agreement generally 7.1  Every partnership is based upon agreement, even if all that the partners have done is orally agreed1 who they are and what they are to embark upon together. Whether agreement has in fact been reached and how it can be enforced are discussed in Chapters  2 and 14. The terms that they have expressly agreed are supplemented by those terms that can be implied 103

7.2  The partnership agreement

from the circumstances or from the inferences set out in the Partnership Act 18902. Those all yield to the unanimous contrary intention of the partners. Section 19 provides: The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all the partners, and such consent may be either express or inferred from a course of dealing.

It follows that the contractual arrangement between the partners is paramount. The partners are largely free to make their own agreement, and a formally constituted partnership will set out their agreement fully in writing, but any purported agreement as to whether they are partners will be ineffective, as mentioned in Chapter 2. If they do not follow the provisions of a certain term of their agreement they may be treated as having waived that term3. Partnership agreements were once known as ‘Articles’. Their provisions relating to dissolution are discussed at para 16.9 below. A partnership agreement must be construed in its entirety, and each phrase given meaning from its context; the meaning of a document is what the parties using its words against the relevant background would reasonably have been intended to mean4. To rectify a formally agreed partnership agreement will prove difficult5. 1 There is no requirement of writing, see para 2.9 above. 2 In Syers v Syers (1876) 1 App Cas 174 Lord Hatherley justly observed at p 189: ‘Frequently in very large concerns, I believe I may say in some of the very largest concerns in the city of London, partnerships have been entered into without any instrument whatever, and have gone on for years and years …’ 3 As discussed at para 7.21 below. 4 Lord Hoffmann in Investors’ Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913. 5 James Hay Pension Trustees Ltd v Hird [2005] EWHC 1093 (Ch).

(b)  Implied agreement generally 7.2  What the partners may impliedly have agreed can be discerned from the conventions of the firm. An alleged practice will have to be proved plainly in order to amount to an implication of agreement strong enough to take the matter in question outside the provisions of the partnership agreement or the provisions of the Partnership Act 1890 which apply to every partnership in the absence of such agreement. What the business of the firm is agreed to be can be ascertained from what it does. Where two partners draw out precisely the same sum each week, it can be concluded that there was an agreement that profits should be shared equally1. The terms of continuation of an old partnership are discussed at para 7.8 below. Terms may be implied into a partnership agreement if they are required so as to give the agreement as a whole a meaning that the agreement, read against the relevant background, would reasonably be expected to mean2. 104

The partnership agreement 7.4

Partners owe a duty of good faith to one another, as is discussed in Chapter 11. This general obligation is an implied term of their agreement3. There is no general implied obligation to one another that they comply with their statutory obligations4. 1 2 3 4

Davis v Davis [1894] 1 Ch 393 at 400 per North J. AG of Belize v Belize Telecom [2009] 1 WLR 1988. Neuberger J in Mullins v Laughton [2003] Ch 250, paras 130–1. Zeckler v Assigned Risk Pool Manager (2013) App Ref Ch/2011/0606 (N Strauss QC) [16].

(c) Consideration 7.3  Every partnership involves the partners accepting liability for the firm’s obligations to outsiders, so mutual consideration for the partnership agreement will always exist1. Illegal agreements are discussed in Chapter 4, and consideration in the context of novation at para 20.21ff below. 1 Per Wigram V-C in Dale v Hamilton (1846) 5 Hare 369 at 393.

B  The duration and continuation of the partnership (a)  The beginning and end of the partnership (i)  The beginning 7.4  Unless the contrary is agreed, a written partnership takes effect when1 the joint ‘business’ actually commences2. An incoming partner is not entitled to the benefit of accruing profit from work done by the previous firm3. An agreement between partners as to partnership will render them liable as regards outsiders if the other indicia of partnership are present (but not otherwise)4, even though the intended formalities are not complete as between themselves5, and even though they may have agreed that they intended to commence at a later date6. As between themselves they may purport to agree that their partnership be treated as backdated, but such an arrangement will not be binding on outsiders (such as HMRC) who are concerned only with when the partnership was actually created7. The execution of a partnership deed will not even operate to create a partnership from the date of the deed in a case where the extrinsic evidence clearly shows that there is no partnership in fact8. 1 Williams v Jones (1826) 5 B & C 108, where it was held that oral evidence is inadmissible to contradict the written statement as to the date of commencement of the partnership; Bayonet Ventures v Howard [2018] UKFTT 262 (TC). 2 Khan v Miah [1998] 1 WLR 477, discussed at para 2.7 above; Saywell v Pope [1979] STC 824; Krizaic v Ravinder Rohini Pty Ltd (1990) 102 FLR 8. The commencement of the liability is considered at para 20.13 below.

105

7.5  The partnership agreement 3 Re Curnot & Parkinson (1871) 40 LJ Ch 608. Unless the partners have agreed to the contrary: Wilsford v Wood (1794) 1 Esp 181. 4 Re Young, ex p Jones [1896] 2  QB  484, where the employee agreed to lend £500 to the employer in return for £3 per week out of the profits and the option to enter into partnership within seven months, which he did not do, and he was held not to be a partner in the meantime. 5 Battley v Lewis (1840) 1 Man & G 155, but contrast Vere v Ashby (1829) 10 B & C 288. It is otherwise if the indicia are absent and they never became partners in the end: Gabriel v Evill (1842) 9 M & W 297 where an option to become a partner was never fully completed, though nearly so. 6 Wilson v Lewis (1840) 2 Man & G 197; Williams v Jones (1826) 5 B & C 108. 7 Saywell v Pope [1979] STC 824. 8 Per Slade J in Saywell v Pope [1979] STC 824 at 834b citing Rowlatt J in Dickenson v Gross (1927) 11 TC 614.

(ii)  The end 7.5  The cesser of the business does not put an end to the partnership, which continues until it is dissolved, as discussed in Chapters  16 and 17. Many rights and obligations of the partners continue after dissolution, as discussed in Chapter 18. Dissolution can be by consent, if genuinely reached, but if in fact the partnership is not ceasing, then mere agreement that it has ceased will not be effective1. 1 Watts v Hart [1984]  STC  548; Michael Faraday, Rodgers and Eller v Carter (1927) 11 TC 565, CA.

(b)  Agreed duration 7.6  A written partnership agreement will normally contain a provision as to the duration of the partnership. Otherwise the firm will be dissolved peremptorily by the death1 or on notice given by any partner2, which is highly inconvenient. The duration may be either for a term of years, or for the life of the members or some or all of them, or the expiry of a specific notice or of a specific project3. It can be for any measure of time whether or not capable of being calculated from the beginning of the term, but agreement for a duration of a definite term will not be implied from the fact that the firm’s business leases are due to expire at a certain future date4, or the firm needs time to pay its debts5. The dissolution of the partnership at the end of the duration is discussed at para 16.9 below. 1 Dissolution by death is discussed at para 16.28 below. 2 See para 16.22 below. 3 The Partnership Act 1890, s 32(b), discussed at para 16.9 below, provides that a partnership is dissolved ‘if entered into for a single adventure or undertaking, by the termination of that adventure or undertaking’ following McClean v Kennard (1874) 9 Ch App 336. Contradictions as to the determinability of the partnerships were considered in Rowlands v MacDonald [2002] NSWSC 282. 4 Crawshay v Maule (1818) 1 Swan 495; Butts v Tynan (1968) 64 WWR 680; Syers v Syers (1876) 1 App Cas 174, HL. 5 King v Accumulative Life Fund and General Assurance Co (1857) 3 CBNS 151.

106

The partnership agreement 7.8

(c)  If no duration is agreed there is a ‘partnership at will’ 7.7  The partnership is called a partnership at will if it is ‘entered into for an undefined time’ or where ‘no fixed term has been agreed upon for the duration’ of the partnership1, by contrast with a partnership for a ‘fixed term’ or ‘single venture or undertaking’2. Any partner may determine a partnership at will at any time on giving notice of his intention to do so to all the other partners, as discussed at para 16.22ff below. The burden of proof is on the person asserting that the partnership is of a certain duration and not a partnership at will3. There is certain duration if the firm is to last ‘so long as profitable’4 or until determined ‘by mutual arrangement only’5 or until a new draft partnership agreement is signed6, or where there is provision for notice of dissolution being given by certain of the partners in certain circumstances7. There is also certain duration if the agreement provides that a partner might retire and that retirement does not dissolve the partnership8, or if the purpose of the partnership is to carry out a ‘single adventure or undertaking’9. 1 By the Partnership Act 1890, ss 32(c) and 26(1), which are printed as Appendix A below and discussed at para 16.23 below. 2 By the Partnership Act 1890, s 32(a) and (b), which are printed in Appendix A below and discussed at para 16.9 below. 3 Burdon v Barkus (1862) 4 De GF & J 42; Baxter v Plenderleath (1824) 2 LJOS Ch 119. 4 Wilson v Kirkcaldie (1894) 13 NZLR 286. 5 Moss v Elphick [1910] 1 KB 846; Nelson v Moorcraft (2014) WASCA 212. 6 Walters v Bingham [1988] 1 FTLR 260, where Sir Nicholas Browne-Wilkinson V-C pointed out that an indefinite period was not necessarily an undefined period. 7 Maillie v Swanney 2000 SLT 464. 8 Abbott v Abbott [1936] 3 All ER 823. The provisions in that agreement that gave rise to the implication that the firm should continue so long as two of the six partners were alive, were: ‘The death or retirement of any partner shall not terminate the partnership … If any partner shall … do or suffer any act which would be ground for the dissolution of the partnership by the court then he shall be considered as having retired’. 9 See the Partnership Act 1890, s 32, discussed at para 16.9 below; Oppenheimer v Frazer and Wyatt [1907] 2 KB 50; McClean v Kennard (1874) 9 Ch App 336.

(d)  Terms of continuation of the old partnership (i)  Implicit partnership at will 7.8  Where a partnership expires by effluxion of time or even by illegality1, but the members continue it without dissolution, it becomes a partnership at will (if no other duration has been agreed) and there is a presumption of fact that the other agreed terms survive and continue2. Section 27 of the Partnership Act 1890 provides: (1) Where a partnership entered into for a fixed term is continued after the partnership has expired, and without any express new agreement, the rights and duties of the partners remain the same as they were at the expiration of the term, so far as is consistent with the incidence of a partnership at will.

107

7.9  The partnership agreement (2) A continuance of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is presumed to be a continuance of the partnership.

Like any such presumption this may be rebutted by evidence of express or implied agreement3. But contrary agreement will not be inferred merely from the inconvenience of the partnership being determinable at will4: In Butts v Tynan5 the partners had just signed a lease of office premises for a term of years. Held that this did not raise an implied term that notice of dissolution should be a reasonable notice or that the partnership should continue for the term of the lease. 1 Hudgell Yeates & Co v Watson [1978] QB 451, CA, but this is to stretch the wording of s 27 and of course there can only be continuation if the illegality has ceased. 2 Daw v Herring [1892] 1 Ch 284; Cox v Willoughby (1880) 13 Ch D 863; Clark v Leach (1863) 1 De GJ & Sm 409; Parsons v Hayward (1862) 4 De GF & J  474; Essex v Essex (1855) 20 Beav 442; King v Chuck (1853) 17 Beav 325. 3 The new partnership may be on different terms: Neilson v Mossend Iron Co (1886) 11 App Cas 298; Walters v Bingham [1988] 1 FTLR 260; Firth v Amslake (1964) 108 Sol Jo 198. 4 King v Accumulative Life Fund and General Assurance Co (1857) 3 CBNS 151. 5 (1968) 64 WWR 680; see also Syers v Syers (1876) 1 App Cas 174, HL.

(ii)  When there is no continuation 7.9  There is no continuation if some active partners are merely winding up the old business as they are required to do by sections 38 and 39 of the Partnership Act 18901, or finishing the original partnership project: In Re Head Estate2 one partner in a firm of farmers died. The surviving partner did not ‘continue’ the business by threshing and marketing the grain that was already grown, but did so by planting and harvesting a new crop. 1 Discussed in Chapter 18. 2 (1932) 40 Man LR 570 (Canada).

(iii)  Which terms continue 7.10  The terms that continue when section 27 takes effect are those of the original agreement that are ‘consistent with the incidence of a partnership at will’1. This depends on the circumstances of the case2. Provisions relating to the question of how dissolution may be effected do not survive: so a provision that the partnership expires at the end of a specific term cannot continue after that term has passed and the partnership continued3, nor can a right to dissolve on specific notice4, or on an assignment5, nor will a provision as to how the partnership assets should be sold in those circumstances6. It has (once) been held7 that a covenant against competition does not survive, but usually it will do so. 108

The partnership agreement 7.11

The following survive into the new partnership at will: • •

• • •

Accruer: a provision that on death the business accrues to the continuing partners will survive8; Pre-emption: a right of pre-emption9 or a provision entitling a partner to determine the partnership on six months’ notice (whereupon she had the right to buy the defendant’s share at a valuation)10 is consistent with a partnership at will and so survives the original term11. So does a provision as to how the firm is to be wound up if a partner dies or retires12. It is otherwise if the option is only exercisable by reference to a certain date which has passed13; Suretyship: a surety for the liability of a partner is discharged and his obligations do not survive into the new partnership at will14; Expulsion: a power to expel will survive15; Arbitration: an arbitration clause will survive16.

  1 See the Partnership Act 1890, s 27(1), quoted above.   2 Per Megarry J in Stekel v Ellice [1973] 1 All ER 465 at 471.  3 Parsons v Hayward (1862) 4 De GF & J 474; Maillie v Swanney 2000 SLT 464.  4 Campbell v Campbell (1893) 6 R 137, HL; Maillie v Swanney 2000 SLT 464.   5 See note 4 above.  6 Woods v Lamb (1866) 35 LJ Ch 309; Myers v Myers (1891) 60 LJ Ch 311.   7 By Bristow J in Hensman v Traill (1980) 124 Sol Jo 776. Other parts of that judgment were specifically overruled by the Court of Appeal in Kerr v Morris [1987] Ch 90.  8 McLeod v Dowling (1927) 43 TLR 655.  9 Bilioara Pty v Leisure Investment Pty Ltd (2001) 11 NTLR 148. 10 Brooks v Brooks (1901) 85 LT 453. Such provisions are discussed at para 18.34 below. 11 See also to similar effect Daw v Herring [1892] 1 Ch  284; Cox v Willoughby (1880) 13 Ch D 863; King v Chuck (1853) 17 Beav 325; M’Gown v Henderson 1914 SC 839; Essex v Essex (1855) 20 Beav 442; contrast Myers v Myers (1891) 60 LJ Ch 311; Hogg v Hogg (1876) 35 LT 792; Cookson v Cookson (1837) 8 Sim 529 (which may be wrongly decided); Darby v Darby (1856) 3 Drew 495; and Bilioara Pty v Leisure Investment Pty Ltd (2001) 11 NTLR 148. 12 Hammond v Brearley (10 December 1992, unreported), CA, per Hoffmann LJ. 13 Neilson v Mossend Iron Co (1886) 11 App Cas 298, HL. 14 Small v Currie (1854) 18 Jur 731. 15 Walters v Bingham [1988] 1  FTLR  260 at 268 per Browne-Wilkinson V-C not following Clark v Leach (1863) 1 De GJ & Sm 409. 16 Gillet v Thornton (1875) LR 19 Eq 599. The extent of the continuance of the provisions of the original agreement may also be the subject matter of an arbitration clause: Cope v Cope (1885) 52 LT 607.

C  Construction of the partnership agreement 7.11  A court construes a partnership agreement to gather from it the intention of the partners as expressed in it1. Today the process will be robust rather than technical; where there is a mistake on the face of the document and it is clear what correction ought to be made to correct it, the court will make the correction as a matter of construction2. Interpretation is ‘the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’3. 109

7.11  The partnership agreement

In the partnership case Yafai v Muthana4 the Court of Appeal followed Rainy Sky SA v Kookmin Bank5 where Lord Clarke of Stone-cum-Ebony stated at para 21: the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.

Similarly, in CitizenM LND St Paul’s Properties BV v Chil Limited6, Arden LJ said in relation to a poorly drawn partnership agreement: the most significant principles of interpretation for the purposes of the dispute are that (1) agreements should be interpreted so that some weight is given to each provision and none of the provisions is read so as to be ineffective, or “otiose”, either in whole or in substance; and (2) a construction which avoids commercial absurdity is to be preferred to one which produces a commercial absurdity.

Because the partners may vary or waive, even by conduct or implication, a provision in a partnership agreement even if it is under seal7, the courts have always been prepared to ignore provisions in the partnership agreement that have been ignored by the partners8 or which look like being a nonsense9 or commercially unlikely to have been intended10. The general principles of partnership law will apply to every partnership agreement unless and to the extent that these provisions are displaced by agreement between the partners11. But this does not mean that there is a general ‘default’ principle so that if a partnership deed is silent as to the basis of a valuation on retirement, then certain legal rules take over12. In Hornabrook v Parsons13 Hoffmann LJ14 considered a retirement provision under which the outgoing partner was to receive his capital but appeared to be under no obligation to pay anything back to the firm if the capital account was overdrawn, as in fact it was. Held he must repay it: ‘It would take express language to exclude the general principle of partnership law that upon a dissolution a partner who on the taking of the account owes money to the firm must pay it back. The learned judge approached the matter on the footing that the plaintiffs had to satisfy the stringent requirements of showing that a term to this effect should be implied. In my judgment, this is putting the matter the wrong way round. I think it is necessary to show that the general principle is excluded.’

The current market value of the assets has been said to be preferable to historic value, if consistent with the partnership agreement15, but on the other hand in Ham v Ham16 Lorimer LJ stated: It depends upon the correct interpretation of the partnership deed. There are no special presumptions or default rules which point towards one basis of valuation or another.

110

The partnership agreement 7.13  1 The agreement may bear different meanings in different places: Watson v Haggitt [1928] AC 127.  2 Chartbrook Ltd v Persimmon Homes [2009] 1 AC 1101.   3 Per Lord Hoffmann in ICS  Ltd v West Bromwich Building Society [1988] 1  WLR  898 at 912, quoted by Briggs J in the partnership agreement construction case O’Leary v Standen (18 June 2010, unreported). See also Lord Neuberger in Marley v Rawlings [2014] UKSC 2 at para 9 and Arnold v Britton [2015] UKSC 36 at para 17ff.   4 [2012] EWCA Civ 289.   5 [2011] 1 WLR 2900.   6 [2016] EWCA Civ 771.   7 See para 2.9 above.  8 Jackson v Sedgwick (1818) 1 Swan 460 per Lord Eldon at 469, cited by Sir George Turner MR in Blisset v Daniel (1853) 10 Hare 493 at 520.  9 Hitchman v Crouch Butler Savage Associates (1983) 127 Sol Jo 441, in which BrowneWilkinson V-C declined to apply the provision in the agreement that an expulsion notice must be signed by the senior partner, when the person to be expelled was the senior partner himself. 10 Hammonds v M Danilaus [2009] EWCA Civ 1400. 11 Per Chadwick LJ in Re White [2001] Ch 393 at 401H. He also observed at 416B that there was no presumption that the partners did or did not intend a retiring partner to receive full value for his share, or some artificially lesser sum. (But Chadwick LJ’s use of the phrase ‘the deceased partner’s share in the capital of the partnership’ was described as a ‘solecism’ by Lewison LJ in Ham v Ham [2013] EWCA Civ 1301.) 12 Drake v Harvey [2011] EWCA Civ 838. 13 (3 February 1995, unreported), CA Transcript. 14 And Glidewell and Hirst LJJ, who agreed. 15 Park J in White v Minnis [2001] Ch 393. 16 [2013] EWCA Civ 1301 following Drake v Harvey [2011] EWCA Civ 838 and Re White [2001] Ch 393.

(a)  Foreign law 7.12  It is possible to provide that an English partnership is governed by the law of a foreign country1 but not that in its interpretation the English courts should adopt a system of law which is non-territorial, such as Sharia law2 or Jewish law3. 1 Halpern v Halpern [2007] EWCA Civ 291. 2 Beximco Pharmaceuticals Ltd v Shamil Bank of Bahrain EC (No 1) [2004] 1 WLR 1784. But agreement may provide for Saudi Arabian law, which may amount to much the same thing: Abdel Hadi Abdallah al Qahtani & Sons Beverage Industry Co (A company incorporated under the laws of Saudi Arabia) v Andrew Antliff [2010] EWHC 1735 (Comm). 3 Halpern v Halpern [1997] 3 WLR 849.

D Penalties, forfeitures and unfair and onerous conditions (a)  Public policy 7.13  A provision that a partner may not take legal advice on the meaning of the partnership agreement is likely to be void, as are provisions which are sexually or racially discriminatory1. 1 Discrimination is discussed in Chapter 13.

111

7.14  The partnership agreement

(b) Insolvency 7.14  The partnership may contain a provision to the effect that a partner’s share is forfeit or reduced in value in the event of his bankruptcy or any other specified event. Such a provision is enforceable between the partners1 but will be void against the partner’s creditors2. 1 Re Williams, ex p Warden (1872) 21 WR 51. 2 Whitmore v Mason (1861) 2 John & H  204; Wilson v Greenwood (1818) 1 Swan 471; Mosaic Oil NL v Angari Pty Ltd (1990) 20 NSWLR 280 at 284. Insolvency of the partnership is discussed generally in Chapters 22 and 23.

(c) Penalty 7.15  If a partnership agreement contains a provision to the effect that upon default by a partner he becomes liable to the firm or another partner for a sum1 which is not a genuine pre-estimate of the damage caused by his breach, the provision will be unenforceable2. But it will not be unenforceable if it is of the essence of their arrangement that the particular failure will lead to the loss in question. In Nutting v Baldwin3 the rules of an association, which existed to coordinate and conduct certain group litigation for its members, provided that if any defaulted in his subscription then he ceased to be entitled to share in anything that the association might recover; Rattee J held this not to be a penalty.

A partner can be bound by a provision that he is deemed to accept the partnership account: see para 14.34 below. 1 It need not be a money sum: Jobson v Johnson [1989] 1 WLR 1026. 2 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79. 3 [1995] 1 WLR 201. See also Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573, PC.

(d)  Forfeiture and relief from forfeiture 7.16  If a provision in the partnership agreement has the effect that a partner loses all or part of his partnership share or other rights for a comparatively trivial error or breach of his duties to his partners, the court may relieve in equity against such forfeiture1. Forfeiture of all or part of his interest2 in the firm may be relieved against if the purpose of the forfeiture provision is merely to secure the primary object of the agreement and that object is still capable of being attained3. But the court will only intervene in appropriate and limited cases, after consideration as to whether the default was wilful, how grave is the breach, and the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach4. 112

The partnership agreement 7.19 1 Nutting v Baldwin [1995] 1 WLR 201 at 209 per Rattee J; the facts are briefly stated in the text above. 2 The loss must be of a proprietary interest: Scandinavian Trading Tanker Co AB  v Flota Petrolera Ecuatoriana [1983] 2 AC 694; Sport International Bussum BV v Inter-Footwear Ltd [1984] 1 WLR 776. 3 See Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] AC 691 at 723–724. 4 Per Lord Wilberforce [1973] AC 691 at 723–724.

(e)  Unfair and onerous conditions 7.17  If a partner joins a firm by reference to a written agreement which contains particularly extortionate conditions which he does not read and which are not brought to his attention then he will not be bound by them1, but there is no reported partnership case in which this principle has applied2. Sections 2, 3 and 7 of the Unfair Contract Terms Act 19773 do not extend to a contract so far as it relates to the formation or dissolution of a partnership4. The Consumer Rights Act 2015 does not apply to the partnership agreement because it applies only to a consumer, who is defined as a person acting for purposes that are wholly outside his trade, business, craft or profession5. 1 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433. 2 It was not applied by Rattee J in Nutting v Baldwin [1995] 1  WLR  201, but see Joyce v Morrissey (1998) 47 LS Gaz R 29, CA. 3 Which restrict the right of a contracting party to exclude liability for negligence, to exclude liability for breach of contract in consumer contracts, and to impose unreasonable indemnity clauses upon those contracting as consumers. 4 See the Unfair Contract Terms Act 1977, Sch 1, para 1. 5 See the Consumer Rights Act 2015, s 2(3).

(f)  Undue influence 7.18  A partnership agreement is voidable if it has been procured by the undue influence over the partner by another; this means improper use of power by the stronger person against the other1. Undue influence will be presumed if the person subject to the influence confers a substantial benefit on the other and the other stands in a relationship of confidence towards him, for instance if he is his solicitor or parent2. 1 Lloyds Bank Ltd v Bundy [1975] QB 326 at 337. 2 Allcard v Skinner (1887) 36 Ch D 145.

(g) Unconscionability 7.19  The partnership agreement is voidable at the instance of a partner who has been induced to enter into it in circumstances that are manifestly unfair to him, amounting to victimisation, although he need not necessarily be poor 113

7.20  The partnership agreement

or ignorant1. The fact that the contract is at a substantial undervalue does not alone suffice to establish unconscionability2. 1 Eggleston v Ashridge Investments Ltd (17 April 1997, unreported), NLD. 2 Alec Lobb (Garages) Ltd v Total Oil GB Ltd [1983] 1 All ER 944; Crédit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144; Brusewitz v Brown [1923] NZLR 1106.

(h)  Misrepresentation, and non est factum 7.20  Misrepresentation inducing a person to enter into a partnership agreement is mentioned at para  14.7 below and non est factum at para 2.1 above.

2 VARIATION OF THE PARTNERSHIP AGREEMENT A Express and implied variation between existing members   7.21 B A new partner joining the firm   7.23 C Partnership options  7.25 D Mergers  7.26

A Express and implied variation between existing members (a)  What may be varied and by whom 7.21  Unless there is agreement to the contrary, ordinary matters connected with the partnership business may be decided by a majority1, as discussed at para  12.6 below. But no change may be made in partnership affairs which are not both ‘ordinary matters’ and ‘connected with the business’ without the consent of all. So unless the partnership agreement provides otherwise, the partnership agreement itself and the nature of the business2 and the profit share3 may only be altered by the unanimous agreement of the partners. Partners, if they please, may, in the course of the partnership, daily come to a new arrangement for the purpose of having some addition or alteration in the terms on which they carry on business, provided those additions or alterations can be made with the unanimous concurrence of all the partners4.

Where the partnership agreement provides that the agreement itself may be varied by a majority of the partners, the implication (in the absence of very clear words to the contrary5) is that it may not change its objects or constitution or the amount of its members’ capital contributions or other ‘fundamentals’6, nor make a rule directed at a particular member7. 114

Variation of the partnership agreement 7.22

A partner may give his partnership share to another partner, but a presumption of advancement between certain family members will not apply where they are partners8. 1 See the Partnership Act 1890, s 24(8). 2 See the Partnership Act 1890, s  24(8), discussed at para  12.3 below; Bissell v Cole [1998] CLY 4071, CA; Peat v Smith (1889) 5 TLR 306. 3 Const v Harris (1824) Turn & R 496 per Lord Eldon. 4 Per Lord Langdale MR in England v Curlling (1844) 8 Beav 128 at 133. 5 Redwood Master Fund Ltd v TD Bank Europe [2002] EWHC 2703, Rimer J. 6 Per Lord Atkin in Hole v Garnsey [1930] AC 472 at 496, for which reference I am grateful to my friend Michael Jeffries. Lord Tomlin said, at 500, that the amendments should be such as ‘can reasonably be considered to have been in the contemplation of the partners when the contract was made … If no such principle existed, I can see no reason why a dairy society in Wiltshire should not by means of the exercise of such a power as the one under consideration find itself converted into a boot manufactory society in Leicester with an obligation on the members to contribute funds to the new enterprise.’ 7 Per Chitty LJ in Strohmenger v Finsbury Permanent Investment Building Society [1897] 2 Ch 469 at 480, CA. For the question of a majority oppressing a minority see para 12.10 below. 8 Smith v Crawshay [2019] EWHC 2507 (Ch) at [66].

(b)  Express and implied consent to variation 7.22  Any alleged oral variation of a written agreement must be clearly proved1. But any provision in the partnership agreement or convention between the members that can be altered by express agreement can equally be varied by implied agreement of all the partners2. Section 19 of the Partnership Act 1890 provides: The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all the partners, and such consent may be either express or inferred from a course of dealing.

Thus where all the partners are liable for losses as between themselves but one is never called upon to contribute, the implication is that he has been released3. Similarly the court will ignore provisions in the partnership agreement which the partners themselves have ignored. As Lord Eldon observed in Jackson v Sedgwick4: Where a special agreement has been made, it must be abided by, provided that the parties have acted on it; if not, I always understood that the articles are read in this court as not containing the clauses on which the parties have not acted.

So a judge may take into account how the parties had conducted themselves, when deciding that a solicitor in a partnership was entitled to a capital payment from the capital partnership account5. It varies from case to case how much or how regular a departure from the partnership agreement amounts to an implication that there is a variation6. It has been observed that a single instance of departure from the terms of the agreement is insufficient7, but ‘one act of great importance might be sufficient’8. If the majority of partners claim that the agreement has been varied to extend 115

7.22  The partnership agreement

the firm into a new area of business, the minority must either be involved in the new business or fully aware of it and acquiescing in it9. The implied variation extends no further than the conduct upon which it is based. For instance if the firm varies the agreement as to the method of preparing annual accounts, this will not amount to a variation in the manner in which such accounts are prepared for the purpose of valuing the share of a dead partner10. One partner may waive a term in his own favour without there being any variation in the partnership terms. In Coventry v Barclay11 the agreement required that a partner sign the partnership books annually in order to be bound by them. He did so regularly for 28 years and then was absent from the annual meeting from ill-health and died two months later. He never expressed dissatisfaction with the accounts. Held that his estate was as much bound by the books as if he had signed them.

Although unanimity is required for a change in the agreement, consent may be implied where some of the partners purpose to make the change and the others by their conduct acquiesce in it: ‘then those rules become binding on all’12. If the management committee exceeds its powers, partners who do not object are deemed to have acquiesced13. But they must know of the change and also of their right not to be bound by it, and they must have understood it14. The larger the firm, the more difficult it will be to infer that all have agreed15.  1 Lawes v Lawes (1878) 9 Ch D 98; Patel v Patel [2019] EWHC 298 (Ch) following Joyce v Morrissey [1999] EMLR 233 and Hodson v Hodson [2010] PNLR 8.  2 Coventry v Barclay (1863) 33 Beav 1; on appeal (1864) 3 De GJ & Sm 320; England v Curling (1844) 8 Beav 129; Geddes v Wallace (1820) 2 Bligh 270; Re Vale of Neath and South Wales Brewery Co, Keene’s Executors’ Case (1853) 3 De GM & G 272; Turnock v Taylor (1961) 180 Estates Gazette 773.  3 Geddes v Wallace (1820) 2 Bligh 270.   4 (1818) 1 Swan 460 at 469, cited by Sir George Turner MR in Blisset v Daniel (1853) 10 Hare 493 at 520.  5 Bottrill v Harling [2015] EWCA Civ 564.   6 In Pilling v Pilling (1865) 3 De GJ & Sm 162 the practice of the firm in keeping accounts and dividing profits had departed from the mode required by the partnership agreement and was held binding on the firm; contrast Patel v Patel [2019] EWHC 298 (Ch) and cases there cited.  7 Austen v Boys (1858) 2 De G & J 626.   8 Per Kekewich J in Peat v Smith (1889) 5 TLR 306.  9 Natusch v Irving (1824) 2 Coop temp Cott 358. 10 Cruikshank v Sutherland (1922) 128 LT 449, HL; Lawes v Lawes (1878) 9 Ch D 98. Contrast Re White [2001] Ch 393, CA (where retirement accounts were directed to be based on annual accounts) and Ex p Barber (1870) 5 Ch App 687. 11 (1863) 3 De GJ & Sm 320, followed in Cruikshank v Sutherland (1922) 128 LT 449, HL; cf Re White [2001] Ch 393, CA. 12 Per Lord Denning in Abbott v Treasury Solicitor [1969] 1 WLR 1575 at 1583E, citing Const v Harris (1824) Twn & R 496, 523, and Brett J in the company case Phosphate of Lime Co Ltd v Green (1871) LR 7 CP 43 at 63. 13 Per Carnwath J at first instance in Hurst v Bryk (11 April 1995, unreported) citing Abbott v Treasury Sol [1969] 1 WLR 1575 at 1583. 14 Joyce v Morrissey [1998] 47 LS Gaz R 29, CA. 15 In re Frank Mills Mining Company (1883) 23 Ch D 52 per Jessel MR at 56. We are grateful to our friend David Raphael for this reference.

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Variation of the partnership agreement 7.24

B  A new partner joining the firm (a)  Express agreement with the new partner 7.23  Strictly speaking the arrival of a new member creates a new firm. This does not mean that the old firm is dissolved: see para  16.1 below. A new partner cannot be introduced without the unanimous consent of the members unless the partnership agreement provides otherwise1. Section  24(7) of the Partnership Act 1890 provides that in the absence of contrary agreement: No person may be introduced as a partner without the consent of all existing partners.

An attempt by a partner to bring in a new partner without the consent of the firm will be a nullity unless it implicitly amounts to a sub-partnership2 of the partnership share or an assignment3 of it, in either case giving the purported recipient fewer rights than those of a real partner. The firm should require that any incoming partner signs the partnership agreement, and a well-drawn agreement will provide for this and will also provide that the new partner will be bound by any variations in the agreement that may have been agreed expressly or implicitly by the old partners, whether the new partner has notice of them or not. The beginning of the liability of the newcomer to outsiders is discussed at para 20.13 below; the effect of his declining to sign the partnership agreement is considered at para 2.8 above. 1 Crawshay v Maule (1818) 1 Swan 495 at 509n. 2 For sub-partnerships see Chapter 6. 3 Bray v Fromont (1821) 6 Madd 5; Cassels v Stewart (1881) 6 App Cas 64; for the rights of assignees see Chapter 10.

(b)  Implied agreement with the new partner 7.24  If a person joins in carrying on the business of the firm he is likely to become a partner, as discussed in Chapter 2. If an incoming partner is aware of the existence of the old agreement and does not raise any objection to its terms, he will be bound by it by novation1 or by implied agreement2. Similarly if he succeeds to another’s partnership share, he will be bound by variations which have already been agreed3. But if he is unaware of the old agreement or indicates (for instance by negotiating for new terms) that he does not consider himself bound by it, then he is not bound, and his arrival creates a new partnership between all the partners which supersedes that of the old agreement4. It will be a partnership at will unless all partners implicitly accept some new specific duration for it5. 1 Baxter v West (1860) 1 Drew & Sm 173; Whisper Holdings Ltd v Zamikoff [1971] SCR 933, 19  DLR (3d) 114 (Canada). For novation as regards outsiders, see paras 20.15 and 20.21 below.

117

7.25  The partnership agreement 2 Castledine v RSM Bentley Jennison Ltd [2011] EWHC 2363 (Ch), where an incoming partner was bound by the terms of a supplemental agreement of which he had notice because it was mentioned in the partnership agreement he acceded to; Austen v Boys (1857) 24 Beav 598; affd (1858) 2 De G & J 626; Worts v Pern (1707) 3 Bro Parl Cas 548, HL. 3 Const v Harris (1824) Turn & R 496 at 521. 4 Per Plowman J in Firth v Amslake (1964) 108 Sol Jo 198; to similar effect is Cheema v Jones [2017] EWCA Civ 1706, contrasting Austen v Boys (1857) 24 Beav 598. 5 For the duration of the firm, see para 7.4 above.

C  Partnership options 7.25  It was once common for a partnership agreement to give an existing partner a right to nominate a new partner, often his son. Or another person (often an investor1) would be given an option to become a partner on satisfying certain conditions. All these options were enforceable against the continuing partners2 according to their terms3, but the firm could not compel the nominated person to accept a place in the firm4. If the partnership agreement provided that after a partner’s death his executors should become partners in his place, the court would not enforce it against them if they declined5. Like any option agreements, they could only be exercised strictly according to their terms6, but (according to their terms) they sometimes imposed upon the original partners an obligation to do nothing to jeopardise the business to the detriment of the person with the benefit of the option7. Until he was actually admitted, the incomer was not to be treated as a partner8: for instance he could not have accounts formally taken9 or invoke an arbitration clause in the partnership agreement10. If the partnership agreement empowered a partner to nominate his widow as his successor, but he merely left her in his will his ‘share’, that was not a valid nomination11.   1 Eg Meyer v Schacher (1878) 38 LT 97.  2 Byrne v Reid [1902] 2 Ch 735, CA; Lovegrove v Nelson (1834) 3 My & K 1; Page v Cox (1852) 10 Hare 163; M’Neill v Reid (1832) 9 Bing 68.  3 Byrne v Reid [1902] 2 Ch 735; Dibbins v Dibbins [1896] 2 Ch 348; Vansittart v Osborne (1871) 20 WR 195; Holland v King (1848) 6 CB 727; Mannai Investment Co Ltd v Eagle Star Assurance Co Ltd [1997] AC 749, HL.  4 Re Franklin and Swathling’s Arbitration [1929] 1 Ch  238; Lancaster v Allsup (1887) 57  LT  53; Downs v Collins (1848) 6 Hare 418; Madgwick v Wimble (1843) 6 Beav 495; Kershaw v Matthews (1826) 2 Russ 62.  5 Lancaster v Allsup (1887) 57 LT 53; for specific performance of partnership agreements see para 14.2 below. Lisle v Reeve [1902] 1 Ch 53; affd [1902] AC 461.  6 Brooke v Garrod (1857) 3  K & J  608. So the option must be exercised on time (Holland v King (1848) 6 CB 727) or if no time is fixed then within a reasonable time (Vansittart v Osborne (1871) 20 WR 195). A right to introduce two sons does not allow the introduction of a third son if one of the first two has died: Watney v Trist (1876) 45 LJ Ch 412.  7 Allhusen v Borries (1867) 15  WR  739 (no prior dissolution allowed); Evans v Hughes (carrying on the business in another form); Page v Cox (1852) 10 Hare 163 (where the provision in the partnership agreement imposed a trust of the partnership share); but see Ehrmann v Ehrmann (1894) 72 LT 17 (where prior dissolution was permitted) questioning Re Flavell, Murray v Flavell (1883) 25 Ch D 89 at 102.  8 Gabriel v Evill (1842) 9 M & W 297; Dickinson v Valpy (1829) 10 B & C 128 at 141.  9 Pigott v Bagley (1825) M’Cle & Yo 569. 10 Re Franklin and Swathling’s Arbitration [1929] 1 Ch 238. 11 Thomson v Thomson 1962 SLT 109.

118

Variation of the partnership agreement 7.26

D Mergers 7.26  It is common for two professional firms to agree to merge and to continue as a single firm, or at least to give that impression to outsiders. This may mean that all or only some of the old partners become partners in the new firm, and will further mean one of three things: (a) all assets and liabilities of both firms are combined; or (b) the business, name and goodwill of one firm are acquired by the other, leaving the liabilities (and perhaps some assets) of the former firm in the hands of its former partners regardless of whether they become partners of the merged firm; or (c) the business, name and goodwill of both firms are combined, but the liabilities (and perhaps some of the assets) of one or both firms are left in the hands of the former partners. The principal question to be determined will be which of these three is happening. Almost certainly the transaction will be embodied in a deed; if it is not, then the principles to be applied are those which govern every case in which a partner leaves or joins a firm as discussed above. Partnership deeds sometimes provide that a certain majority of the firm may vote to merge the firm with another firm, implicitly carrying any dissenting partners with them. Such provisions will have the effect of imposing upon such dissenters an obligation to enter a partnership that they never intended to join, and will be construed restrictively. It is doubtful whether a mere power to impose a merger on a minority will empower the majority to impose upon that minority any new partnership terms other than those necessary to effect the merger. The dissentient might be obliged to become a partner in the new firm, but not obliged to accept new terms (such as terms for his retirement) which are disadvantageous to him. The power of a majority to impose new terms on a minority by changing the terms of the partnership agreement are considered at para 7.21 above. The rights of creditors of a firm that has merged are considered at para 18.32 below.

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8 Partnership assets and liabilities Contents

para 1 Partnership property A Introduction���������������������������������������������������������������������������������8.1 B Categories of partnership property�����������������������������������������������8.3 C Partnership property contrasted with other property������������������8.12 2 The property of individual partners contrasted with that of the firm A Proprietary and non-proprietary rights���������������������������������������8.16 B Rules for ascertaining whether property belongs to one or more partners or to the firm�������������������������������������������������������8.20 3 Transfers of property between the firm and its members A Agreements between the firm and its members���������������������������8.28 B Creditors������������������������������������������������������������������������������������8.29 C Land: the requirement of writing������������������������������������������������8.30 D An agreement will not be inferred without evidence�������������������8.32 4 Partnership land, leases and tenancies A Partnership land generally����������������������������������������������������������8.33 B The nature and vesting of partnership land��������������������������������8.36 C Partnership leases, tenancies and reversions�������������������������������8.39 D Agricultural land������������������������������������������������������������������������8.48 E Partnership mortgages and charges��������������������������������������������8.51 5 Goodwill and the firm name A Goodwill������������������������������������������������������������������������������������8.52 B The firm name����������������������������������������������������������������������������8.55 C Companies Act 2006, Part 41����������������������������������������������������8.61 6 Confidential and privileged information and intellectual property A Confidential information belonging to the firm��������������������������8.68 B Confidential information belonging to a client���������������������������8.69 C Client loyalty������������������������������������������������������������������������������8.70 D Privilege�������������������������������������������������������������������������������������8.71 E Copyright, designs and other intellectual property���������������������8.72

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8.1  Partnership assets and liabilities

1  PARTNERSHIP PROPERTY A Introduction  8.1 B Categories of partnership property   8.3 C Partnership property contrasted with other property   8.12

A Introduction (a) General 8.1  The property of the partnership is to be distinguished from the property of its individual partners. A partner may be convicted of stealing partnership property from the partnership1. The question whether they, or he, may be the owner of any given asset, is a subject considered at para 8.20 below. Transfers of property between the firm and its members and vice versa are dealt with at para 8.28ff below. Whether the firm or an outsider owns an asset may lead to dispute between them, but that is a matter for the general law, which we need not discuss here2. Section 20(1) of the Partnership Act 1890 defines partnership property and provides for the manner in which it is to be held: All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement.

The partners therefore hold partnership property as agents ‘for the purposes’ of the partnership3, and land upon trust for it4. They are held according to the terms of the partnership agreement and the rules of law which protect outsiders dealing with the firm. Although the firm has no legal persona it can be said to be the owner of assets in the sense that the law requires those assets to be dealt with in a way that is different from the private assets of the partners. It has been said that partners are not entitled in their individual capacity to exercise proprietary rights over any partnership asset5. In particular the smallest creditor of the partnership has rights over the assets which rank ahead of the rights of the members of the firm, however numerous those members may be and however ample the partnership assets. Similarly no partner can describe himself as an owner or even part-owner of any partnership asset; in such he has nothing but an ‘indefinite and fluctuating interest’6. The beneficial interest is a beneficial interest in the partners not as tenants in common or as joint tenants, or anything of that kind, but their interest is exactly in proportion to what the ultimate amount coming due to them upon the final taking and adjustment of the accounts may be7.

122

Partnership property 8.2

His entitlement is only to a share in profits and a share in what is left after dissolution8 when the partnership has expired, and after the liabilities have been discharged9. 1 R  v Bonner [1970] 1  WLR  838, CA; see Devlin J in Baker v Barclays Bank Ltd [1955] 1 WLR 822 at 827 and Bovill CJ in R v Jesse Smith (1870) LR 1 CCR 266 at 269. 2 The firm’s position as regards outsiders is considered in Chapter 19. 3 For agents as trustees for their principal see Burdick v Garrick (1870) 5 Ch App 233 and Brown v IRC [1965] AC 244. The benefit of boxing contracts was held ‘upon trust for the partnership’ in Don King Productions v Warren [2000] Ch  291: see under ‘Categories of partnership assets’ below. 4 See the Partnership Act 1890, s 20(2) (printed in Appendix A below). This does not make partnership property into trust property for the purpose (for instance) of the Limitation Acts: Sze Tu v Lowe [2014] NSWCA 462, para 127. 5 Re Fullers’ Contract [1933] Ch 652 at 656, cited in Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216 and Sze Tu v Lowe [2014] NSWCA 462 where the nature of the trust (or metaphorical trust) governing partnership property is discussed. 6 Per Sir Robert Collier in Marshall v Maclure (1885) 10 App Cas 325, PC; see also SawyerMassey v Schley (1914) 29  WLR  454 (CAN). Buckley J in Burdett-Coutts v IRC  [1960] 1 WLR 1027 (an estate duty case) said at 1035 that in a dissolved partnership ‘each partner or his estate retains an interest in every single asset of the former partnership which remains unrealised or inappropriated’, and he cited with approval the statement of Romer J in Manley v Sartori [1927] 1 Ch 157 that the personal representatives of a deceased partner have ‘an unascertained interest in every single asset of the partnership’. The principle was recently endorsed and applied by the High Court of Australia in Commissioner of State Revenue v Rojoda Pty Ltd [2020] HCA 7. 7 Ashworth v Munn (1880) 15 Ch  D  363 at 369 (per James LJ); Perpetual Executors and Trustees Association of Australia Ltd v Australia (Commonwealth) Taxation Comr [1954]  AC  114; Re Rayleigh Weir Stadium [1954] 1  WLR  786; Green v Moran (10  May 2002, unreported), Ct of Sess; and Cooper v Critchley [1955] Ch 431. For the importance of the partnership agreement see Chapter 7 and Krist-Janson v Manitoba Co-op Fisheries Ltd [1931] 3 WWR 743 (Canada). 8 As to the division of any surplus see Chapter 18. 9 Rodriguez v Speyer Bros [1919] AC 59 at 68.

(b) Survivorship 8.2  In English law joint property accrues to the survivor upon the death of the co-owner. It has long been said that the right of survivorship is presumed to be inapplicable to partnerships: Jus accrescendi inter mercatores locum non habet1.

But like many a good maxim this is misleading2. When the firm is dissolved by the death of a partner then in the absence of agreement to the contrary3 the partnership assets accrue to the survivor subject to his liability to account to the personal representatives of the dead partner for his share in the partnership profits and any net proceeds after winding up4. For this the personal representatives have a lien5. As James LJ observed in Knox v Gye6: The representative of a deceased partner has no specific interest in, or claim upon, any particular part of the partnership estate. The whole property therein accrues to the surviving partner, and he is the owner thereof both at Law and in Equity. The right of the deceased partner’s representative consists

123

8.3  Partnership assets and liabilities in having an account of the property, of its collection and application, and in receiving that portion of the clear balance that accrues to the deceased’s share and interest in the partnership.

The true meaning of the maxim is that although all the assets accrue to the surviving partners, those partners are accountable to the estate of a partner who has died for his share of the value7. Thus in McClean v Kennard8 five partners agreed with the Khedive of Egypt to build a harbour at Alexandria. Before it was finished one of them died. The Court of Appeal in Chancery held that his estate was entitled to a share in the profit. As Sir G Mellish LJ said9: ‘At law the right to bring an action on the contract, and the liability to be sued on the contract, was in the survivors, yet it is quite clear that even at law, and much more in Equity, the benefit of the contract and the liability under the contract, as between the executors of the deceased partner and the surviving partners, continued notwithstanding the death …’

The question of survivorship as regards land is discussed further at para 8.38 below. 1 Co Litt 182a. 2 The maxim is often quoted in support of the proposition (which is of course correct) that partnership land is presumed to be held on tenancy in common rather than joint tenancy; see para 8.38 below. 3 An intention may be inferred without express agreement that the surviving partner may take over the interest of the deceased partner beneficially: see the Partnership Act 1890, s 19 (set out in Appendix A below) and Wood v Gould (1915) 53 SCR 51 (Canada). 4 Rees v Duncan (1900) 25 VLR 520 (Australia); Wray v Wray [1905] 2 Ch 349. 5 Re Bourne [1906] 2 Ch 427. For the partnership lien see para 10.6ff below. 6 (1872) LR 5 HL 656 at 675; the submission, based upon Buckley v Barber ((1851) 6 Exch 164) to the effect that the chattels of a trading partnership do not pass to the surviving partner, found no favour with their lordships. This is noteworthy because (as my friend Henry Legge pointed out) a chattel held by co-owners in common does not in general accrue to a survivor. 7 Wray v Wray [1905] 2 Ch 349; Ewing v Ewing (1882) 8 App Cas 822; Ashworth v Munn (1880) 15 Ch D 363, CA. 8 (1874) 9 Ch App 336. 9 (1874) 9 Ch App 336 at 346.

B  Categories of partnership property 8.3  A few forms of partnership property deserve special note.

(a) Land 8.4  Section 20(2) of the Partnership Act 1890 provides that land: which belongs to the partnership shall devolve according to the nature and tenure thereof, and the general rules thereto applicable, but in trust, so far as necessary, for the persons beneficially interested in the land under this section.

124

Partnership property 8.6

The words ‘under this section’ refer to section 20(1) quoted above, so the effect is that land is held upon trust for those interested under the partnership1. Partnership land (including agricultural land) and its particular difficulties are discussed at paras 8.20 and 8.33ff below. 1 The statutory provision declares the previous law. For an Australian statement of the law see Re Livanos (1955) QSR 362.

(b) Goodwill 8.5  Any partnership has (or once had) a business, and most businesses acquire some sort of goodwill even if it is not worth much. Usually it is attached to the firm name. It is linked to the right to bring passing-off proceedings against outsiders. It is an asset of the firm like any other, unless there is agreement between the partners to the contrary. Such is the flexibility of the arrangements that may be made between partners that it is possible for the goodwill of a business to be reserved to one partner only, giving the firm a mere right to profits from the goodwill1. If goodwill or the firm name is owned partly by the firm and partly by a partner beneficially, the court has jurisdiction to realise it with the other partnership assets even if the partner objects2. The whole subject of goodwill and its value requires a discussion of its own, which will be found at para 8.52ff below. 1 Miles v Clarke [1953] 1 All ER 779. 2 Gifford v Nash (9 June 2009, unreported), Master Price.

(c) Guarantees 8.6  In the absence of agreement to the contrary, a guarantee is not binding on the guarantor after there has been a change in the constitution (ie  the membership) of the firm which is either the principal creditor or the principal debtor, although his liability for existing debts is not affected1. Section 18 of the Partnership Act 1890 provides: A continuing guaranty or cautionary obligation given either to a firm or to a third person in respect of the transactions of a firm is, in the absence of agreement to the contrary, revoked as to future transactions by any change in the constitution of the firm to which, or of the firm in respect of which, the guaranty or obligation was given.

This makes a point which is slightly different from the more general rule that any alteration in a guarantee discharges the guarantor if (but only if) the alteration is potentially prejudicial to him2. The question of release of sureties is considered further at para 20.9 below. 1 Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833.

125

8.7  Partnership assets and liabilities 2 North Shore Ventures Ltd v Anstead Holdings [2011] 3 WLR 628; M Kallepetis QC sitting as a High Court judge in the Chancery Division in Bank of Scotland v Henry Butcher & Co [2001] 2  All ER (Comm) 691 following Canadian Imperial Bank v Skender [1986] 1 WWR 284, BCCA.

(i)  Guarantees for the liability of the firm 8.7  The liability of the firm to a creditor may be guaranteed by another firm or person. In the absence of other agreement, a continuing guarantee of the liability of a person ceases when he enters partnership1, and a continuing guarantee of the liability of a firm ceases to be binding on the guarantor as regards future liability if the constitution of the firm changes2. A change in the constitution of the firm means an alteration in its membership, for instance by the death of a partner3 or his retirement from it4. 1 Montefiore v Lloyd (1863) 15  CBNS  203; contrast where there is contrary agreement, which may be inferred if the guarantor knew of the intended partnership: Leathley v Spyer (1870) LR 5 CP 595; London Assurance Co v Bold (1844) 6 QB 514. 2 Section 18 quoted above; First National Finance Corpn Ltd v Goodman [1983] BCLC 203 at 209; Backhouse v Hall (1865) 6 B & S 507 at 520. 3 Phillips v Alhambra Palace Co [1901] 1 KB 59. 4 Solvency Mutual Guarantee Co v Freeman (1861) 7 H & N 17.

(ii)  Guarantees given to the firm as creditor 8.8  A continuing guarantee, given to a firm to secure the liability of one of its debtors, ceases to be binding on the guarantor as regards future liability if the constitution of the firm changes1, even by an increase in its number of members2. A change in the constitution of the firm means an alteration in its membership, or its incorporation3, but not its mere change of name4. 1 Section 18 of the Partnership Act 1890 is quoted above; First National Finance Corpn Ltd v Goodman [1983] BCLC 203 at 209. 2 Royal Bank of Scotland v Christie (1841) 8 Cl & Fin 214, HL. 3 Dance v Girdler (1804) 1 Bos & PNR 34. 4 Groux’s Improved Soap Co Ltd v Cooper (1860) 8 CBNS 800.

(d)  Life assurance policies 8.9  It is often a requirement of the firm’s bank that the firm’s borrowings be secured upon policies on the lives of the partners or some of them. The proceeds of such policies on their maturity can then be used to discharge the liability to the bank. But after the liability to the bank has been discharged there may be a question as to: (a) whether the residual value of the policy or its proceeds of sale belong to the firm or to the partner; and 126

Partnership property 8.10

(b) whether or not the partner should therefore be credited with the discharge of the bank’s borrowings. In the absence of contrary agreement, it is irrelevant that it is a particular partner whose life is insured; the policy and its proceeds belong to the beneficiaries who are identified in any deed of trust relating to the policy, or if none, for whoever paid the premiums1. Lord Mackay in the Court of Session considered a case2 where the premiums had been paid by the firm, but the cost of the premiums had been treated as drawings. On the death of a partner whose life was assured, the issue was whether the proceeds belonged to his widow, or to the firm, or merely to the surviving partners. The court accepted the evidence of a surviving partner that the policies belonged to the firm, and he so held, notwithstanding that this contradicted the evidence of the accounts treating the premiums as drawings. In Strover v Strover3 there was an express declaration of trust in favour of the surviving partners, but the partner whose life was insured had left the firm before he had died and had continued to bear the cost of the premiums in the mean time in the belief that the policy proceeds would be his. His estate was held to be entitled to a proportion of the policy proceeds under the doctrine of proprietary estoppel. 1 Forrester v Robson’s Trustees (1875) 2 R 775; Carter Bros v Ranouf (1962) 36 ALJR 67. 2 Hardie’s Executrix v Wales and Wales (26  May 2003, unreported) Ct Sess, noted in APP Issue 9 p 11. 3 [2005] EWHC 860 (Ch) per Hart J.

(e)  Work in progress 8.10  The work in progress of the business is an asset of the firm1 which may or may not be of any value on a general dissolution as is discussed at para 18.36 below. The ‘true and fair’ basis of accounting will bring employees’ (but not partners’) work in progress into the profit and loss account and so will alter the meaning of ‘profit’2. If the business is a continuing one the work in progress will almost certainly have some value. That it may not have been shown as an asset or given value on commencement or on the previous balance sheets of the firm is irrelevant to this3. The means of computation of its value will vary with the nature of the business. For instance, estate agents often bring a fee into account when contracts are exchanged for the sale of the property that they were instructed to sell. The difficulties that arise from contingency fees4 are dealt with by the courts in a pragmatic way: In Browell v Goodyear5 Blackburne J was faced with valuing the work in progress of a firm of solicitors whose income largely comprised contingency fees. He ordered that it should be computed what proportion of the firm’s work resulted in a fee, and what proportion of the work in each case had actually been done, and he suggested that it might be sensible to wait a year before the calculations were undertaken.

127

8.11  Partnership assets and liabilities

Work in progress must be treated differently according to whether it is being assessed for income tax purposes or valued on a partner’s retirement, as considered in paras 12.27 and 18.38 below. 1 Robertson v Brent and Haggitt [1972] NZLR 406 is to contrary effect, but perhaps the best explanation of that decision is that the work in progress in question could not be valued. The case was not followed by Blackburne J in Browell v Goodyear (2000) Times, 31 July. 2 See para 12.27 below and Champion v Workman [2001]  All ER (D) 212 (Jun), Lawrence Collins J. 3 Cruikshank v Sutherland [1922] All ER Rep 716; Lewis v Sturge NZ Case Law Dig 1990–92 s 42 per Holland J. 4 CFAs are assignable: Jenkins v Young Bros Transport [2006] EWHC 151 (QB). 5 (2000) Times, 24 October.

(f) Unsaleable property, contracts, offices, patents and other rights and intangible property 8.11  The categories of property that may be owned by a partnership are almost unlimited. An asset may still be a partnership asset although unsaleable; its benefit is then held upon trust for the partnership1. A firm may hold a solicitors’ lien or own a non-assignable office2 or a personal licence3 or a government contract in the name of one of its members4, or the benefit of public office5, although the effect of the Crown of the United Kingdom being vested in joint holders6 is outside the scope of this book, and Edwards-Stuart J has held that the content of an email is not a form of property7. Cryptoassets and perhaps even Bitcoin can be property8: Cryptoassets have all the indicia of property; the novel or distinctive features possessed by some cryptoassets – intangibility, cryptographic authentication, use of a distributive transaction ledger, decentralisation, rule by consensus – do not disqualify them from being property.

Although many forms of property (including land) must be vested for their legal title in an entity other than the partnership, this does not prevent the firm being the beneficial owner of almost anything, including choses in action and the right to enforce obligations in respect of guarantees9, and secret, confidential or privileged information10. It might be described as the ‘owner’ of the right to enforce the fiduciary obligations of its own members; these are dealt with in Chapter 11. It owns the benefits of contracts entered into on its behalf by one or more of its members, and contracts that are personal to its member where the partnership agreement provides that they are to be held for the firm, even where this may create a conflict of duty for the member concerned11. Thus a partner’s pension rights may be held upon trust for her firm, although there is no presumption to this effect12. Under the Patents Act 197713 two or more persons may hold a patent and, subject to any agreement to the contrary, they each may exploit it fully, but may not license it or assign or charge a share in it without the agreement of the others. The Partnership Act 1890 and any agreement between partners 128

Partnership property 8.13

who hold the benefit of the patent will prevail over the rights that the 1977 Act confers on individual co-holders of the patent14, which may be viewed as a partnership asset like any other15, as can be the right to a trade mark16.  1 Swift v Dairywise Farms Ltd [2000] 1  WLR  1177, applying Don King Productions Inc v Warren [2000] Ch  291, distinguishing Faulkes v Faulkes [1992] 1  EGLR  9 and Nokes v Doncaster Amalgamated Collieries [1940] AC 1014 and following Linden Gardens Trust v Lenesta Sludge Disposals [1994] 1 AC 85, 106, and Re Turcan (1888) 40 Ch D 5, CA; see also McClean v Kennard (1974) 9 Ch App 336.   2 A firm may be a company auditor (Companies Act 2006, ss 1210(1) and 1216) and if one of its members is a liquidator or receiver, then he may be accountable to the firm for his fees, as discussed at para 11.31 below.  3 John Taylors v Masons (2005) WTLR 1519, CA; Pathirana v Pathirana [1967] 1 AC 233.  4 Ambler v Bolton (1872) LR 14 Eq 427.  5 Smith v Mules (1852) 9 Hare 556.   6 This has not been recognised as having occurred since the death of Queen Mary II.  7 Fairstar Heavy Transport v Adkins [2012] EWHC 2952.   8 UK Jurisdiction Taskforce, Legal Statement on cryptoassets and smart contracts (2019).   9 See para 8.6 above. 10 See para 8.68ff below. Plans prepared by a professional firm belong to the client who paid for them but the copyright is in the firm: Leicestershire County Council v Michael Faraday & Partners Ltd [1941] 2 KB 205; Blair v Osborne and Tomkins [1971] 2 QB 78, CA. Although a legal aid certificate nominates an individual solicitor he does not own it and may not take it from the firm: Finlayson v Turnbull 1997 SLT 613, OH. 11 Don King Productions Inc v Warren [1998] 2 All ER 608 (approved [2000] Ch 291, CA) where Lightman J also suggested that a trust of the benefit of a contract might be precluded if the contract expressly said so. 12 Goldup v Cobb [2017] EWHC 526 (Ch). 13 See the Patents Act 1977, s 36. 14 See the Patents Act 1977, s 36; Young v Wilson (1955) 72 RPC 351; Kenny’s Patent ButtonHoleing Co Ltd v Somervell and Lutwyche (1878) 38 LT 878; Murray v King [1986] FSR 116 and O’Brien v Komescroff (1982) 150 CLR 310, HC of A. 15 Worthington Pumping Engine Co v Moore (1902) 20 RPC 41; on the other hand the rights of a performer under the Copyright, Designs and Patents Act 1988 are personal to the performer: Bourne v Brandon Davies (2006) 15 June 2006, Ch D (M Herbert QC). Copyrights, designs and other intellectual property are discussed at para 8.68ff below. 16 Byford v Oliver [2003] EWHC 295 (Ch).

C Partnership property contrasted with other property 8.12  The following are sometimes mistaken for partnership property (by those who have not read the rest of this work) and they deserve to be contrasted with it.

(a)  Partnership capital 8.13  The capital of the partnership is the total of the money or property that the partners have by mutual agreement contributed to the firm as their share of its capital. It is considered below in Chapter 9. 129

8.14  Partnership assets and liabilities

(b)  Partners’ property 8.14  Although a partner has unlimited liability for the debts of the partnership, this does not mean that his property is that of the firm, and questions often arise as to whether certain assets belong to him or the firm, and whether either have rights over the other’s property. This is discussed at para 8.20 below.

(c)  Property used but not owned by the firm 8.15  Often (especially in farming partnerships) the most valuable assets used by the firm are owned by some or all of the partners outside their capacity as such partners. The obvious uncertainty that this causes is discussed at para 8.16ff below.

2 THE PROPERTY OF INDIVIDUAL PARTNERS CONTRASTED WITH THAT OF THE FIRM A Proprietary and non-proprietary rights   8.16 B Rules for ascertaining whether property belongs to one or more partners or to the firm   8.20

A  Proprietary and non-proprietary rights 8.16  The firm and the partner will always have claims against one another, which can usually only be realised on dissolution. Non-proprietary claims are simpler and can be mentioned first.

(a)  What the firm owes to the partner 8.17  The firm may have taken property that belongs to a departing partner, and it must be returned to him; confidential information such as passwords and private internet accounts must have their privacy protected1. A partner will usually be entitled to a share in the firm’s profits, and such money, once paid, becomes his. He may also be entitled to call for undrawn profits from time to time, and to the return of advances that he may have made to the firm according to the terms upon which he made them, and to the return of his capital on dissolution. But in no sense can he call this money his own until after it has been paid to him, and none of it should be paid 130

The property of individual partners contrasted with that of the firm 8.20

to him until the demands of creditors have been satisfied. But after he has been paid his profit share the firm (and its creditors) have no claim to that money2. His rights to accounts while the firm is a going concern are dealt with at para 11.16ff below and those when the firm is in dissolution are at para 18.6ff below. 1 Brake v Guy [2019] EWHC 3332 (Ch). 2 Meyer & Co v Faber (No 2) [1923] 2 Ch 421 at 450 per Younger LJ.

(b)  The firm’s claims against the partner 8.18  The partner owes the firm obligations and duties of good faith, and an obligation to account for money such as excess drawings as is discussed elsewhere in this work. Such obligations impose upon the partner an immediate obligation to pay, which is discussed in Chapter 14.

(c) Liabilities 8.19  Whether a liability to an outsider (such as a mortgage debt) is given by the individual partner or by the firm is a question of the construction of the instrument creating the liability1. 1 AIB Group v Martin (UK) plc [2001] UKHL 63, [2002] 1 WLR 94; the question of the extent of the liability to the firm to outsiders is considered at Chapter 19.

B Rules for ascertaining whether property belongs to one or more partners or to the firm (a)  Express agreement between the partners 8.20  If there has been express agreement that an asset shall either be the property of the firm or of all or some of the partners, that is likely to be an end of the matter. The first section in the part of the Partnership Act 1890 that deals with the relations of partners to one another emphasises that consent is determinative, in these terms: 19 The mutual rights and duties of partners, whether ascertained by agreement or defined in this Act, may be varied by the consent of all the partners, and such consent may be either express or inferred from a course of dealing.

Writing is not required if there is no dispute as to the existence of the partnership1, but that issue may have to be tried first2. Any agreement relating to property may be open to attack on grounds (say) of mistake or 131

8.21  Partnership assets and liabilities

misrepresentation or as a fraud on creditors, but we have no need to discuss those remedies here3. Any ambiguities in the agreement will be resolved in accordance with ordinary canons of construction without there being any presumption that property purchased by persons who happen to be partners intend it to be partnership property4. Where a partnership agreement is unspecific as to whether the business lease of a partner is to become an asset of the firm, one may infer that it is not5. Land that is partnership property for tax purposes may not be partnership property as between them as partners6. The agreement may be informal; ownership of an article as large as a dancehall can be settled by parol arrangement even where a later deed was intended but never executed7. The agreement may be contained in the partnership agreement itself. But because that agreement can be varied, even orally or by implication8, its words (especially formal or general words) may be a poor guide to the actual intention of the partners9. Its meaning must be ascertained from all the surrounding circumstances: The whole scope of the agreement, and all its terms, ought to be looked at before any presumption of intention can properly be made at all10.   1 Eg under the Law of Property Act 1925, s 53(1)(c); Forster v Hale (1800) 5 Ves 308.  2 Isaacs v Evans [1899] WN 261.   3 Invalid provisions in the partnership agreement are considered in Chapter 7.  4 Re Wilson, Wilson v Holloway [1893] 2 Ch  340; Sterenchuk Estate Western Trust Co v Demchuk (1958) 16 DLR (2d) 505 (Canada).  5 Gian Singh & Co v Nahar [1965] 1 WLR 412 at 416.  6 Harvey v Harvey (1970) 120 CLR 529 (New Zealand).  7 Munro v Stein 1961 SC 362.   8 See s 19 quoted above.  9 Eardley v Broad (1970) 120 NLJ 432; Gian Singh & Co v Nahar [1965] 1 WLR 412; Pilling v Pilling (1865) 3 De GJ & SM 162. 10 See Sir Montague Smith in Mollwo, March & Co v Court of Wards (1872) LR 4 PC 419 at 433; Davis v Davis [1894] 1 Ch 393 at 399. Coward v Phaestos Ltd [2013] EWHC 1292. The intention of the landlord as to whether the lease was partnership property was held relevant in Gibb Australia Pty Ltd v Cremar Pty Ltd (1992) 108 FLR 129.

(b)  Implied agreement generally 8.21  An implied agreement between the partners is as decisive as an express one in resolving whether property is owned by the firm rather than by all or some of the partners. The important assent is that of the party adversely affected; so where it is said that property belongs to a partner and not to the firm, the implied consent of the firm is crucial. Important indicia are how the property appears in the firm’s accounts, how it was paid for, and how it is used, and these will be discussed under those headings below. But it is the modern tendency for the courts to strive to ascertain what was the actual intention, rather than to infer it artificially1. All the surrounding circumstances must be taken into account, and the question whether property belongs to a partner or a firm cannot be affected by the fact that he owes the firm fiduciary duties; the agreement defines the duties, not the other way round2. 132

The property of individual partners contrasted with that of the firm 8.22

No term in an agreement will be implied unless business efficacy requires it, and consequently it was held in Miles v Clarke3 that the assets brought into a partnership by the partners should remain their property once more after dissolution: The owner of some leasehold commercial premises went into partnership with a successful freelance photographer who had a substantial business connection. They agreed nothing save as to the division of the profits. The business flourished but the partners quarrelled. Held that the lease and the business connection remained respectively the properties of the partners who had contributed them, and that the only partnership assets were the consumable stock of the business.

The mere fact that a partner’s money is paid into the partnership bank account does not mean that the money is to belong to the partnership4. In the absence of agreement to the contrary, credit may be given for improvements to a partner’s property by the firm5. 1 See the approach of Nicholls J in Barton v Morris [1985] 1 WLR 1257. The matter is one of intention: Citic New Zealand v Fletcher (High Court, Auckland, CP583–SW/99), 1 March 2002, Potter J. 2 Coward v Phaestos Ltd [2013] EWHC 1292 [210, 227]. 3 [1953] 1 WLR 537. 4 Re Northall (deceased) [2010] EWHC 1448 (Ch). 5 Miles v Clarke [1953] 1 WLR 537; Powsey v Armstrong (1881) 18 Ch D 698.

(c)  Implied agreement discerned from the firm’s accounts 8.22  If a firm is properly set up, an opening balance sheet will show what are the assets of the firm, and the value of those assets will be shown as equal to the capital contributions of the partners, which will be specified. Thereafter from year to year the signed accounts of the firm should reveal capital acquisitions. From those documents it ought therefore to be possible to ascertain whether any given property has become an asset of the firm1. In Robinson v Ashton2, Robinson owned a mill and his partnership business was run there. He was credited in the partnership books as having supplied the value of the mill to the firm, although there had never been any agreement about it. Held by Jessell MR that the mill was an asset of the firm. Conversely in Cameron v Murdoch3 a house was bought with partnership funds but put in the name of a partner who occupied it. Held it was his and not the firm’s because the accounts showed that the money to pay for it had been deducted from his capital account with the firm which was evidence that he had been allowed to withdraw the funds for a personal purpose of his own.

In practice problems arise because there is no agreed opening balance sheet, or only a balance sheet composed by an accountant with tax concerns primarily in mind4; or because assets which once had no value to record on the balance sheet (such as a lease or the goodwill of a business) later acquire value, or because the partners acquire a windfall, such as a legacy, or 133

8.23  Partnership assets and liabilities

compensation, or a development advantage, not previously anticipated. In all such circumstances the accountants are no more likely than the partners to know who owns the asset in question. Implied agreement as to the ownership of an asset may not be found readily from the accounts. Inaccurate and unreliable accounts produced by an accountant had little evidential value on this question in Miles v Clarke5 and even a specific entry in the partnership accounts showing assets in the name of a partner has not prevented the contrary being held on the basis of other evidence6. Express agreement may be ascertained from the accounts because once a partner has signed the firm’s accounts he is bound by them as a ‘settled account’ in the absence of any of the defences considered below in Chapter 14. The absence of farmland as an asset shown in the balance sheet of a farming partnership is a strong indication that it is not agreed to be partnership property7, but the circumstances may evidence no such implied agreement8; the fact that property appears on the partnership balance sheet is evidence, but not conclusive evidence, that it is partnership property9.In Barton v Morris10 Nicholls J rejected an entry in some draft accounts prepared by the accountant and one of the two partners with the knowledge of the other, when he held that the entry conflicted with what he found to be the partners’ true intention: I do not accept that … inclusion of the property in the draft accounts … showed an intention on her part, let alone the defendant’s part, that thenceforth the property was to be held as tenants in common in equal shares … That would have represented a fundamental change in the parties’ intention from what was expressed when the property was bought, and I have seen and heard no evidence that either party changed that intention at all11.  1 Re Hulton, Hulton v Lister (1890) 62 LT 200, CA.   2 (1875)  LR  20 Eq 25, approved in Ham v Ham [2013]  EWCA  Civ 1301. See also Hills v Parker (1861) 7 Jur NS 833, HL and Pilling v Pilling (1865) 3 De GJ & Sm 162.   3 (1986) 63 ALR 575, 60 ALJR 280 (PC), considered in Sze Tu v Lowe [2014] NSWCA 462, para 133.   4 See Nicholls J in Barton v Morris [1985] 1  WLR  1257 at 1262H and Hardie’s Executrix v Wales and Wales (26  March 2003, unreported) Ct Sess, noted in APP  Issue 9 p  11 and considered at para 8.9 above.   5 [1953] 1 WLR 537, where Harman J famously described accountants as ‘the witchdoctors of the modern world’.  6 Re Higginson, ex p Hinds (1850) 3 De G & Sm 613; Barton v Morris [1985] 1 WLR 1257.  7 Jack v Jack (2016) CSIH 75 (Scotland).  8 Sobey v Sobey (2016) VSCA 36, discussed in para 8.23 below.  9 Wild v Wild [2018] EWHC 2197 (Ch), following Ham v Bell [2016] EWHC 1791 (Ch) at 34. 10 [1985] 1 WLR 1257. 11 At 1262E.

(d)  Implied agreement according to who paid for the property (i)  Property bought with partnership money 8.23  Where land or other property is acquired with partnership money (including money the partnership borrowed) then the inference is that 134

The property of individual partners contrasted with that of the firm 8.23

the property is partnership property1 even if it is not used for partnership purposes2. Section 213 of the Partnership Act 1890 provides: Unless the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm.

(i) Resulting trust: The above section echoes the equitable doctrine of the resulting trust: where purchase money is provided by the firm as purchaser but the property is taken in the name of another, he holds it upon trust for the firm, and if the firm has only provided part of the purchase price then the trust in its favour is proportionate to the sum it paid4. If the purchase money has ceased to be the property of the firm before the purchase is made then the firm has no claim. But the ‘trust’ is metaphorical and not a literal one5. In Brensell v Brensell6 one partner withdrew $50,000 from her capital in a farming partnership to buy shares in a farming company. Held that those shares were not bought ‘on account of the firm’ but were hers beneficially. (ii) The name of another: The rule applies regardless of the name in which the property may be bought or may become vested. Where land was purchased for the firm with partnership funds but put into the name of one partner7, or the name of one partner’s wife because the vendor would have been reluctant to deal with the other partner, the nominee held the property upon trust for the partnership8. Similarly where the partners caused the purchase to be taken in the name of their father who was dead: because paid for from partnership funds it was partnership property9. But the fact that land is registered in the name of some partners only is some slight evidence that it is theirs and not the firm’s10. (iii) The property: The rule applies to any property. A life assurance policy belongs to the firm if the firm pays the premiums even if it is on the life of an individual partner11. Similarly a partner’s pension from her office as a coroner might theoretically be partnership property if so agreed or if the work that earned it was substantially done by the firm12. (iv) Land and leases: The benefit of business tenancy rights under Pt II of the Landlord and Tenant Act 1954 will be held upon trust for the firm if the original tenancy was beneficially that of the firm although vested in a single partner13.Payment of the rent is not conclusive that a lease belongs to the firm14. Where the firm conducts itself on land owned outside the partnership and buys further land out of partnership profits, that further land may become partnership property15 but the contrary implication is possible and section 20(3) of the Act (discussed at para 8.25 below) may apply. In the Australian case of Harvey v Harvey16 land belonging to one partner was improved for the purpose of the partnership business, and the additional value of the land was not allowed to the partnership. The fact that the partnership pays for additions or improvements is not therefore conclusive that the improved value of the asset in question is to be credited to the firm. Other indicia of intention must be sought amongst those mentioned in this chapter. 135

8.24  Partnership assets and liabilities

(v) Contrary agreement: The fact that the firm pays for an asset is evidence of its ownership but is not decisive17; the partners may agree that it is not to be an asset of the firm, or the other circumstances of the case may lead to the inference that it is to be owned by them outside the partnership18. Where some land was shown in the accounts as an asset of a farming partnership between parents, evidence could show that it had never been intended to be the property of a subsequent partnership including their children19.  1 Nadeem v Rafiq [2007] EWHC 2959 (Ch); Helmore v Smith (1886) 35 Ch D 436 (but in Goldup v Cobb [2017] EWHC 526 (Ch) that case was described (para 47) as ‘an extreme case … [which] … does no more than section 29(1) of the Partnership Act …’); Tibbets v Phillips (1853) 10 Hare 355.  2 Murtagh v Costello (1881) 7 LR Ir 428.   3 The section has been the subject of a very valuable discussion by the New South Wales Court of Appeal in Sze Tu v Lowe [2014] NSWCA 462, a reference for which I am indebted to my friend David Raphael.  4 Gissing v Gissing [1971] AC 886 at 902.  5 Sze Tu v Lowe [2014] NSWCA 462.   6 [1998] NZFLR 28; Walton v Butler (1861) 29 Beav 428.  7 Wright v Kyle [1939] OWN 464; Morris v Barrett (1829) 3 Y & J 384.  8 Nadeem v Rafiq [2007] EWHC 2959 (Ch); Moore v Clarke [1942] 4 DLR 560.  9 Wray v Wray [1905] 2 Ch 349. 10 Sobey v Sobey (2016)  VSCA  36, where the judge at first instance took into account that land remained registered in the name of two parents alone after they took their children into partnership with them. 11 Forrester v Robson’s Trustees (1875) 2 R 775; Carter Bros v Ranouf (1962) 36 ALJR 67. 12 Goldup v Cobb [2017]  EWHC  526 (Ch), following Casson Beckman & Partners v Papi [1991] BCC 68. 13 Hodson v Cashmore (1972) 226 Estates Gazette 1203. 14 See note 8 above. 15 Morris v Barrett (1829) 3 Y & J 384; Waterer v Waterer (1873) LR 15 Eq 402. 16 [1970] ALR 931. 17 It is not conclusive as to the ownership of a lease that the rent is paid by the firm: Hodson v Cashmore (1972) 226 Estates Gazette 1203, and as to life insurance policies, see para 8.9 above. 18 See Cameron v Murdoch (1986) 63  ALR  575, 60  ALJR  280 (PC), discussed in para  8.22 above and Re Laurence, ex p M’Kenna; Bank of England Case (1861) 3 De GF & J 645, discussed in Sze Tu v Lowe [2014] NSWCA 462. 19 Sobey v Sobey (2016) VSCA 36, a reference for which I am grateful to my friend David Raphael.

(ii)  Property bought with the money of an individual partner 8.24  Property paid for by an individual partner is prima facie his separate property1, even if it becomes vested in one or more partners: It is not the law that partners in business who are the owners of the property by means of which the business is carried on are necessarily partners as regards that property2.

So money paid into a partnership bank account by a partner will be presumed to remain his property3. These presumptions will be rebutted by evidence that it was intended by the partners that the property should be (for instance) partnership property, or that the payment should form part of the partner’s capital in the partnership. 136

The property of individual partners contrasted with that of the firm 8.25

There is no presumption in favour of the firm if the purchase money, although originating with the firm, was lent to the partner who then makes the purchase for himself; then the property is that of the partner4. 1 2 3 4

See the facts of Brensell v Brensell [1998] NZFLR 28 given in para 8.23 above. Per North J in Davis v Davis [1894] 1 Ch 393 at 401. Re Northall (deceased) [2010] EWHC 1448 (Ch). Walton v Butler (1861) 29 Beav 428.

(iii)  Property bought out of profits of the partners’ land 8.25  Where partners own land in their separate capacity, and partnership profits derived from it are used for the purchase of other land for the same purpose, that other land belongs to the partners separately and not to the firm1. Section 20(3) of the Partnership Act 1890 provides: Where co-owners of an estate or interest in land … not being itself partnership property, are partners as to profits made by the use of that land or estate, and purchase other land or estate out of the profits to be used in like manner, the land or estate so purchased belongs to them, in the absence of an agreement to the contrary, not as partners, but as co-owners for the same respective estates and interests as are held by them in the land or estate first mentioned at the date of purchase.

The purpose of the subsection is to limit section  212, which provides that property bought with money belonging to the firm is deemed to be partnership property. The limit is this: the newly acquired land is only saved from becoming partnership land by this subsection if it was: (a) bought from profits of land that was not partnership land3, and (b) bought to be used ‘in like manner’ as the former land; in other words, as an accruer to land that is already held by the partners outside the ambit of the partnership. When thus given its proper narrow scope4 the subsection is no more than another manifestation of the rule that whether property which is vested in partners is theirs separately or belongs to the firm depends upon their purpose when they acquired it5 – a rule that summarises the whole of the present chapter. North J therefore had no difficulty in applying the subsection by analogy6 when he held that where money was borrowed by the partners on the security of their separate property, and used to improve that property and adapt it for partnership purposes, neither the houses nor the improvements became partnership property. 1 Steward v Blakeway (1869) 4 Ch App 603; Davies v Games (1879) 12 Ch D 813. 2 See the Partnership Act 1890, set out in Appendix A below. 3 The subsection has no application if the land is partly held by the partners outside the ambit of the partnership and partly not: Christie v Christie [1917] 1 IR 17. 4 There is no reported English case in which it has specifically been applied. 5 In Morris v Barrett (1829) 3 Y & J 384 the original land was not owned by the firm but land purchased from the profits was held to be. 6 In Davis v Davis [1894] 1 Ch 393 at 405.

137

8.26  Partnership assets and liabilities

(e)  Implied agreement from the use of the property 8.26  The mere fact that property owned by the partners outside the firm is used by the business does not render it partnership property1, as section 2(1)2 of the Partnership Act 1890 provides: Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.

The profits of land may belong to the firm but not the land itself3. On the other hand the fact that land is both vested in the partners and used by them for partnership purposes is an indication that it is to be regarded as partnership property; the inference as to beneficial ownership will be practically conclusive if the firm paid for it4. The inference that property which is being used by the firm belongs to the firm is stronger if it is the stock of the business rather than land used by the business5. The test laid down in the older cases (though not mentioned in the 1890 Act) is whether the property in question was so ‘involved in partnership dealings’6 as to raise the inference that the parties intended it to be partnership property. Thus in Waterer v Waterer7 a nurseryman named Waterer left a house to each of his two elder sons and the residue of his land to all three of his sons. They carried on the business on some of the latter land. The eldest, Frederick, died intestate leaving a widow and ten children. The issue arose whether his share in the land was realty which would pass to his eldest boy alone as heir, or had been converted into personalty by becoming partnership property, in which case the widow and younger children were also entitled. Held by James LJ8 that the land used by the firm had become partnership property. The decisive point was that the partners had ‘… appropriated the soil itself for gardening purposes which could not be carried on without it. It is in fact, in nursery gardening, practically impossible to separate the use of the soil from the trees and shrubs …’

Similarly, in Darby v Darby9 and Re Hulton10 – both cases concerned with property speculators – it was held that the land was the ‘very essence’11 of the business, and the conclusion therefore was that the land was the property of the firm12. In Syers v Syers13 the partnership agreement was for a share ‘in the profits of the Oxford Music Hall and Tavern’ and that property was being run by one partner who held a 35-year lease of it; the House of Lords held that the partnership extended to the lease. By contrast in Fromont v Coupland14 the partnership ran a coach but the partners were not partners in the horses, which they owned separately, and French v Styring15 was to similar effect as regards racehorses; in Steward v Blakeway16 the partners ran a quarry but that was not sufficient to constitute it partnership property; in Brown v Oakshot17 they were brewers, but the inference was that the land needed for the business was not partnership property. 138

The property of individual partners contrasted with that of the firm 8.27

Farming cases fall on the line18. Whether the land is then ‘so involved in partnership dealings’ as to be partnership property has been decided in cases going different ways: compare Morris v Barrett19 with Davies v Games20. The modern trend may be against finding that outside property becomes partnership property21, and in favour of an enquiry as to what the actual intentions of the partners were, rather than inferring their intentions from these indicia22.   1 See Davis v Davis [1894] 1 Ch 393 at 405; Patel v HMRC [2013] UKFTT 84 (TC).   2 Discussed further at para 2.39 above.  3 Crawshay v Maule (1818) 1 Swan 495.  4 Re Laurence, ex p M’Kenna, Bank of England Case (1861) 3 De GF & J 645 at 659 discussed in Sze Tu v Lowe [2014] NSWCA; Murtagh v Costello (1881) 7 LR Ir 428.  5 Re Bowers, ex p Owen (1851) 4 De G & Sm 351, in which a single partner owned both the stock and the furniture used by the firm, and the court drew the inference that the stock but not the furniture was firm property. The partner was accordingly credited with the value of the stock in his account with the firm. By contrast in Re Fear and Coward, ex p Hare (1835) 2 Mont & A 478, furniture had been treated by the partners as belonging to the firm, and so it was held accordingly; see Re Ashley, ex p Murton (1840) 1 Mont D & De G 252 at 261.   6 Per Lord Justice James in Waterer v Waterer (1873) LR 15 Eq 402 cited with approval by North J in Davis v Davis [1894] 1 Ch 393 at 404.   7 (1873) LR 15 Eq 402. See also Jackson v Jackson (1804) 9 Ves 591.   8 (1873) LR 15 Eq 402 at 407.   9 (1856) 3 Drew 495. 10 (1890) 62 LT 200. 11 To quote North J in Davis v Davis [1894] 1 Ch 393 at 404. 12 For old colliery cases see Fereday v Wightwick (1829) 1 Russ & M  45; Jefferys v Smith (1820) 1 Jac & W 298; Forster v Hale (1798) 3 Ves 696; affd (1800) 5 Ves 308 at 309; for an Australian case where one partner painted a picture to the specification of another, see Mitchell v Brown (1881) 7 VLR (Eq) 55. 13 (1876) 1 App Cas 174, where Lord Cairns remarked (rather too widely) at 181: ‘A copartnership in profits, as we all know, is a co-partnership in those assets by which the profits are made and produced’. 14 (1824) 2 Bing 170. 15 (1857) 2 CBNS 357 at 366; Green v Briggs (1848) 6 Hare 395. 16 (1869) 4 Ch App 603. Contrast the mining case of Crawshay v Maule (1818) 1 Swan 495 where the mines used by the partners were held to be partnership property. 17 (1857) 24 Beav 254. 18 As defined by North J in Davis v Davis [1894] 1 Ch 393 at 404 mentioned above. 19 (1829) 3 Y & J 384. 20 (1879) 12 Ch D 813. 21 Eardley v Broad (1970) 215 Estates Gazette 823, a farming case in which it was held that although the firm paid the rent the farming lease was not a partnership asset, and Harvey v Harvey [1970] ALR 931 (Australia). 22 See the approach of Nicholls J in Barton v Morris [1985] 1 WLR 1257.

(f)  Gifts, windfalls and inventions 8.27  Where the partners find themselves recipients of a gift or windfall and the question arises whether it is to be devoted to partnership purposes or held by one or all of them separately, the question must be answered according to: (a) the intention of the donor1; or, failing that; (b) the purpose of the gratuity. 139

8.28  Partnership assets and liabilities So in Perpetual Executors Trustees and Agency Co (WA) Ltd v Maslen and Commonwealth of Australia2 compensation was paid to an Australian sheep-farmer called Connolly for the whole of his sheep clip which had been appropriated by the Australian government during the war years. Before receiving it he had assigned the whole of his business to the respondents, who claimed the compensation. The Privy Council held that it was a ‘gift to the supplier of the wool’, so the respondents failed.

Where a partner makes an invention, it will belong to the firm if the article falls within the scope of the business or was ‘dedicated to the purposes of the partnership’3 but not otherwise. In Re Coffey’s Registered Designs4 the firm dealt in home brewing materials but did not make them itself. A partner designed a container for brewing beer. Held the invention was his own and not that of the firm, since the firm did not design or manufacture such things.

The ownership of life assurance policies is discussed at para 8.9 above. 1 In Jackson v Jackson (1804) 9 Ves 591 land was devised with a business for the purpose of enabling the trade to be carried on, and it was consequently held by Lord Eldon that the land was partnership property. 2 [1952] AC 215, PC. 3 Kenny’s Patent Button-Holeing Co Ltd v Somervell and Lutwyche (1878) 38 LT 878. 4 [1982] FSR 227.

3 TRANSFERS OF PROPERTY BETWEEN THE FIRM AND ITS MEMBERS A Agreements between the firm and its members   8.28 B Creditors  8.29 C Land: the requirement of writing   8.30 D An agreement will not be inferred without evidence   8.32

A  Agreements between the firm and its members 8.28  Subject to any rights of its creditors, a firm may validly transfer assets formally or informally1 to any of its members2, although such a transaction by one partner with himself without the firm’s consent may be voidable at the instance of the firm3. A transfer takes place when a partner retires leaving his interest to continuing partners4. 1 Parmar v Woods [2002] STC 846 (Ch), where the business of the firm was transferred to a company controlled by the partners, although the only evidence of payment by the company was credits in the directors’ accounts with the company. 2 Bolton v Puller (1796) 1 Bos & P 539; Johnson v Robarts (1875) 44 LJ Ch 678. 3 See para 11.26ff below. 4 Ex p Ruffin (1801) 6 Ves 119.

140

Transfers of property between the firm and its members 8.30

B Creditors 8.29  An agreement to transfer an asset into or out of the firm will be valid as against the transferor’s creditors save in the following cases: (a) holding out: property may be treated as property of the firm, regardless of its true ownership as regards the partners, if it is held out by the partners to be partnership property1; (b) completion: the transfer must be concluded and not merely agreed or executory2; this ‘does not, in my opinion, mean that what has to be done under the agreement must be entirely completed, but that nothing remains to be done to make the agreement operative’3; (c) insolvency: the court may set aside transactions that were made at an undervalue4 or amount to a preference5 or a fraud upon a corporate member’s creditors6 or made for the purpose of prejudicing a person who may make a claim against him7. 1 Re Pulsford, ex p Hayman (1878) 8 Ch  D  11, CA; Re Rowland and Crankshaw (1866) 1 Ch App 421; contrast Re Reay (1846) De G  359. This probably remains the law notwithstanding that the Insolvency Act 1986 does not preserve the previous law relating to ‘Reputed ownership’. 2 Re Wright, ex p Wood (1879) 10 Ch  D  554; Re Kemptner (1869)  LR  8 Eq 286. In Re Fox, Brunker v Fox (1915) 49 ILT 224 the arrangement was thwarted by the death of the purchasing partner. 3 Per Neville J in Pearce v Bulteel [1916] 2 Ch 544. 4 See the Insolvency Act 1986, s 339. 5 See the Insolvency Act 1986, s 340. 6 See the Insolvency Act 1986, s 207. The insolvency of the firm is discussed in Chapters 22 and 23. 7 See the Insolvency Act 1986, s 423.

C  Land: the requirement of writing (a)  Contracts for the transfer of land 8.30  Contracts for the sale of land or an interest in land are to be in writing1, and disputes between outsiders and the firm in relation to this will be decided on ordinary land law principles: see ‘partnership land’ in para 8.33 below. Partners in a firm that owns land are not themselves the owners of the land2 but they can be said to have an ‘interest’ in land, as an ordinary coowner has, and they are therefore required to have writing to support a contract for the purchase of another co-owner’s share in the land3, unless there is (to use the old phrase)4 an act of part performance, such as delivery up of the land5. If a member contracts to buy or sell land to the firm (even in a partnership agreement6) or takes or grants an option7 the contract must therefore be in writing; so a retirement agreement for a firm which owns land must be in writing8. But the agreement may be found in the written partnership agreement itself9. 141

8.31  Partnership assets and liabilities   1 The Law of Property (Miscellaneous Provisions) Act 1989, s 2 provides:   ‘(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each. Nothing in this section affects the creation or operation of resulting, implied or constructive trusts’.   The Law of Property Act 1925, s 40, following the Statute of Frauds, previously put the matter in different terms.   2 There is a discussion of the partner’s status as regards partnership property at para 8.1ff above.  3 Cooper v Critchley [1955] Ch 431, CA.   4 See the Law of Property Act 1925, s 40 (repealed); the acts of part performance now raise an estoppel.  5 Re Christopher, ex p Harris (1816) 1 Madd 583.  6 Cody v Roth (1909) 28  NZLR  565 (where the point was made that there was no part performance); Caport v Dixon (1904) 6 WALR 71 (Australia).  7 Spiro v Glencrown Properties Ltd [1991] Ch 537; the documents granting the option (rather than exercising it) must comply with the statutory requirement of writing and signature. 8 Gray v Smith (1889) 43 Ch D 208. Retirement agreements are discussed at para 18.34ff below. 9 Spiro v Glencrown Properties (1991) Ch 537.

(b) The issue of land ownership where no land contract is alleged 8.31  A partnership which includes land or is intended to deal in land may be created without writing1. Also if the firm claims that certain land which is vested in a partner belongs to the firm, there is no requirement for writing2, for the beneficial interest has passed without the need for it under section 20(1) and (2) of the Partnership Act 1890: (1) All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement. (2) Provided that the legal estate or interest in any land … which belongs to the partnership shall devolve according to the nature and tenure thereof, and the general rules thereto applicable, but in trust, so far as necessary, for the persons beneficially interested in the land under this section.

So if a fixed-term partnership includes an interest in land, no writing is necessary to prolong the partnership, including the interest in the land, beyond its original term3; if a firm claims ownership of land which is vested in one of its members, it is making a claim of an implied trust, to which a defence of want of writing has never been an answer4. But if no partnership is established, then a plea of want of writing will succeed: In Isaacs v Evans5 one of two alleged partners in a Welsh gold-mine acquired a lease and the other sued for a declaration that it was partnership property. The defendant pleaded that there was no writing and no partnership, and Farwell J accepted that plea and dismissed the action:

142

Partnership land, leases and tenancies 8.32 ‘Not to allow the plea of the Statute of Frauds in this case would be going too far. Before parol evidence could be admitted as to the contract it was necessary to show that a partnership existed. It was not enough merely to plead a partnership in order to get rid of the defence of the statute … Here there could be no trust unless the partnership were proved.’ 1 Warren and MacDonald v Gallagher [1921] 2  WWR  346; MacKissock v Brown (1913) 23 WLR 782. 2 Re De Nicols, De Nicols v Curlier [1900] 2 Ch 410; Callwood v Callwood [1960] AC 659. 3 Essex v Essex (1855) 20 Beav 442; Cox v Willoughby (1880) 13 Ch D 863. 4 See the Law of Property (Miscellaneous Provisions) Act 1989, s 2. 5 [1899] WN 261, following Caddick v Skidmore (1857) 2 De G & J 52; Britain v Rossiter (1882) 11 QBD 123; Maddison v Alderson (1879) 8 App Cas 467.

D An agreement will not be inferred without evidence 8.32  Where property is vested in partners individually (be it land or other property1) then a transfer of its beneficial interest to the firm will not be inferred merely from the fact that they are partners. In Gian Singh & Co v Nahar2 the tenant of business premises took two partners into the business he conducted there, under a partnership deed whereby they became entitled to the ‘assets of the business’. In the judgment of Lord Pearce in the Privy Council, this was inadequate to show an intention to pass the lease to the firm: ‘If, under the Deed, the tenancy was being assigned to the partnership, one would certainly expect to find clearer provision with regard to it’.

Even the evidence of draft accounts which the parties had accepted was held by Nicholls J3 to be insufficient evidence that a jointly owned property had passed to the firm of which the co-owners were the sole partners, where the other inferences were to the contrary. The rules as to what property is that of the firm and what is that of the partners are given at para 8.20ff above. 1 See Miles v Clarke [1953] 1 WLR 537, the facts of which are discussed at para 8.21 above. 2 [1965] 1 WLR 412. 3 Barton v Morris [1985] 1 WLR 1257.

4 PARTNERSHIP LAND, LEASES AND TENANCIES A Partnership land generally   8.33 B The nature and vesting of partnership land   8.36 C Partnership leases, tenancies and reversions   8.39 D Agricultural land  8.48 E Partnership mortgages and charges   8.51 143

8.33  Partnership assets and liabilities

A  Partnership land generally (a)  The beneficial interest 8.33  The beneficial interest in partnership land is not simply that of the partners. Section 20(2) of the Partnership Act 1890 provides that land: which belongs to the partnership shall devolve according to the nature and tenure thereof, and the general rules thereto applicable, but in trust, so far as necessary, for the persons beneficially interested in the land under this section.

The words ‘under this section’ refer to subsection 20(1), which requires partnership land and other property to be held and applied ‘for the purposes of the partnership and in accordance with the partnership agreement’1. The partners are not just beneficial co-owners. As James LJ observed in Ashworth v Munn2: the beneficial interest is a beneficial interest in the partners not as tenants in common or as joint tenants, or anything of that kind, but their interest is exactly in proportion to what the ultimate amount coming due to them upon the final taking and adjustment of the accounts may be.

Therefore, until the partnership affairs are finally wound up, the partners cannot be said to have any fixed entitlement or beneficial interest in any particular partnership property3. 1 The statutory provision declares the previous law. For an Australian statement of the law see Livanos (1955) QSR 362 and Newcombe v Chappel (3 BPR Butterworth’s Property Reports, Australia) 97201. 2 (1880) 15 Ch D 363 at 369; Coursell v Bond Corpn Pty (1992) 8 WAR 352. 3 Commissioner of State Revenue v Rojoda Pty Ltd [2020] HCA 7.

(b)  Problems with land as a partnership asset 8.34  Difficulties arise in relation to partnership land because: (a) land may be vested in partners although it is not partnership property at all; (b) land may be owned by the firm and used by a partner, or vice versa (see para 8.20 above); (c) when the partners use profits to buy land, and those profits were derived from the use of land that they own as co-owners rather than partners (in the absence of agreement to the contrary) the new land is held by them as co-owners rather than partners1. These problems cause disputes between the firm and its individual partners which are considered at para 8.16ff above. 1 See the Partnership Act 1890, s 20(3), discussed at para 8.25 above.

144

Partnership land, leases and tenancies 8.36

(c)  Contracts for the sale or purchase of partnership land 8.35  When the partners (on behalf of the firm) buy land from an outsider or sell it to him, the contract must be in writing under normal land law principles as discussed at para 8.30 above. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 provides: (1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each. … nothing in this section affects the creation or operation of resulting, implied or constructive trusts.

The earlier law as to the requirement of writing in the case of contracts for the sale of land was embodied in section 40 of the Law of Property Act 1925 in different terms1, and the cases on section 40 must now be treated with caution2. Land which is partnership property becomes held by operation of law upon trust for the purposes of the partnership as mentioned above3 and there is no need for this to be evidenced in writing4, even if the purpose of the partnership is to deal in land5. Nor will writing be needed for the authorisation of a partner to sign a written contract on behalf of the firm6. Contracts between the partners themselves are discussed at para 8.30 above. 1 Section 40(1): ‘No action may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto by him lawfully authorised.’ Exceptions to the rigour of the requirement of writing were where the lack of writing was as a result of the defendant’s fraud, or where the plaintiff had to some degree taken steps of ‘part performance’ of the contract: Steadman v Steadman [1976] AC 536. 2 Per Lewison J in Kilcarne Holdings Ltd v Targetfellow (Birmingham) Ltd [2004] EWHC 2547 (Ch) stating that on this point Forster v Hale (1800) 5 Ves 308 and Dale v Hamilton (1846) 5 Hare 369 are not good modern law. 3 Section 20(1) and (2) are discussed at para 8.33 above. 4 Gray v Smith (1889) 43 Ch  D  208; Munro v Stein 1961  SC  362. Writing is not required because partnership land is held upon trust for the firm by the Partnership Act 1890, s 20(2), quoted above. 5 Gray v Smith (1889) 43 Ch  D  208; Re De Nicols, De Nicols v Curlier [1900] 2 Ch  410. Where the evidence of the partnership has not been established, then a defence of a lack of writing can succeed: Isaacs v Evans [1899] WN 261; Caddick v Skidmore (1857) 3 Jus NS 1185. 6 McLaughlin v Duffill [2010] Ch 1, CA; Heard v Pilley (1869) 4 Ch App 548.

B  The nature and vesting of partnership land (a)  Vesting of partnership land 8.36  Land cannot be vested in the firm as such, because the firm is not a legal entity1. A purported transfer of a lease to a partnership in the name of 145

8.36  Partnership assets and liabilities

that partnership will fail2. The property must be vested either in a nominee company or in partners who will hold it in trust for the firm. A partnership agreement will often require that any land is expressly vested in trustees for the partnership. They may not exceed four in number; if more than four are named, the first four who are able and willing to act become trustees to the exclusion of the others3, and a purported transfer to a partnership of more than four individuals will be interpreted accordingly. A transfer to trustees for the partnership does not usually require any more declaration of trust than something like this: The trustees hold the property upon trust for the purposes of the partnership of … [name]

Where land is partnership property it is held by those in whom it is vested as joint tenants at law4 and they can give good title to an outside purchaser without the partners or other partners being joined or expressly consenting to the transfer5. The trustees’ powers of leasing or charging the land are no longer fettered6. Those in whom the land is vested have ‘in relation to the land subject to the trust all the powers of an absolute owner’7 as regards outsiders. But as regards the other partners their powers must be exercised in accordance with partnership principles8, and the powers must be exercised by the partners at the direction of a receiver or administrator when one is appointed9. The other partners have an interest in its proceeds of sale which could be protected by a caution, now a notice10.  1 Jarrott v Ackerley (1915) 85 LJ Ch 135.  2 Vanquish Properties (UK) Ltd Partnership v Brook Street (UK) Ltd [2016] EWHC 1508 (Ch), contrasting Wray v Wray [1905] 2 Ch 349 where it was suggested that a lease in favour of a partnership granted to the partnership in the partnership name might be good as an implicit grant in favour of the partners, who numbered no more than four, the maximum permitted number for holding a legal estate; see the Trustee Act 1925, s 34(2) and the Law of Property Act 1925, s 34(2).   3 See the Trustee Act 1925, s 34.   4 See the Law of Property Act 1925, s 39(4) and Sch 1, Pt IV.   5 See the Trusts of Land and Appointment of Trustees Act 1996, s  16; Vanquish Properties (UK) Ltd Partnership v Brook Street (UK) Ltd [2016]  EWHC  1508 (Ch), but see Wray v Wray [1905] 2 Ch 349; Re Fuller’s Contract [1933] Ch 652; Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 (Australia). Before 1926 a surviving partner could alone give good title to a purchaser of the legal estate (Re Bourne [1906] 2 Ch 427), but the Law of Property Act 1925, s 27(2) requires a surviving partner to appoint another trustee of the land to act with him, because one trustee cannot give a good receipt for the purchase price.   6 Before January 1997 (when the 1996 Act came into force) the statutory powers of trustees for sale were limited; the Law of Property Act 1925, s 28(1) had conferred upon them the specific powers of the tenant for life and trustees under the Settled Land Act 1925.   7 See the Trusts of Land and Appointment of Trustees Act 1996, s 6(1).   8 Ie in accordance with the rules of internal management discussed in Chapter 12.  9 Elias v Mitchell [1972] Ch  652, applied in Williams & Glyn’s Bank Ltd v Boland [1979] Ch 312. 10 Per Evans-Lombe J in Re Kyrris (No 2) [1998] BPIR 111 at 114; see the Land Registration Act 2002, s 37.

146

Partnership land, leases and tenancies 8.38

(b) Realty, personalty and conversion, and moveable and immovable property 8.37  The moribund doctrine of conversion was abolished as from January 1997 by section 16 of the Trusts of Land and Appointment of Trustees Act 1996. Before then, section  221 had provided that partnership land was to be treated as personalty2. The equitable doctrine of ‘conversion’ treated land in certain circumstances as if it were the proceeds of sale of that land3, although this did not obviate the need for contracts for its sale to be evidenced in writing4. The practical importance of the doctrine of conversion was once considerable because of the different treatment that was given to real and personal property on death. But after 19255 both forms of property pass to the personal representatives and the rules for their devolution on intestacy are the same. The distinction between realty and personalty is only important today as explaining the reasoning of some pre-1926 partnership decisions, but questions of international law may depend upon whether the partnership property is moveable or immoveable, which is a different matter. An interest in a partnership is itself moveable property even if the partnership owns land6. 1 See the Partnership Act 1890 (this section now repealed). See also the Law of Property Act 1925, ss 34 and 35, which had imposed a statutory trust for sale upon land conveyed to or held by or on behalf of two or more persons beneficially. 2 The formulation of the rule by Kindersley V-C is in Darby v Darby (1856) 3 Drew 495 at 503; see also Re Wilson [1893] 2 Ch 340 and Re Cooper, Cooper v Cooper (1878) 26 WR 785. 3 Fletcher v Ashburner (1779) 1 Bro CC 497. 4 Cooper v Critchley [1955] Ch 431. See the Law of Property Act 1925, s 40, replaced by the Law of Property (Miscellaneous Provisions) Act 1989, s 2; discussed at para 8.30 above. 5 The Administration of Estates Act 1925, ss 46–49, which dealt with the devolution of property on intestacy, have been amended by the Intestates Estates Act 1952 and subsequently, but there has been no revival of the distinction between real and personal estate. 6 Haque v Haque (No 2) (1965) 114 CLR 98, Sup Ct Aus.

(c) Survivorship, and presumption in favour of tenancy in common 8.38  The slightly misleading maxim ‘Jus accrescendi inter mercatores locum non habet’ (the right of survivorship has no place among merchants) is considered in the context of partnership law generally at para 8.2 above. The alleged absence of a right of survivorship in partnership law echoes the undeniable presumption that land which was held as partnership land was not held for a beneficial joint tenancy1. But this presumption has little value in relation to partnership land today because: (a) unlike before 1926, a legal estate cannot be held by partners or other coowners as tenants in common but only jointly2; and (b) it is strictly incorrect to describe the land as being held beneficially upon trust for the partners as tenants in common or jointly3. It is held in trust4 for the purposes of the partnership5. 147

8.39  Partnership assets and liabilities

The strong presumption against partnership land or other property accruing to a surviving partner beneficially6 can only be rebutted by clear evidence of a contrary intention such as a declaration of trust to the effect that in equity the property is owned jointly7, as in Bathurst v Scarborow8. Jeffereys v Small (1683) 1 Vern 217; Lake v Craddock (1723) 3 P Wms 158. See the Law of Property Act 1925, ss 34 and 36. See James LJ in Ashworth v Munn (1880) 15 Ch D 363 at 369, CA. See the Partnership Act 1890, s 20(2). See the Partnership Act 1890, s 20(1), discussed at para 8.1 above. As opposed to accruing at law: see Newcombe v Chappel (3  BPR  Butterworth’s Property Reports, Australia) 97201 where the matter is discussed. 7 Sharp v Milligan (1856) 22 Beav 606. 8 [2004] EWCA Civ 411, where the present paragraph was discussed by Rix LJ at para 48 with evident approval. 1 2 3 4 5 6

C  Partnership leases, tenancies and reversions (a)  When a lease agreement will bind the firm 8.39  A contract for a lease must be in writing as discussed at para  8.30 above; or if it is signed by one partner and intended to bind the firm it will bind the firm if the other partners assent, for instance if they orally reach the same agreement and take possession of the property1. 1 Barton v Morris [1985] 1 WLR 1257.

(b)  Vesting of partnership leases or reversions 8.40  Because a firm (as distinct from its members) lacks a corporate persona, no lease (or reversion) can be vested in it as such1. Any lease or reversion that belongs to the partnership should be vested in trustees for the firm as explained in para 8.36 above. 1 Jarrott v Ackerley (1915) 85 LJ Ch 135.

(c)  Unincorporated associations as tenants 8.41  The court will be reluctant to construe a purported tenancy to an unincorporated association as being a tenancy to the members unless (perhaps) there are four or fewer. Thus in Camden London Borough v Shortlife Community Housing Ltd1 the Council granted a licence to occupy flats to a housing association, which later claimed a tenancy in favour of either itself or its members. Millett J rejected this claim because (inter alia) an estate in land such as a tenancy cannot be granted to an unincorporated association or other fluctuating body of persons. 1 (1992) 25 HLR 330, 90 LGR 358.

148

Partnership land, leases and tenancies 8.43

(d)  The firm as landlord 8.42  The partnership as such cannot hold a reversion or other interest in land, but a reversion may be vested in trustees for it, whether or not they are members of the firm, as discussed in para 8.36 above, and the rights of the landlord are then vested at law in the trustees who alone can sue for possession or to enforce the covenants in the lease. The restrictions upon a partner acquiring the reversion upon his own firm’s lease are considered at para 11.30 below.

(e)  The firm as a tenant of a partner 8.43  A purported tenancy granted by the firm (or all its members) to itself is void, even if created by deed; a person cannot grant a lease to himself1; but some of the members can grant a lease to the firm, or vice versa, and a periodic tenancy might be created. But no tenancy is likely to be implied, because of the absence of exclusive possession by the tenant. Where a partner is the landlord of the firm it is desirable that their mutual rights are spelt out in a tenancy agreement or in the partnership agreement. Where the two contradict one another, the later document will be treated as a variation of the former, unless it can be seen that the former was intended to prevail2. If there are no agreed terms as to the duration of a tenancy granted by a partner to his firm, there is no implication that it is a tenancy from year to year; the term simply determines on the dissolution of the partnership3. In a harsher age this meant that the landlord partner could instantly exclude the other4, but today a partner who is managing the business may not be excluded until the business is wound up or sold5. If the land must be valued as between the former partners, or by the Revenue, after dissolution, it must be given a value which reflects what the intention of the landlord and tenant were at the valuation date, and if both would in fact have been interested in acquisition, then it must be valued at its vacant possession value, with vacant possession value being split between them6. A partner may not acquire a renewal for himself of a lease belonging to the firm without his partners’ consent, as considered at para 11.30 below. 1 Rye v Rye [1962] AC 496, but Lord Radcliffe’s minority judgment suggests that the rule may not be an absolute one. 2 Variation of the partnership agreement is considered at para 7.21ff above. 3 Pocock v Carter [1912] 1 Ch 663; Benham v Gray (1847) 5 CB 138. Similarly if the firm allows a partner to occupy its property for a yearly sum, he does not obtain a tenancy: Lee v Crawford (1912) 46 ILT 81. 4 Benham v Gray (1847) 5 CB 138; Doe d Colnaghi v Bluck (1838) 8 C & P 464. 5 Harrison-Broadley v Smith [1964] 1 WLR 456 at 465; contrast Brenner v Rose [1973] 2 All ER 535. The limits upon the duty of a partner not to look to his own interests are considered at para 11.3ff below. 6 IRC v Graham’s Trustees 1971 SC 1; Greenbanks v Pickles [2001] 1 EGLR 1, CA, following Walton’s Executor’s v IRC [1996] 1 EGLR 159.

149

8.44  Partnership assets and liabilities

(f)  Statutory protection of the firm’s tenancy 8.44  A tenant has security of tenure under Part II of the Landlord and Tenant Act 1954 if he occupies property for the purpose of a business carried on by him1. Where a lease is held upon trust for the members of the firm, occupation by any of them and the carrying on of business by any of them is treated as occupation or the carrying on of business by the tenant2. But where such a lease is held by co-owners, an application by one co-owner only for statutory renewal cannot succeed3. Special provisions4 were introduced into the 1954 Act in 19695 to deal with the case of a tenancy held by joint tenants of business premises, not all of whom carry on the business. The effect of the section is to enable those who carry on the business (‘the business tenants’) to comply with the statutory provisions without any connivance of any other joint tenant. The landlord may require extra guarantors accordingly6. Unfortunately these provisions only apply to a tenancy held by joint tenants rather than by a single tenant. Therefore if the firm is to be sure of its statutory protection, its lease should not be vested in a single retired partner or other person who is not active in the business, unless that person executes an express declaration in favour of the active partners in the firm so that they may be sure to satisfy section 41 of the Act. One of two existing partners who were both the tenants of the relevant holding under the existing business lease, cannot obtain for himself a new tenancy: Patten LJ stated in Lie v Mohile7: Under section 41A(1), there are therefore four conditions which require to be fulfilled in order for a section 24 application for a new tenancy by the business tenants as defined to be a valid application: first, the lease must be vested in at least two joint tenants; secondly, the demised premises must include premises occupied for the purposes of the business; thirdly, the business must at some time during the tenancy have been carried on in partnership by all the joint tenants; and fourthly, the business must now be carried on by at least one of the joint tenants, either alone or in partnership with other persons, with no part of the property being occupied under the tenancy for the purposes of a business carried on by the other joint tenant or tenants.

For the similar position under agricultural leases see para 8.48 below. 1 See the Landlord and Tenant Act 1954, s 23. Statutory protection of agricultural tenants is considered at para 8.48 below. 2 See the Landlord and Tenant Act 1954, s 41; see Hodson v Cashmore (1972) 226 Estates Gazette 1203. 3 Jacobs v Chaudhuri [1968] 2 QB 470, followed in Lie v Mohile [2014] EWCA Civ 728. 4 Ie s 41A. 5 By the Law of Property Act 1969, s  9, to reverse statutorily Jacobs v Chaudhuri [1968] 2 QB 470. 6 By s 41A(6); see Cairnplace Ltd v CBL (Property Investment) Co Ltd [1984] 1 WLR 696, CA and Hodson v Cashmore (1972) 226 Estates Gazette 1203. 7 [2014] EWCA Civ 728 para 8.

150

Partnership land, leases and tenancies 8.46

(g)  Covenants against assignment or parting with possession 8.45  If the lease contains a covenant against assignment, there is no breach if the tenant forms a partnership and allows his partners into occupation with him and declares that the assets of his business are partnership property1. If it contains a covenant against parting with possession, a lessee who allows others to use the premises with him does not commit a breach2. Nothing short of a complete exclusion from the legal possession for all purposes amounts to parting with possession3. But this happens in the case of the transfer to a company of the partnership business carried on at the premises, even though the company is controlled by the original partners: In Lam Kee Ying Sdn Bhd v Lam Shes Tong4 the lease permitted the tenant to carry on business either alone or in partnership but contained a covenant against parting with possession. His firm occupied the premises and then agreed to form a company which acquired the business and carried it on at the premises. Held by the Privy Council that this amounted to a parting of possession to the company.

Each lease must be construed according to its own terms. The covenants against assignment and parting with possession in a modern lease will seldom be broken merely by a change being made in the membership of the firm that has the benefit of the lease. But a covenant against ‘sharing’ possession will be broken if the lease is to a person who then allows his partners into possession with him5. 1 Gian Singh & Co v Nihar [1965] 1 WLR 412, PC. 2 Peebles v Crosthwaite (1897) 13 TLR 198, CA and Chaplin v Smith [1926] 1 KB 198, CA cited with approval in Gian Singh & Co v Nihar [1965] 1 WLR 412, PC; Harrison v Povey (1956) 168 Estates Gazette 613, CA; Wallace v C Brian Barratt & Son Ltd (1997) 74 P & CR 408, CA. 3 Akici v L  R Butlin Ltd [2005]  EWCA  Civ 1296; Stening v Abrahams [1931] 1 Ch  470, approved PC in Lam Kee Ying Sdn Bhd v Lam Shes Tong [1975] AC 247 at 256. 4 [1975] AC 247, PC. 5 Akici v L R Butlin Ltd [2005] EWCA Civ 1296 at para 28.

(h)  Periodic tenancies 8.46  A contractual periodic tenancy vested in two or more partners will continue for only so long as they agree its continuation, so any of them may determine it by notice to quit1 although such behaviour by a single partner or a minority of partners might amount to a breach of duty to the other partners if the firm is still enjoying a benefit from the tenancy, and so they might restrain it as a breach of his duty of good faith2: see para 11.30 below. 1 Hammersmith and Fulham London Borough Council v Monk [1992] 1 AC 478. 2 Crawley Borough Council v Ure [1996] QB 13.

151

8.47  Partnership assets and liabilities

(i)  Break clauses and surrenders 8.47  Where a lease is vested in partners, a single one of them has no power (as against the landlord) to surrender the lease or to operate its break clause1. 1 Hounslow London Borough Council v Pilling [1993] 1 WLR 1242, CA.

D  Agricultural land (a) Statutory protection of the firm as tenant: agricultural holdings 8.48  Agreements relating to agricultural holdings created before 1 September 19951 gave extensive rights2 to licensees as well as tenants of agricultural land, but the statutory protection did not extend to arrangements whereby the landowner and the quasi-tenant occupied the land jointly3. A provision in an agricultural partnership agreement that a partner might not serve a tenant’s counternotice4 was held to be void in Featherstone v Staples5 on public policy grounds, but a single joint holder of such a tenancy cannot serve such a counternotice without the authority of his co-tenant6. Where an agricultural tenancy is held by a partner as partnership property, the statutory right of succession is held for the partnership and not for himself, even if it arises only because he is working there7. For output quotas including milk quota see previous editions of this book. Sham partnerships are discussed at para 2.5 above, and business tenancies at para 8.44 above. 1 See the Agricultural Tenancies Act 1995, s  2(1)(a), a provision which is not quite as straightforward as our text might suggest. 2 Under the Agricultural Holdings Act 1986. 3 Harrison-Broadley v Smith [1964] 1  WLR  456. The question whether a landlordtenant partnership was a ‘sham’ was considered in MacFarlane v Falfield Investments Ltd [1996]  SCLR  826; for share-farming, see McCarthy v Bence [1990] 1  EGLR  1 and para 2.63 above. 4 Under the Agricultural Holdings (Notices to Quit) Act 1977 (now repealed), whereby a landlord’s notice to quit might in effect be thwarted by a tenant’s counternotice. 5 [1986] 2  All ER  461, following Johnson v Moreton [1980]  AC  37; Cork v Cork [1997] 1 EGLR 5. 6 Newman v Keedwell (1977) 35  P & CR  393, distinguishing Howson v Buxton (1928) 97 LJKB 749; Hounslow London Borough Council v Pilling [1993] 1 WLR 1242, CA. 7 Shirt v Shirt [2012] EWCA Civ 1029.

(b)  The Agricultural Credits Act 1928 8.49  Under the Agricultural Credits Act 1928 a farming partnership may charge its stock and agricultural assets (including tenant-right1) by a fixed or floating charge2 (which but for that Act might only be done by a corporate 152

Goodwill and the firm name 8.52

body), and notwithstanding any provision in its tenancy to the contrary3. A floating charge may provide for the appointment of a receiver by the creditor and has the like effect as if created by a debenture issued by a company4, and will crystallise upon (inter alia) dissolution of the partnership or on the business of the partnership ceasing5. 1 2 3 4 5

See the Agricultural Credits Act 1928, s 5(7); Cary v Cary (1862) 10 WR 669. See the Agricultural Credits Act 1928, s 5. See note 2 above. See the Agricultural Credits Act 1928, s 13. National Westminster Bank plc v Jones [2001] 1  BCLC  98, Neuberger J, following Re Woodroffes (Musical Instruments) Ltd [1986] Ch 366.

8.50  Where an ‘agricultural receiver’ over the assets of the firm has thus been appointed, the power of the court to make an administration order in respect of those or any other assets of the firm is severely limited, as is explained in Chapter 221. 1 See the Insolvent Partnerships Order 1994, Sch 2 (printed as Appendix F below), amending the Insolvency Act 1986, ss 9 and 10.

E  Partnership mortgages and charges 8.51  A partnership can create a fixed charge over its assets. A company can create a floating charge, but a partnership cannot1, save an agricultural charge approved by statute as mentioned above, and save that it is possible for property which has already suffered the creation of a floating charge over it by a company, to be acquired by a firm and become partnership property. Can a company create a floating charge if it is a nominee holding partnership property for the partnership? Because its effect would be to give priority to a class of the partnership’s creditors, without the sanction of statute, it seems that the law will not allow it. 1 Re West Park Golf & Country Club [1997] 1  BCLC  20; Palmer’s Company Law update 2001, para 13.119.

5  GOODWILL AND THE FIRM NAME A Goodwill  8.52 B The firm name   8.55 C Companies Act 2006, Part 41   8.61

A Goodwill (a)  Meaning of goodwill 8.52  The value that can be put upon the reputation of a business is called its goodwill: 153

8.52  Partnership assets and liabilities It is the benefit and advantage of the good name, reputation and connection of business. It is the attractive force which brings in custom1.

The goodwill of its business is one of the assets of the firm2 to be realised on dissolution3, although it is frequently left off the balance sheet in the accounts4. Unless there is agreement to the contrary it will be acquired by a firm on a purchase of the business5 but not necessarily when a partner merely introduces the business to the firm6. With it comes the benefit of a restrictive covenant7 imposed for the benefit of the business8. Goodwill cannot exist separately from the business9 or at least the business name10 (see discussion of the ‘firm name’ below) but it can exist separately from the business premises11 for it amounts to more than ‘the probability that the old customers will resort to the old place’12. The division of goodwill into its elements of cat goodwill, dog goodwill, rat goodwill and rabbit goodwill has unfortunately been called of little value by the Court of Appeal13. The initial value of the goodwill of a new business may be nil, but it can easily be enhanced by advertisement. The purpose of an action to restrain the tort of passing off may be to protect the goodwill of a business, but in that context the word ‘goodwill’ is used in a slightly different sense14. A professional practice has goodwill15 but it may be of limited value when separated from the individuals who created it, particularly if they practise in their own names16. But where an individual works in a partnership the goodwill generated by his acts will in the normal course vest in the partnership17. This general rule does not apply to goodwill generated by acts done outside duties to the employer or partnership18.   1 Per Lord Macnaghten in IRC v Muller & Co’s Margarine Ltd [1901] AC 217 at 223 cited by Lord Diplock in Warnink Erven BV v J Townsend & Sons (Hull) Ltd [1979] AC 731 at 741C. Other definitions are to be found in RJ Reuter Co Ltd v Mulhens [1954] Ch 50 at 89; Hill v Fearis [1905] 1 Ch 466 at 471; Trego v Hunt [1896] AC 7 at 16, 17, 23, 27, HL; Ginesi v Cooper & Co (1880) 14 Ch D 596 at 600.  2 Re David and Matthews [1899] 1 Ch 378 at 382; Foster v Stamps Comr [1966] WAR 144; Hall v Barrows (1863) 4 De GJ & Sm 150; Reynolds v Bullock (1878) 47 LJ Ch 773; but it is not the ‘property and effects’ of the business: Chapman v Hayman (1885) 1 TLR 397 discussed further at para 15.58ff below.  3 Re David and Matthews [1899] 1 Ch  378; Kirby v Thorn EMI plc [1988] 1  WLR  445; Jennings v Jennings [1898] 1 Ch 378, not following Hammond v Douglas (1800) 5 Ves 539.  4 Re Bloxham (in liquidation) [2017] IEHC 664.   5 See Chapter 16 and Stewart v Gladstone (1879) 10 Ch D 626; Shipwright v Clements (1871) 19 WR 599. When it does and when it does not pass from the firm, and the consequential right of partners to compete with it, are discussed at para 18.63 below.  6 Miles v Clarke [1953] 1 All ER 779. See para 8.16ff above.   7 For such covenants see para 18.67ff below.  8 Wessex Dairies Ltd v Smith [1935] 2  KB  80, CA; Chafer Ltd v Lilley [1947]  LJR  231; Marshall and Murray Ltd v Jones (1913) 29 TLR 351.  9 Ball v Eden Project Ltd [2002] 1  BCLC  313; Star Industrial Co Ltd v Kap Kwee Kor [1976]  FSR  256, approved in Starbucks (HK) Ltd v British Sky Broadcasting Group plc [2015] UKSC 31. 10 Anheuser-Busch Inc v Budejovicky Budvar NP [1984] FSR 413 at 448, CA; IRC v Muller & Co’s Margarine Ltd [1901] AC 217; Geraghty v Minter (1979) 26 ALR 141. 11 West London Syndicate v IRC [1898] 2 QB 507, CA. 12 This phrase was used by Lord Eldon in Cruttwell v Lye (1810) 17 Ves 335 at 346 and was criticised as too narrow in Trego v Hunt [1896] AC 7.

154

Goodwill and the firm name 8.53 13 By Maugham LJ in Whiteman Smith Motor Co Ltd v Chaplin [1934] 2 KB 35 at 49, a case which elucidates the elements. 14 Erven Warnink BV v J Townsend & Sons (Hull) Ltd [1979] AC 731 at 741 and 755; Artistic Upholstering Ltd v Art Formulations (Furniture) Ltd [1999] 4 All ER 277; Starbucks (HK) Ltd v British Sky Broadcasting Group plc [2015] UKSC 31 at para 47. 15 Hill v Fearis [1905] 1 Ch  466 per Warrington J (a firm of stockbrokers), not following Wilson v Williams (1892) 29 LR Ir 176. Lord Chelmsford overstated the position when he said in Austen v Boys (1858) 2 De G & J 626 at 636: ‘The term “goodwill” seems wholly inapplicable to the business of a solicitor, which has no local existence but which is entirely personal, depending upon the trust and confidence which persons may repose in his integrity and his ability to conduct their legal affairs.’ 16 The need for restrictive covenants to protect the business against competition by ex-partners and hence protect the value of goodwill, is discussed at para 18.67 below. 17 Bhayani v Taylor Bracewell LLP [2016] EWHC 3360 (IPEC) at para 29, following Leather Cloth Co v American Leather Cloth Co (1865) 11 HLC 523. 18 Bhayani v Taylor Bracewell LLP [2016] EWHC 3360 (IPEC) at para 37.

(b)  The value of goodwill 8.53  Every firm has a business1 and that business (rather than the firm itself) will (unless it is worthless or very new) have goodwill of some value. For the purposes of internal accounting (especially when an outgoing partner’s share is being bought out) goodwill may be calculated very artificially by agreement that it will be assessed at a multiplier of the net profits, or may be computed as the difference between the value of the business sold as a going concern and its tangible assets sold separately. In Beaver v Cohen2 the value of the goodwill of the clients taken by some departing employees was calculated as the value of the fees recoverable from such of the clients who actually transferred their custom during a one-year period after those employees left.

The goodwill of an accountancy practice is sometimes valued at one or more year’s turnover, where much of its profit is derived from annually recurring fees. But the goodwill of other practices is harder to value, and is best done by capitalising super-profits which are the profits which exceed the amount which the partners might earn elsewhere. This question often arises under dissolution agreements which are discussed at para 18.34ff below. The provisions in the partnership agreement relating to the retirement of a partner may give the firm’s goodwill a nominal value only3. It is an asset for capital gains tax purposes, but its value is so difficult to assess that it is frequently omitted from the balance sheet4, with the result that it will be ignored in computing the value of the share of an outgoing partner if that share has been agreed to be fixed by the balance sheet5. The value of goodwill will be much diminished if any of the partners in the firm have a right to compete with the business after the business has been sold or after they have left the firm6. How goodwill survives dissolution was considered by the New South Wales Court of Appeal in Old v McInnes and Hodgkinson7: if the business continues in the hands of some of the ex-partners, should they have to give an allowance in the partnership accounts for having appropriated the business? The answer 155

8.54  Partnership assets and liabilities

is yes if the business is continuing8 but no if they partners are dividing up the business and going their separate ways9. 1 Or at least every firm must once have had a business; the firm can survive the demise of its business, but unless it once carried on business it does not fall within the definition of ‘partnership’ in the Partnership Act 1890, s 1(1). 2 [2006]  EWHC  199 (Ch), Michael Furness QC sitting as a deputy judge of the Chancery Division, varying an order of Deputy Master Jefferis. 3 Bridge v Deacons [1984] AC 705, PC. 4 Re Bloxham (in liquidation) [2017] IEHC 664. 5 Hunter v Dowling [1895] 2 Ch 223. 6 So a simple valuation of the goodwill of a firm must proceed on the basis that the partners will be able to compete: Hall v Barrows (1863) 4 De GJ & Sm 150; Reynolds v Bullock (1878) 47 LJ Ch 773 and cases noted at paras 18.37 and 18.63ff below. 7 (2011) NSWCA 410. 8 Walker v Martin (23/12/1993  BC  9300519 – Full Court of the Supreme Court of South Australia, Page v McKensey (Supreme Court of NSW, 17/12/1993, p 4). 9 Alcock v Robb (1978) 2 BPR 97152 at 9627–28 and 9630, NSWSC 597 at [26].

(c)  The goodwill of a medical practice 8.54  In general it is not permissible to sell any part of the goodwill of the medical practice of someone who, broadly speaking, has provided general medical services under arrangements with any council, committee or authority under the NHS Act or any primary care trust, health authority or local health board1. A sale of goodwill contrary to the statutory provisions is an offence. Furthermore the sale of premises previously used for the purposes of a medical practice is deemed to be a sale of goodwill if it takes place in circumstances where the disponor knows that another person intends to use the premises for the purposes of that person’s medical practice and the sale is for consideration substantially more than what might reasonably have been expected if the premises had not previously been used as a medical practice2. Valuable consideration (other than performance of services) given under a partnership agreement is a deemed purchase of such goodwill where: (a) it is given by a partner or proposed partner as consideration for his being taken into partnership; (b) it is paid on the death, retirement or reduction in profit share of a partner; or (c) it is paid to a partner to perform services for less than those services might reasonably have been expected to be worth3. In Rodway v Landy4 the court was asked to order a sale of property used by partners for their medical practice. Held that there could be no sale as the value of the property was less than the loan originally taken out to purchase it, so any sale would involve a transfer of goodwill. Instead the judge ordered a division of the property between them under section  13 of the Trusts of Land and Appointment of Trustees Act 1996.

The question of the validity of covenants affecting an ex-member of a medical practice is considered at para 18.77 below. 156

Goodwill and the firm name 8.55 1 See the National Health Service Act 2006, s 259 and Sch 21, and the Primary Medical Services (Prohibition on the Sale of Goodwill) Regulations 2019, SI 2019/251. The predecessors of these provisions are discussed (on a different point) in Kerr v Morris [1987] Ch  90. An agreement in breach is void: Freedlander v Bateman [1953] SLT (Sh Ct) 105. 2 See the National Health Service Act 2006, Sch  21, para  2(1); and Rodway v Landy [2001]  EWCA  Civ 471, [2001] Ch  703; but a mere right to practise professionally is not goodwill: Downing v Al Tameer Establishment Investment [2002] All ER (Comm) 545, CA. 3 This is to paraphrase the fairly impenetrable provisions of the National Health Service Act 2006, s 259 and Sch 21, para 2(4). 4 [2001] EWCA Civ 471, [2001] Ch 703.

B  The firm name (a)  Meaning of firm name 8.55  The 1890 Act usually preserves a distinction between the firm (ie the members) and its business (which they carry on). Curiously this distinction is blurred where1 it defines ‘firm-name’ as the name under which ‘the business’ is carried on. Section 4(1) of the Partnership Act 1890 provides: Persons who have entered into partnership with one another are for the purposes of this Act called collectively a firm, and the name under which their business is carried on is called the firm-name.

Farwell LJ called the firm name2, ‘a mere expression, not a legal entity’; Cotton LJ called it ‘a short name for’ the partners3. Any business name can be sold (subject to the restrictions mentioned below) and the name of the business is an asset of the partners4 which will have to be realised on dissolution in the absence of other agreement; it will be sold with the goodwill unless there is agreement to the contrary5. In practice the name may be incapable of ownership, but the partners still have an interest in it and its proceeds of sale, if any6. If it is owned partly by the firm and partly by an individual partner, the court may sell it on a dissolution, without prejudice to the question how its proceeds of sale are to be divided7. If it is not sold or subject to any other restriction, any of the ex-partners is entitled to use it8. Often large groups of accountancy or other professional practices share a name which then cannot be said to be ‘owned’ by any of them. Its joint use is some indication that the various practices amount to a single firm, but is far from conclusive of this9. If the firm is appointed to an office, the appointment is to the partners who were then partners only10, except in the case of an auditor’s firm11. A bequest into the firm’s name has been held to be a gift to those who were partners when the will was made and not to those at the date of death12. A conveyance to it (if valid at all, see para 8.36 above) is a conveyance to the then partners13. An adjudication award made against a firm name will be construed as an award against the actual partners14. How the firm name may be used in litigation is discussed in Chapter 21. 157

8.56  Partnership assets and liabilities   1 See the Partnership Act 1890, s 4, quoted below.  2 Sadler v Whiteman [1910] 1 KB 868 at 889.  3 Re Smith Fleming & Co, ex p Harding (1879) 12 Ch D 557 at 567.   4 So says Hamilton J obiter in R v Holden [1912] 1 KB 483 at 485.   5 James LJ in Levy v Walker (1879) 10 Ch D 436 at 448 said that assignments of goodwill carried the firm name and the exclusive right (as against the vendor) to sell it.  6 Byford v Oliver [2003] EWHC 295 (Ch).  7 Gifford v Nash (9 June 2009, unreported), Master Price.  8 Banks v Gibson (1865) 34 Beav 566, considered at para 18.66 below.  9 Brostoff v Clark Kenneth Leventhal NLD (11 March 1996, unreported) per Dyson J. 10 De Mazar v Pybus (1799) 4 Ves 644. 11 Companies Act 1989, s 26. 12 Re Horgan [1971] P 50. 13 Wray v Wray [1905] 2 Ch 349. 14 Ferns v West [2019] EWHC 141 (TCC).

(b)  Restrictions on names 8.56  Generally a partnership may operate under the names of the partners or under any other name that it chooses, subject to four exceptions. (i) Passing-off 8.57  The firm may not carry on business, or use a name, which suggests that its goods or services are that of another, or it will be liable for the tort of passing off1. It will also be liable criminally if its use of the name ‘takes advantage of, or is detrimental to, the distinctive character’ of a name registered under the Trade Marks Act 19942. It may be guilty of passing off even by trading in its partners’ own names, if the intention is to deceive the public into thinking that its business is that of another business trading under the same name3, but there must be a positive intention; if the firm name is that of the partners then the fact that its use might incidentally cause confusion in the minds of the public is insufficient reason for preventing such use4. 1 Erven Warnink BV v J Townend & Sons (Hull) Ltd [1980] RPC 31. The plaintiff will have to show the ‘Classic Trinity’ of reputation, deception and damage. The principles are summarised by the Court of Appeal in Harrods Ltd v Harrodian School Ltd [1996] RPC 697. 2 See the Trade Marks Act 1994, s 10.But registration under that Act may be declared invalid if one member has obtained registration in his own name when the name registered was the property of the firm: Byford v Oliver [2003] EWHC 295 (Ch). 3 Parker-Knoll Ltd v Knoll International Ltd [1962] RPC 265; Croft v Day (1843) 7 Beav 84; Crystalate Gramophone Record Manufacturing Co Ltd v British Crystalite Co Ltd (1934) 51 RPC 315; AG Spalding & Bros v AW Gamage Ltd (1915) 32 RPC 273; Merchant Banking Co of London v Merchants’ Joint Stock Bank (1878) 9 Ch D 560 at 563; Frank Reddaway & Co Ltd v George Banham & Co Ltd [1896]  AC  199; North Cheshire and Manchester Brewery Co v Manchester Brewery Co [1899] AC 83; contrast the Trade Marks Act 1994, s  11(2)(a), which specifically provides that a registered trademark is not infringed by the honest use by a person of his own name and address. 4 Kingston, Miller & Co Ltd v Thomas Kingston & Co Ltd [1912] 1 Ch 575 per Warrington J, pointing out that the assignee of such a name is in a weaker position since he cannot raise the defence that any person has a right to trade in his own name.

158

Goodwill and the firm name 8.61

(ii)  Holding out 8.58  An injunction will be granted against a firm which contrives to represent untruthfully that amongst its partners are persons who in fact have no such connection with it1. 1 Ewing v Buttercup Margarine Co Ltd [1917] 2 Ch 1; Walter v Ashton [1902] 2 Ch 282.

(iii)  Goodwill and name lent or sold 8.59  A firm may license its name to be used by another1, and it may not use a business name after it has sold the right to do so, even if the name is the name of its partners2. 1 Dawnay Day & Co Ltd v Cantor Fitzgerald International [2000] RPC 669. 2 Newman (IN) Ltd v Richard T  Adlem (21  June 2005, unreported), CA, considering Mrs Pomeroy Ltd v Scalé (1906) 22 TLR 795, a subject discussed at para 18.63ff below.

(iv)  Business names 8.60  If the firm name is something more or less than the names of all the partners, it is regulated by statute and professional bodies, as mentioned next below.

C  Companies Act 2006, Part 41 (a)  Statutory regulation of names 8.61  Part 41 of the Companies Act 2006 applies where a partnership1 (including a foreign partnership)2 or other person carries on business3 in the United Kingdom under a name which does not consist of the surnames4 of all partners who are individuals and the corporate names of all partners who are bodies corporate, with or without the following permitted additions5: (a) the forenames of individual partners or the initials or any ‘recognised abbreviation’6 of those forenames or, where two or more individual partners have the same surname, the addition of ‘s’ at the end of that surname; or (b) any addition merely indicating that the business is carried on in succession to a former owner of the business. 1 Part 41 applies to a ‘person’ carrying on business in the UK but by the Interpretation Act 1978, s 5 and Sch 1 the word person includes ‘a body of persons corporate or unincorporate’ which includes a partnership, and this is made clear in this context by the reference to partners in Part 41 mentioned below. 2 See the Companies Act 2006, s 1208 in Part 41.

159

8.62  Partnership assets and liabilities 3 ‘Business’ is given a slightly narrower meaning in the Part 41 of the 2006 Act than in the Partnership Act 1890; it includes a profession (s 8(1) and s 1208 – definitions), but in the 1890 Act it includes ‘every trade, occupation or profession’ (s 45). 4 Companies Act 2006, s 1192(2)(b). 5 See the Companies Act 2006, s 1192. 6 Included in the definition of ‘initial’ by the Companies Act 2006, s 1208.

(b)  Prohibition of use of certain business names 8.62  Section  1193 of the 2006 Act prohibits the carrying on of business (without the written approval of the Secretary of State) under a name which: (a) would be likely to give the impression that the business is connected with Her Majesty’s Government; or (b) includes any word or expression for the time being specified in regulations, the current regulations being the Company Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2014 which are printed as Appendix D below. They contain a list of prohibited words (from Accredit to Windsor) set out in the Schedule. There is an exemption for names which were lawfully in use before 26 February 19821 and continually in use by the same person thereafter2, and for names used for 12 months after the business was acquired from a person who previously used the name lawfully3. The offence is one of strict liability4. 1 Ie the date that the Companies Act 1981, s 28 came into force. The proviso is continued by the Companies Act 2006, s 1199. 2 The word ‘person’ includes a firm as noted above. 3 See the Companies Act 2006, s 1199(3). 4 R v Doring [2002] EWCA Crim 1695.

(c)  Disclosure of partners’ names 8.63  Any firm of 20 members or fewer must1 display the name and address for service of each of its partners on all: (a) business letters; (b) written orders for goods or services to be supplied by the business; (c) invoices and receipts issued in the course of the business; (d) written demands for payment of debts arising in the course of the business, and similar information must be displayed at its premises2. The requirement relates to a ‘partnership’ of not fewer than 20 persons3 and ‘partnership’ bears the meanings given in the Acts of 1890 and 1907, so the persons to be so numbered are true equity partners only. 1 By the Companies Act 2006, ss 1201, 1202 and 1204. 2 So required by the Companies Act 2006, s 1204. 3 Companies Act 2006, ss 1201 and 1208.

160

Goodwill and the firm name 8.66

(d)  Firms of more than 20 partners 8.64  A firm of more than 20 partners need not comply with the obligation of disclosure on business documents mentioned above if1 it advertises that a list of its partners is to be found at its principal place of business and: (a) none of the names of the partners appears in the document otherwise than in the text or as a signatory; and (b) the document states in legible characters the address of the partnership’s place of business and that the list of the partners’ names is open to inspection at that place; and (c) where the partnership maintains a list of the partners’ names any person may inspect the list during office hours. A person who is a partner but desires to conceal the fact from the public might use an off-the-shelf company (in which he has no direct interest) to stand as partner in his place after it has executed a deed of trust in his favour declaring that it holds the partnership share as nominee for him. But as to the rights of those who are not true partners, see Chapter 10. 1 Companies Act 2006, s 1203.

(e)  Effect of breach of obligations 8.65  Breach of any of the above provisions of Part 41 (sections 1192–1208) of the Companies Act 2006 is an offence punishable by a fine and (for a second or subsequent offence) a penalty for each day on which the contravention is continued1. Breach of the obligation to disclose the names of the partners will also cause a contractual claim by the firm to be dismissed (unless the court is satisfied that the contrary is just and equitable) if the defendant can show that he has been unable to pursue a claim or has suffered financial loss in relation to the contract because of such breach2. 1 See the Companies Act 2006, s 1205. 2 Companies Act 2006, s 1206.

(f)  Other statutory regulation of business descriptions 8.66  Many statutes proscribe mis-description: for instance it would be an offence for a firm to describe itself as being a firm of solicitors if it were not1, or to use the word ‘Ltd’ in its title if it were not in fact a limited company. Under the Architects Act 1997 only a registered person may carry on business under any style or title containing the word ‘Architect’. By section  20(3) a firm may only use that word in its name if: 161

8.67  Partnership assets and liabilities

(a) its business so far as it relates to architecture is under the control and management of a registered person who does not act at the same time in a similar capacity for any other body corporate or firm; and (b) the business is carried on by or under the supervision of a registered person. 1 Implicit in the Solicitors Act 1974, s 1(a).

(g)  Regulation by professional bodies 8.67  The rules of some professional bodies restrict the names under which their members may practise. Thus the Solicitors’ Code of Conduct 2011 requires that the publicity in relation to a firm should be accurate and not misleading1 and that it would be misleading to include the word ‘solicitor(s)’ if none of the managers is a solicitor2. A solicitors’ firm’s letterhead, website and emails must show the words ‘authorised and regulated by the Solicitors’ Regulation Authority’ and either its registered name and number if it is an LLP or the name under which it is licensed by the SRA and the number allocated to it if it is a partnership3. 1 Outcome 8.1. 2 IB 8.10. 3 Outcome 8.5.

6 CONFIDENTIAL AND PRIVILEGED INFORMATION AND INTELLECTUAL PROPERTY A Confidential information belonging to the firm   8.68 B Confidential information belonging to a client   8.69 C Client loyalty  8.70 D Privilege  8.71 E Copyright, designs and other intellectual property   8.72

A  Confidential information belonging to the firm 8.68  Confidential information means information which will be confidential to one person (or group of people) who possess that information where the information is not publicly available1. It can sometimes remain confidential even if it has reached the public domain2. What was confidential information (in the hands of an employee rather than a partner) was considered by the Court of Appeal in Faccenda Chicken Ltd v Fowler3, where it was pointed out that the duty of confidentiality 162

Confidential and privileged information and intellectual property 8.68

owed to an employer loosened when the employment ceased because the duty of good faith then ceased, and certain information which might have been regarded as confidential while the employment continued, ceased to be so, leaving confidential only a small category of ‘trade secrets’. Not quite the same distinction can be drawn in the case of a partner, for his duty of good faith to his partners continues for most purposes after the firm has been dissolved, until winding up is concluded4. So a journalist’s personal email contacts, kept on his employer’s computer, have been held to belong to the employer5. In Floydd v Cheney6 Megarry J considered whether a partner in a firm of architects was entitled to remove, copy and make use of copies of plans, drawings and other papers of the firm that he was engaged upon and to use such confidential information: ‘Can it be said that one partner is entitled, behind the back of the other partner, to copy partnership documents and remove those copies from the partnership premises for use in other premises which he intends to occupy and on which he is to carry on his professional work as soon as he has given notice of dissolution of the partnership? A similar question may be asked, too, in respect of confidential information. I can only answer “No” …’7

Confidential information which is capable of commercial exploitation because it is protected by the law of confidence (rather than by patent law for instance) is not property which can be owned8. But it is an asset of the firm in the sense that equity will restrain its removal by a partner when such removal appears to be for a wrongful purpose9. On the other hand if the use of the information by the sole partner is harmless to the firm then no action against him will lie, for all partners are entitled equally to possession of the property of the firm. In this the position of a partner is different from that of a trustee: see paras 11.2 and 11.29 below. In Aas v Benham10 the defendant as a partner in a ship-broking firm obtained commercial information which he intended to use in his proposed new shipowning business. His partners tried to restrain him. The Court of Appeal rejected the claim because the new business was beyond the scope of, and did not compete with, the business of the firm. In Boardman v Phipps11 the case was approved and distinguished: an express trustee (as opposed to a partner) was there held liable for the profit that he made on some shares with knowledge he derived from his trusteeship.

Because of the duty of good faith between partners12, the duty not to disclose confidential information may apply between partners ‘with particular force’ as does a director’s duty of confidentiality to his company13. Breach of the partner’s duty of confidentiality, where the partner uses the information for his own purposes, renders him liable as a constructive trustee to the firm14. Thus in LAC (Minerals) Ltd v International Corona Resources Ltd15 a proposed16 partner in a joint venture firm obtained information as a result of exploratory drilling activities. Using this confidential information he bid against his former associate for adjacent land, and was held by the Canadian Supreme Court to hold the land as a constructive trustee accordingly.

163

8.68  Partnership assets and liabilities

The misappropriation of the firm’s data may also be an infringement of its database rights17. If the partner misappropriating the rights is a company, its directors and shareholders may be liable for its wrong: the question (which must be considered separately in respect of each of those persons) is whether he intended, procured and shared a common design that the acts in question should take place. I make no distinction in this regard between breach of confidence, infringement of database right, trade mark infringement and passing off18.

An outsider who knowingly receives the confidential information from the partner and uses it improperly will himself become liable as a constructive trustee19. In such cases an interim, but not a final, injunction against the offending partner will bind third parties20. The subject of the misuse of the firm’s confidential information by a partner blends with the question of a partner’s liability for profiting from or competing with the firm’s property which is discussed in Chapter 11.  1 Douglas v Hello! Ltd [2007]  UKHL  21, and see Lindsay J in Douglas v Hello! Ltd [2003] EWHC 786 (Ch), following Coco v Clark (1969) RPC 41.  2 Douglas v Hello! Ltd [2006] QB 125, CA at para 105 and 140; Seager v Copydex Ltd [1967] 1  WLR  923; Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3  All ER 413n.   3 [1987] Ch  117. Even an oral communication may pass information which the court will protect, for instance if it is a potentially valuable commercial or artistic idea, provided that the idea was original, clearly identifiable, of potential commercial value and sufficiently well developed to be capable of realisation (per Hirst J in Fraser v Thames Television Ltd [1984] QB 44).   4 See para 11.12 below.  5 PennWell Publishing (UK) Ltd v Ornstien [2007] EWHC 1570 (QB).   6 [1970] Ch 602. This was on motion; the appeal from it was compromised (p 611). See also Glassington v Thwaites (1823) 1 Sim & St 124 and contrast para 11.23 below.   7 [1970] Ch 602 at 608. The existence of the partnership was also in dispute in the case, but Megarry J was here treating the matter as if the partnership had been ‘clearly established’.  8 Douglas v Hello! Ltd [2006] QB 125 at para 119 and [2007] UKHL 21.  9 Douglas v Hello! Ltd [2006] QB 125 at para 114 and [2007] UKHL 21. 10 [1891] 2 Ch 244. 11 [1967] 2 AC 46. 12 See Chapter 11. 13 Per Pennycuick V-C in Baker v Gibbons [1972] 2 All ER 759 at 765. 14 Schering Chemicals Ltd v Falkman Ltd [1982] QB 1. 15 (1989) 61 DLR (4th) 14, [1990] FSR 441, Can SC. 16 Treated for present purposes as if he were a partner. 17 Copyright, Designs and Patents Act 1988, s 3A: Forensic Telecommunication Services v Chief Constable W Yorkshire [2011] EWHC 2892; Copyright and Rights in Databases Regulations 1997, reg 16. 18 Per Sir William Blackburne in British Sky Broadcasting Group plc v Digital [2012] EWHC 2642. 19 A-G  v Guardian Newspapers Ltd (No  2) [1990] 1  AC  109, 262–3; contrast Satnam Investments Ltd v Dunlop Heywood & Co Ltd [1999] 3 All ER 652, CA; Douglas v Hello! Ltd [2007] UKHL 21. 20 Jockey Club v Buffham [2002] EWHC 1866 (QB).

164

Confidential and privileged information and intellectual property 8.71

B  Confidential information belonging to a client 8.69  A client’s papers in the hands of a professional firm are confidential, as are his communications with the firm1 and the right of confidence is that of the client and not of the firm2. So a firm may not disclose to its own insurers confidential information or documents of the client without the consent of the client or other lawful authority3. Clients’ confidential information and conflicts of interest are discussed at para 19.75 below. 1 General Mediterranean Holdings SA v Patel [2000] 1 WLR 272. 2 Nationwide Building Society v Various Solicitors [1998] 06 LS Gaz R 24, Blackburne J. 3 Quinn Direct Insurance Ltd v Law Society of England & Wales [2010] EWCA Civ 805.

C  Client loyalty 8.70  A firm does not own its clients; it only owns its own goodwill1. There is no such thing as a family firm of solicitors with an ongoing general retainer2. But a partner may not poach his firm’s clients, as discussed in para 11.33 below. 1 Goodwill can be viewed as the likelihood of customers to return: see para 8.52 above. 2 Hines v Willan (1997) 28 February NLD.

D Privilege 8.71  In a partnership dispute the partners’ limited right to assert privilege against each other in respect of communications with their legal advisers is dealt with at para 15.11ff below. In a dispute with outsiders, the members of the firm have an unfettered right to assert such privilege, but whether they elect to take or waive the privilege is an ‘ordinary matter connected with the partnership business’ to be resolved by a majority of the members under section 24(8) of the Partnership Act 1890 unless otherwise agreed between them1. Contrast where instructions were given jointly by persons who are not partners, for in the latter case privilege can only be varied by all the clients jointly. To the extent that the assets of the firm are in the hands of new partners they can assert the privilege to which the old firm was entitled, because successors in title of property are entitled to assert the privilege of their predecessors, but they cannot be in a better position than those partners in whose shoes they stand2. 1 For disputes between the firm and outsiders see Chapter 21. 2 Per Peter Gibson J  Re Konigsberg (A  Bankrupt) [1989] 3  All ER  289 at 297, following Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd [1972] Ch  553. As to privilege between partners see Chapter 15.

165

8.72  Partnership assets and liabilities

E  Copyright, designs and other intellectual property 8.72  These are rights of property, and questions will always arise as to whether they belong to the firm itself or to some or all of its members1. This depends upon what has been agreed, and it is highly advisable that a firm which anticipates owning any such property should specify in its partnership agreement how the property should be owned2. The firm may own industrial designs protected under the Registered Designs Act 1949, patents registered under the Patents Act 1977 or copyrights which are protected without registration under the Copyright, Designs and Patents Act 1988. Rights protected by registration are less the cause of difficulty than copyrights which arise and vest in their creators without registration. An agreement to assign registered intellectual property rights is less easily inferred than an agreement to assign unregistered copyrights, and an agreement to assign to the firm a right created by some only of the partners is less easily inferred than such an agreement to assign made by all of the members3. But a sale or disposal of all partnership assets will comprise an assignment of all copyrights belonging to the partnership4. 1 See the trade mark ownership dispute over the name of the heavy metal band ‘Saxon’ in Byford v Oliver [2003] EWHC 295 (Ch). 2 These rights are discussed further at para 8.1 above; misuse of such property is discussed at paras 11.32 and 11.35 below. 3 Stuart v Barrett (1992) 8 EIPRD 162 and [1994] EMLR 448. 4 Murray v King [1986] FSR 116 (Federal Court of Australia).

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9 Partnership capital and partners’ capital Contents

para 1 Background����������������������������������������������������������������������������������������9.1 2 The meaning of ‘partnership capital’��������������������������������������������������9.2 3 Partners’ capital����������������������������������������������������������������������������������9.3 4 Accounting for capital������������������������������������������������������������������������9.4 5 Current accounts��������������������������������������������������������������������������������9.5 6 Variation, and blending partners’ capital and current accounts�����������9.6 7 Interest on capital accounts����������������������������������������������������������������9.7 8 Contributions of capital����������������������������������������������������������������������9.8 9 The ownership and repayment of partnership capital�������������������������9.9

1 BACKGROUND 9.1  The principles embodied in the Partnership Act 1890 were evolved at a time when most important commercial activity in Britain was conducted through partnerships rather than through joint-stock companies1. A firm did not just give employment to a partner, but was where he employed money in pursuit of commercial enterprise. His remuneration was based more on the amount of capital that he had invested than on the amount of work he did for the firm. As a result the authors of the Partnership Act 1890 were at pains to treat with considerable respect his ‘capital’ in the firm. On it his profit share was usually calculated; it was distinguished from his ‘advances to the firm’ on which he was entitled to five per cent2, the likelihood being that from such ‘advances’ he would get no other return. 1 It is notable that the first edition of Lindley on Partnerships was entitled, ‘A Treatise on the Law of Partnership, including its application to Companies’ (1860). 2 See the Partnership Act 1890, s 24(3), discussed at para 12.23 below.

167

9.2  Partnership capital and partners’ capital

2 THE MEANING OF ‘PARTNERSHIP CAPITAL’ 9.2  The partnership capital is the amount of money or other property that all the partners have contributed, with the agreement of the others, to the permanent endowment of the firm. It is akin to the share capital of a company. The total of the capital of the partners will equate to the total net assets of the firm on the first day of trading. Thereafter it will not; money will be used up in the business, property will rise or fall in value, and if the firm is successful then its net assets may increase in value. As Nourse J observed in Reed v Young1: The capital of a partnership is the aggregate of the contributions made by the partners… It is important to distinguish between the capital of a partnership, a fixed sum, on the one hand and its assets, which may vary from day to day and include everything belonging to the firm having any money value, on the other.

Confusion arises because the word ‘capital’ has many meanings in common parlance, and is often used in different senses even by reference to partnership finance2. But in partnership law it means the amounts contributed to the firm by the partners3 and credited in their favour in its books. Capital is the money, lands, goods or other property with which the company or partnership commences business. Anything acquired or earned over and above this in the course of business is not capital but profit4. It is a misconception that ‘the capital accounts show the value of each partner’s share in the partnership’5, or that the firm’s capital is the total of its net assets, or is the same as the firm’s property, or is a loan to the firm from the partners6. In McClelland v Hyde7 Lord Andrews LCJ pointed out that ‘the capital of a partnership is something different from its property or its assets’. 1 [1984]  STC  38, 57–58, a passage approved in the House of Lords by Lord Oliver [1986] 1 WLR 649 at 654 and amounting to a close paraphrase of the view of Sir Nathaniel Lindley in the 5th edn of his Treatise on the Law of Partnership (1888), the last edition edited by himself, p 320. In Popat v Shonchhatra [1997] 3 All ER 800, CA, the capital was the amount paid to buy the partnership business. 2 Thus in Sykes v Land [1984] 2  EGLR  8 the issue was as to the meaning of the right of a partner to purchase another’s share in the ‘capital and profits’ of the firm. 3 Bennett v Wallace 1998 SC 457 (Scotland). 4 Per Babington LJ in McClelland v Hyde [1942] NI 1. 5 I shall not reveal from which accountancy handbook I quote this. 6 In Teacher v Calder [1899] AC 451 Lord Davey at 467 describes a partner taking money out of the business as ‘withdrawing his capital’, which is to confuse matters. 7 [1942] NI 1 at 7; see also Nourse LJ in Popat v Shonchhatra [1997] 3 All ER 800, CA.

3  PARTNERS’ CAPITAL 9.3  A partner’s capital is his contribution to the partnership capital. It will remain as a book-keeping entry, and will be irrelevant to the annual 168

Partners’ capital 9.3

profit share unless (unusually today) profit share is computed by reference to it or interest upon the capital account has been agreed between the partners1. He may not withdraw his capital without his partners’ consent. Its amount remains of little significance until the net assets or liabilities of the firm are distributed or shared on dissolution, when it becomes very important indeed2. To speak at all of a partner’s share in a partnership’s ‘assets’ (as opposed to its capital) is inaccurate3 because the size of this share is unascertainable until dissolution. He merely has a share in capital and a share in ‘ultimate residue’ on winding up4.

Briggs LJ said in Ham v Ham5: The partner’s capital is a monetary amount which is in summary the aggregate of original monetary contributions, the agreed monetary equivalent of assets contributed, together with any other money or agreed financial equivalent of assets later contributed, and in the present case simply the surplus of any partner’s profits over his or her drawing (his last words refer to a particular bad accounting practice in that case, which is mentioned in paras 9.5 and 12.22 below).

For instance, before a farming partnership is commenced, one partner may own the farm. He may either: (a) keep it himself, and allow the firm the use of it, with or without payment of rent, but in any case it will not affect the balance sheet or the partners’ capital accounts because the farm remains his; (b) agree that it is to be a partnership asset, and that he be credited with its value as part of his capital account in the firm; his capital account is then fixed accordingly, and the farm appears in the balance sheet as an asset of the firm; (c) perhaps take the unsatisfactory course of agreeing that it should in its unsold state represent his capital in the partnership6. This will mean that it is represented both in the firm’s balance sheet and in his own capital account, which will accordingly fluctuate in value from year to year, which is not envisaged by the Partnership Act 1890; or (d) sell it for cash to the partners to be an asset of the firm, in which case it will appear as such an asset but he will not be credited with its value in a capital account because he will have been paid for it already. 1 Without agreement, no interest is payable on the capital account: see the Partnership Act 1890, s 24(4), discussed at para 12.24ff below. 2 See para 18.54 below. 3 See Nourse LJ in Popat v Shonchhatra [1997] 1 WLR 1367 at 1372B. 4 See the Partnership Act 1890, s 44, discussed at para 18.54ff below. 5 [2013] EWCA Civ 1301 at para 42. 6 This was assumed to be the case by Parke J at first instance in Re White [1999] 1 WLR 2079 (reversed [2001] Ch 393) where the capital of the partnership was defined as ‘including the freehold premises and land’; see also Sykes v Lund [1984] 2 EGLR 8.

169

9.4  Partnership capital and partners’ capital

4  ACCOUNTING FOR CAPITAL 9.4  The 1890 Act drew the distinction, now sometimes lost, between a partner’s capital which is his permanent endowment in the firm, and upon which he is not (without agreement to the contrary) entitled to interest1, and his advances to the firm which are a temporary loan to the firm. It envisages that his capital (in his ‘capital account’) should not be altered without the agreement of the other members. In the accounts it will not fluctuate, but be his original, permanent investment in the firm, contrasted with his current account. Accounting for capital is further discussed at para 12.22 below. 1 Without agreement, no interest is payable on the capital account: see the Partnership Act 1890, s 24(4), discussed at para 12.24ff below.

5  CURRENT ACCOUNTS 9.5  Separate from his capital account, a partner should have a current account with the firm, reflecting his day-to-day balance created by his periodic entitlement to a profit share and his drawings, non-drawings and advances. This is discussed at para 12.22 below.

6 VARIATION, AND BLENDING PARTNERS’ CAPITAL AND CURRENT ACCOUNTS 9.6  The capital accounts of the partnership cannot be varied by a mere majority unless agreement provides for this. Lord Bramwell said in Bouch v Sproule1: The undivided profits of any period, a year, or shorter or longer time, continue to be undivided profits unless something in the articles of partnership or some agreement by all the partners makes them capital. They do not become capital by effluxion of time or by their being used in the trading.

This statement was quoted by Lindley LJ2 as authority for the proposition as follows: When capital and profits belong to different persons, or to the same persons in different proportions, the effect of capitalising profits is to change their ownership, and an intention to do this must be shown before conversion of profits into capital can properly be inferred. Moreover, this is a matter on which a majority cannot bind a minority unless expressly empowered to do so …

Where (unusually) a single partner or (more commonly) a majority or management committee has power to call for an increase in capital, the power must be exercised in good faith3. 170

Interest on capital accounts 9.7

It is too common an accountancy practice to blend the partner’s current account and capital account into one4. Then his share of annual profit is added to whatever sum his capital reached at the beginning of the year; then his drawings are subtracted to give a new balancing figure at the end of the year, called his ‘capital’. The result of this is that without the consent of the other members he can increase his ‘capital’ by not drawing his full share of profit, or can reduce it to nothing by drawing too much5. Where it is the agreed practice of the partners to do this and to add their undrawn profit to their capital accounts at the end of each year, the capital thus established is the partner’s capital for the purpose of distribution of surplus assets on winding up6. 1 (1887) 12 App Cas 385 at 405, perhaps obiter, but adopted as reasoning by Lindley and Lopes LJJ in Re Bridgewater Navigation Co (1891) 2 Ch 317 at 327–8. 2 In Re Bridgewater Navigation Co (1891) 2 Ch 317 at 327: Lopes LJ agreed. 3 Heslin v Fay (1884) 15 Ir 431, a reference for which I am grateful to my friend Michael Twomey, Partnership Law (2000). 4 Brensell v Brensell (1998) NZFLR 28. 5 The wrongful transfer of the partners’ current accounts to their capital accounts led to the auditor’s certificate successfully being challenged before Goulding J in Smith v Gale [1974] 1 All ER 401. 6 Binney v Mutrié (1886) 12 App Cas 160, PC; Brensell v Brensell (1995) 3  NZLR  320, affirmed 1998  NZFLR  28, and see the Partnership Act 1890, s  44 which is printed in Appendix A below.

7  INTEREST ON CAPITAL ACCOUNTS 9.7  If the capital accounts of the partners differ markedly from their profit sharing ratio they sometimes agree that interest is payable on their capital accounts before net profit is ascertained1. The rate of interest, whether simple or compound2, how often it is to be paid, and upon what capital account, must then all be agreed as well. Agreement to pay interest will be inferred3 from the adopted accounting practice of the firm or its predecessor firm4, but not merely because only one partner has advanced capital whereas the other ought to have done5 nor because the partner contributing the capital has had to borrow it at interest6. Without express or inferred agreement, no interest on capital is payable7. After dissolution no interest is payable notwithstanding that agreement may have provided for interest before dissolution8, unless there is specific further agreement9. Section  24(4) of the Partnership Act 1890 provides: … subject to any agreement express or implied between the partners … (4) A partner is not entitled, before the ascertainment of profits, to interest on the capital subscribed by him. 1 Then interest will become payable upon capital but not upon accumulations of undrawn profits unless there is agreement to this effect: Dinham v Bradford (1869) 5 Ch App 519; compare Browning v Browning (1862) 31 Beav 316. 2 Compound interest will not be inferred easily: Foster v Mitchell (1912) 22 OWR 571 (Canada).

171

9.8  Partnership capital and partners’ capital Spartali v Constantinidi (1872) 20 WR 823. Millar v Craig (1843) 6 Beav 433. Hill v King (1863) 3 De GJ & Sm 418. Rishton v Grissell (1868) LR 5 Eq 326. Cooke v Benbow (1865) 3 De GJ & Sm 1; Jardine v Hope (1872) 19 Gr 76 (Canada); but the law in New Zealand may be different: Klaus v N Z Guardian Trust Co Ltd (1989) 3 BCR 307. 8 See para  18.7 below, and Barfield v Loughborough (1872) 8 Ch App 1; Watney v Wells (1867) 2 Ch App 250; Parsons v Hayward (1862) 4 De GF & J 474 at 484; Wood v Scoles (1866) 1 Ch App 369 at 378. 9 Smith v Donaldson (1864) Session 3rd Series, 86. 3 4 5 6 7

8  CONTRIBUTIONS OF CAPITAL 9.8  No partner need contribute any capital unless he has agreed to do so or has submitted to a management regime that requires him to do so1. If he does contribute, it may be by instalments. If he fails, his obligation to do so may be enforced against him by action by his partners2, but the mere fact that a lack of finance will be disastrous to the firm will not impose upon him an obligation to contribute which otherwise does not exist. He may agree that his entitlement to profit will be subject to the condition precedent that he contribute his capital3, and capital is implicitly owned in the proportions it is contributed4. If a partner in a proposed partnership pays money as partnership capital through an agent, the money ceases to belong to him (or to be held upon trust for him) and becomes partnership money held on the terms of the partnership agreement5. A partner’s contributions should be made in cash or in the form of some other asset whose value is agreed. It can be a bank loan or other assignable debt owed to himself6, or a whole business7 but what is important is that it should then be recorded as having a certain cash value, and it will be his capital. This sum will have to be known on dissolution in order to wind up the affairs of the firm8. Then what will usually9 have to be ascertained is the then value of the capital contribution in the state in which it originally reached the firm10. So an initial failure to quantify the value of his capital will lead to difficulties later.  1 Eslin v Hay (1884) 15 LR Ir 431; Re Bridgewater Navigation Co (1891) 2 Ch 317.  2 Kemble v Mills (1840) 9 Dowl 446; Teacher v Calder [1899] AC 451 at 467. As to claims between partners for contribution see para 14.54ff below.  3 Kemble v Mills (1840) 9 Dowl 446; Popat v Shonchhatra [1995] 1 WLR 908; revsd [1997] 1 WLR 1367.  4 Popat v Shonchhatra [1997] 1 WLR 1367 at 1373B.  5 Bieber v Teathers Ltd (in Liquidation) [2012] EWCA Civ 1466.  6 Toulmin v Copland (1834) 2 Cl & Fin 681.  7 Binney v Mutrie (1886) 12 App Cas 160, PC.   8 Winding up the firm after dissolution is considered in Chapter 18.   9 In the unsatisfactory case where a partner’s capital is contributed unvalued and in kind, it can only be valued at dissolution. This was assumed to be the case by Parke J at first instance in Re White [1999] 1 WLR 2079 (reversed [2001] Ch 393) where the capital of the partnership was defined as ‘including the freehold premises and land’. 10 Cooke v Benbow (1865) 3 De GJ & Sm 1; Bennett v Wallace 1998 SC 457 (Scotland).

172

The ownership and repayment of partnership capital 9.9

9 THE OWNERSHIP AND REPAYMENT OF PARTNERSHIP CAPITAL 9.9  A partner ‘owns’ his capital, meaning his share of the partnership capital, only in the limited sense that he may reclaim it on dissolution. Before dissolution, if the size of the partners’ shares in capital cannot be agreed either expressly or by implication1, then they may be treated as equal. Section 24(1) of the Partnership Act 1890 provides: … subject to any agreement express or implied between the partners … (1) All the partners are entitled to share equally in the capital and profits of the business …

The word ‘capital’ here means capital properly so called2 and does not mean partnership property3. But the statement that partners ‘share equally in the capital’ is misleading because the partnership capital that they have contributed will often not have been contributed equally4. Nourse LJ suggested in Popat v Schonchhatra5 that an implication was easily made that unequal contributions to capital resulted in correspondingly unequal entitlements to capital. Perhaps the phrase in section 24(1) ‘to share equally in the capital’ does not mean to share the ownership equally, but means to share in their use and benefit while the business is a going concern, and the section does not apply to the position on dissolution at all. This was suggested by Neuberger LJ in Sandhu v Gill6; Mummery LJ agreed the consequence7: … the shares of Mr Sandhu and Mr Gill in the assets and the profits of the partnership were equal, but the respective contributions by them to the capital of the partnership were not equal. On a dissolution of the partnership the capital would fall to be shared in proportions corresponding to their respective contributions of capital, but the partnership assets would be shared equally between them.

Similarly, in his Supplement on the Partnership Act 1890, Sir Nathaniel Lindley said8 ‘If it be proved that the partners contributed the capital of the partnership in unequal shares … what is due to each partner … will, subject to all proper deductions, be divided amongst the partners in the proportions in which they contributed it and not equally’. In other words, the parties receive back their partnership capital in the proportions in which they contribute it9. If his capital he pays into the firm has been borrowed from a bank on an undertaking from the firm to guarantee repayment of it, questions will arise as to his liability if the firm becomes insolvent10.  1 Bottrill v Harling [2015] EWCA Civ 564.   2 Per Nourse LJ in Popat v Schonchhatra [1997] 1 WLR 1367 at 1373.   3 [1997] 1 WLR 1367 at 1372.   4 See para 9.4ff above.   5 Per Nourse LJ in Popat v Schonchhatra [1997] 1 WLR 1367 at 1373.   6 [2006] Ch 456, CA, para 62.   7 Ibid at para 102(7).   8 (1891) p 62. This is the last work on partnership published by Lord Lindley (as he was soon to be).   9 See the Partnership Act 1890, s 44, discussed in para 18.54 below. 10 Barclays Bank v de By [2017] EWHC 3079 (QB).

173

10 The partnership share Contents

para 1 The nature and size of a partnership share A An interest in the net assets��������������������������������������������������������10.1 B Presumption of equality�������������������������������������������������������������10.2 C Survivorship�������������������������������������������������������������������������������10.3 D A share may be assigned or charged�������������������������������������������10.4 E The value of the share����������������������������������������������������������������10.5 F The partner’s lien�����������������������������������������������������������������������10.6 2 Mortgagees, assignees, personal representatives, trustees, nominees, legatees and attorneys of a share A Assignees and chargees generally����������������������������������������������10.10 B Charging orders and the appointment of a receiver������������������10.15 C Personal representatives of a partner����������������������������������������10.17 D The partnership share held upon trust or given by will�������������10.20 E Attorneys and Enduring and Lasting Powers of Attorney���������10.24

1 THE NATURE AND SIZE OF A PARTNERSHIP SHARE A An interest in the net assets   10.1 B Presumption of equality   10.2 C Survivorship  10.3 D A share may be assigned or charged   10.4 E The value of the share   10.5 F The partner’s lien   10.6

175

10.1  The partnership share

A  An interest in the net assets 10.1  A partner’s interest in the partnership, in the absence of contrary agreement, comprises1: (a) a right to share profits, discussed at para 12.24 below; (b) a right to take part in the management and to use the partnership assets2 as far as allowed by the partnership agreement; (c) a right to compel his partners to comply with that agreement, and the lien to effect this discussed at para 10.6 below; (d) a proprietary right to a share in the net assets after the creditors have been discharged3 and the partners’ balances settled4 on winding up5. It is questionable how far these rights can be severed from one another, or severed from the obligations of partnership6. A partner’s share could be called a proprietary interest in the firm’s assets and power to exercise rights in relation to the firm. Only for some purposes can it be divided up, although a partner’s interest in the assets may be7. It is not the same as a partner’s capital (see paras 7.11 and 9.2 above). As against an outsider, every partner is a co-owner of the partnership assets; as against his partners, he has no right to any individual asset at all, but only a share in the net assets left after winding up. In Sandhu v Gill8 a partnership ‘share’ was described by the Court of Appeal (for the purposes of section 42(1) of the Partnership Act 1890, but the description has general application) as ‘the share which the partner in question is entitled to receive at the conclusion of the winding-up process’. Whilst the partnership is continuing, it is a right to an indefinite and fluctuating sum9. Only to this limited extent is he an ‘owner’ of partnership property; he has no beneficial interest in any individual asset of the partnership and so he cannot assign that asset to a non-partner10. As James LJ observed in Ashworth v Munn11: The share of each of the other partners no doubt is not a share in any specific asset or any specific part of the assets real or personal, but his share of what will ultimately come to him when the accounts are ascertained and when the partners who are to contribute have contributed, and when the assets are got in, the debts paid, and the amounts realised.

So a part owner of a ship is not entitled to his share of the ship’s earnings until he has paid his share of its expenditure12. A partner’s share is his own property; it is not an asset of the firm in relation to which he owes fiduciary duties to his partners13. The bequest of partnership assets means a bequest of those assets subject to payment of the debts14. It means the bequest of a share of the business as a going concern including goodwill, and not on the basis of a notional winding-up15.  1 Re Bainbridge, ex p Fletcher (1878) 8 Ch  D  218; Connell v Bond Corpn Ltd (1992) 8 WAR 353; Hadlee v IRC [1993] AC 524; cf Federal Comr of Taxation v Everett (1980) 28 ALR 179 (Australia).  2 Kenny’s Patent Button-Holeing Co Ltd v Somervell and Lutwyche (1878) 38 LT 878.  3 Garbett v Veale (1843) 5 QB 408.

176

The nature and size of a partnership share 10.2   4 For instance, allowance must be made for overpayments made by the partner to the firm: West v Skip (1749) 1 Ves Sen 239.   5 See the Partnership Act 1890, s 39, which is printed in Appendix A below.  6 Federal Comr of Taxation v Everett (1980) 28 ALR 179 (Australia).  7 Atwell v Roberts [2013] WASCA 37.  8 Sandhu v Gill [2006] Ch 456, CA reversing Lightman J [2005] 1 WLR 1979 and discussed in para 18.18 below.  9 Marshall v Maclure (1885) 10 App Cas 325, PC. As to a partner’s lien over partnership assets see para 10.6 below. 10 Hadlee v IRC [1993] AC 524. 11 (1880) 15 Ch D 363; see also the observation of Nourse LJ in Popat v Shonchhatra [1997] 3 All ER 800, CA that only on a dissolution can it accurately be said that a partner can be said to be entitled to a share of anything, quoted with approval in Sandhu v Gill [2006] Ch 456, CA. 12 Holderness v Shackels (1828) 8 B & C 612; this is so even if the partner is a minor: Lovell & Christmas v Beauchamp [1894] AC 607. 13 Cassels v Stewart (1881) 6 App Cas 64. 14 Farquhar v Hadden (1871) 7 Ch App 1; distinguished in Re Holland, Brettell v Holland [1907] 2 Ch 88 where a specific gift of the partner’s share in the partnership freeholds was upheld because the other partnership assets were more than sufficient to pay the partnership debts. 15 Re Lau Cheong [2011] 4 HKLRD 382.

B  Presumption of equality 10.2  Whatever their proportion of labour or capital input1, partners are presumed to have an equal share in the profits2 and (for certain purposes3) in the net assets of the partnership, unless the contrary is shown4. So where an individual and a firm with two partners together tendered for a contract, the implication was that the individual took half of the profits and the firm the other half5. The shares are not equal if the agreement or implication is otherwise, for instance if the partnership accounts show that it is the practice of the firm to divide them in some other proportion6 or even to treat them as if one share was held jointly by two or more partners. Section  24 of the Partnership Act 1890 provides that in the absence of contrary agreement: (1) All the partners are entitled to share equally in the capital and profits of the business …

The meaning of this as regards partnership capital is discussed at para 9.9 above. Remuneration and profit shares are discussed at para 12.24 below. 1 Struthers v Barr (1826) 2 Wils & S 153. 2 Robinson v Anderson (1855) 20 Beav 98. 3 The concept that partners have any ascertainable share in the net assets before dissolution is a difficult one, since a partner’s share is a share in the post-dissolution profits as explained in the last paragraph and discussed by the Court of Appeal in Sandhu v Gill [2006] Ch 456, CA reversing Lightman J [2005] 1 WLR 1979. 4 Mayhew v Herrick (1849) 7 CB 229; Farrar v Beswick (1836) 1 Mood & R 527 NP; R v Bonner [1970] 1 WLR 838; Baker v Barclays Bank Ltd [1955] 2 All ER 571; but in Peacock v Peacock (1809) 2 Camp 45 the partnership was unusual in that it was between father and son, and the question as to the profit share was left to the jury. 5 Warner v Smith (1863) 1 De GJ & Sm 337. 6 Stewart v Forbes (1849) 1 Mac & G 137; Robley v Brooke (1833) 7 Bli NS 90.

177

10.3  The partnership share

C Survivorship 10.3  Where property is held by partners its legal title may accrue to the survivor, but the benefit of the property does not do so in the absence of agreement1 or statutory provision to the contrary, as discussed in para  8.2 above2. The maxim is: Jus accrescendi inter mercatores locum not habet3.

So when one partner dies his share in the partnership passes to his personal representatives and not to the surviving partners4. This does not mean that a personal representative becomes a partner, as discussed at para 10.17 below; but it means that the surviving partners are accountable to the estate of the dead partner for the value of his interest in the firm. 1 Jeffereys v Small (1683) 1 Vern 217. 2 The right of a country bank to issue bank notes accrued to the surviving partner under the Bank Charter Act 1844: Smith v Everett (1859) 27 Beav 446 but the banking goodwill did not, so some complicated inquiries were necessary. 3 The rule of survivorship has no place amongst merchants. 4 Ekins v Brown (1854) Ecc & Ad 400; Elliot v Brown (1791) 3 Swan 489n; Lake v Craddock (1732) 3 P Wms 158; Rathwell v Rathwell (1866) 26 UCR 179 (Canada).

D  A share may be assigned or charged 10.4  Unless the partnership agreement provides otherwise1 or the arrangement is tainted by fraud, a partner may sell, assign or charge it to an outsider2, even after dissolution3 and he may assign it or charge it involuntarily4 as when he suffers a charging order to be made as described at para 10.16 below. He may make a gift of his share but the gift will only be valid if it is a completed assignment or a declaration of trust of the share5. A partner may give his partnership share to another partner, but a presumption of advancement between certain family members will not apply where they are partners6. A provision in a partnership agreement that it was not ‘in the power’ of a partner to assign his share is not a covenant that he shall not assign it, but merely restricts the rights of the assignee7. A purchaser, chargee or assignee does not become a full partner8 without the agreement of the other members save as discussed at para 10.10 below. If the partnership agreement gives a partner an unqualified right to transfer his share to an outsider and thereby to free himself from any more liability to the firm, such a provision will be effective even if he transfers his share to a person who is insolvent9. The personal rights of a partner such as his right to take part in the management or vote on issues arising in the ordinary course of the partnership business cannot be assigned10, but an assignment of a share makes the assignor a trustee for the assignee and bound to act in the partnership in accordance with the direction of the assignee11. An agreement for any sale or other disposition of an interest in a partnership which owns land must satisfy the requirement of writing12, and the assignment 178

The nature and size of a partnership share 10.5

itself may also have to be in writing13. Subject to this a partner can give or sell his share to another partner. The transaction is valid even if the firm is insolvent14, but the purchasing partner cannot set off the purchase price against what is due to the vendor from the firm15. Where one partner buys the share of the other in a two-man firm, the firm is dissolved16, but not if the firm has more than two partners17. If the partnership agreement requires the consent of the other partners to a transfer, a transfer without such consent is a nullity as regards them18.  1 Ponton v Dunn (1830) 1 Russ & M 402; Hayes v Kingdome (1681) 1 Vern 33. For instance where it is a fraud on the partnership creditors (Eckhart v Wilson (1799) 8 Term Rep 140) or is voidable at the instance of the seller because it has been procured by the purchasers in breach of their duties of good faith discussed at para 11.43ff below: Perens v Johnson (1857) 3 Sm & G 419; Helmore v Smith (1886) 35 Ch D 436.  2 Gander v Murray (1907) 5  CLR  575, sub nom Murray v Zobel (1907) 8  SRNSW  482 (Canada). Assignees and chargees generally are considered in para 10.10 below.  3 Harwood v Harwood [1991] 2 FLR 274.  4 His share may pass involuntarily by matrimonial order: Yahya v Yahya (15  May 1997, unreported), CA.  5 Giselle Zeital (2) Kim Zeital v David Norman Kaye [2010] EWCA Civ 159.  6 Smith v Crawshay [2019] EWHC 2507 (Ch) at [66].  7 Cassels v Stewart (1881) 6 App Cas 64.  8 Bentley v Bates (1840) 4 Y & C Ex 182; Bray v Fromont (1821) 6 Madd 5.  9 Re Draper, ex p Booth (1832) 1 LJ Bcy 81. 10 Hadlee v IRC [1993] AC 524; as to the rights of the assignee see paras 10.10 and 10.16 below. 11 Clegg v Fishwick (1849) 1 Mac & G 294. 12 See the Law of Property (Miscellaneous Provisions) Act 1989, discussed at para 8.30ff above. The agreement for sale must be in writing even if the sale is between partners: Cooper v Critchley [1955] Ch 431. 13 The Law of Property Act 1925, s 53(1) applies the requirement of writing to the disposition of an equitable interest in realty and personalty and it probably extends to a partnership share, although there is no reported authority on the point. 14 Re Lightoller, ex p Peake (1816) 1 Madd 346. 15 Wartnaby v Shuttleworth and Taylor (1837) 1 Jur 469, LC; Fromont v Coupland (1824) 2 Bing 170; Green v Beesley (1835) 2 Bing NC 108. Set-off is discussed at para 21.10ff below (solvent partnership) and 19.10ff below (insolvent). 16 Heath v Sansom (1832) 4 B & Ad 172; Sturgeon Bros v Salmon (1906) 22 TLR 584. 17 Emanuel v Symon [1907] 1  KB  235, reversed on other grounds [1908] 1  KB  302, CA; Sturgeon Bros v Salmon (1906) 22 TLR 584 DC; Perry v Zissis [1977] 1 Lloyd’s Rep 607. 18 Watts v Driscoll [1901] 1 Ch  294; Harnam Singh v Kapoor Singh (1932) 46  BCR  195 (Canada); Cassels v Stewart (1881) 6 App Cas 64.

E  The value of the share 10.5  When a partner retires and the continuing partners acquire his share the question of its valuation arises and is discussed at paras 7.11 and 18.35ff below. But a share may have to be valued for other purposes, for instance on a divorce, and then different principles may apply1: for instance if goodwill has nil value in the accounts, a value may have to be put on the fact that the partner has the right to benefit from such goodwill2, or the valuation of a partnership tenancy may have to take into account the actual intention of the parties3. 179

10.6  The partnership share 1 In White v White the Court of Appeal pointed out the necessity of valuing with a broad brush the rights of spouses in a family partnership on divorce: [1999] Fam 304, CA; upheld [2001] 1 AC 596, HL. 2 Z  v Z  [1997]  NZFLR  241, NZCA sitting as a court of seven. I am grateful to Professor PRH Webb for this reference. 3 See para 8.43 above.

F  The partner’s lien (a)  The nature of the partner’s lien 10.6  A partner has a lien over partnership property which is a recognition that a partner cannot be said to own individual assets of the firm1, but has an interest in them and a right to compel his partners to deal properly with them. His beneficial interest in the entirety of the partnership assets is an interest he can enforce to the extent of seeing that the partnership assets are used for the benefit of the partnership2. The lien is not personal to him, nor may it be assigned to a non-partner, but it passes to his successors entitled to his partnership interest3. The lien expires when the rights that it supports are released4 or exhausted or barred by operation of the Limitation Acts, usually six years after dissolution5. The position of the creditors and their priority over the lien is discussed in 23.18ff below. 1 2 3 4 5

See para 10.1 above. Hadlee v IRC [1993] AC 524. Re Ritson [1899] 1 Ch 128; Hadlee v IRC [1993] AC 524. Burston Finance Ltd v Speirway [1974] 1 WLR 1648; For the effect of limitation and laches see para 15.50ff below.

(b)  Lien on rescission 10.7  Where he rescinds the partnership contract on the grounds of fraud or misrepresentation1, then he is entitled to a lien for the capital he has introduced into the business or even paid for his share2. Section 41 of the Partnership Act 1890 provides that he then has: a lien on, or right of retention of, the surplus of the partnership assets, after satisfying the partnership liabilities, for any sum of money paid by him for the purchase of a share in the partnership and for any capital contributed by him.

The lien takes priority over all claims of the other partners, but the words ‘after satisfying the partnership liabilities’ show that the lien is not intended to prejudice partnership creditors. 1 Such rescission is discussed at para 14.7 below. 2 Binney v Mutrie (1886) 12 App Cas 160, PC; Mycock v Beatson (1879) 13 Ch D 384.

180

The nature and size of a partnership share 10.9

(c)  Lien on dissolution 10.8  A lien1 is the term also used to mean the right of each partner to require the assets of the firm to be applied properly after dissolution on discharge of debts and liabilities and on distribution amongst the partners2. On the one hand it enables him to insist that assets are available to meet debts, and even contingent and unascertained liabilities3. On the other hand it enables him to ensure that surplus assets are available to himself, in which case it is ‘a claim against the surplus assets after realisation, whether those surplus assets consist entirely of the proceeds of realisation or whether they include some specific property’4. This right is embodied in section 39 of the Partnership Act 1890: On the dissolution of a partnership every partner is entitled, as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively …

The lien is an equitable one since it is not dependent upon continued possession of the partnership property5 and is akin to a floating charge since it is released to the extent that property may cease to be partnership property or may be mortgaged to secure a partnership debt6. It does not prejudice a purchaser or mortgagee in good faith of a specific partnership asset7. Its priority, registration and protection is discussed in para 23.18 below. 1 See eg Ex p King (1810) 1 Rose 212 and the cases there cited. 2 Kelly v Hutton (1868) 3 Ch App 703 at 709; Aberdare and Plymouth Ry Co Ltd v Hankey (1887) 3 TLR 493; Re White, ex p Morley (1873) 8 Ch App 1026; Hague v Dandeson (1848) 2 Exch 741; Steward v Blakeway (1869) 4 Ch App 603; Harvey v Crickett (1816) 5 M & S 336; Lingen v Simpson (1824) 1 Sim & St 600; Ex p Williams (1805) 11 Ves 3; Re Ward (a bankrupt) [1985] 2 NZLR 352, NZCA. As to whether the lien extends to property acquired after dissolution see Payne v Hornby (1858) 25 Beav 280; Pennell v Deffell (1853) 4 De GM & G 372 at 388; West v Skip (1749) 1 Ves Sen 239; Skipp v Harwood (1747) 2 Swan 586. 3 X v A, B, C [2000] 1 All ER 490 (Arden J), a trust case, but on this point the principle is the same as in partnership. 4 Re Bourne [1906] 2 Ch 427 at 434 per Fletcher Moulton LJ. 5 Wrout v Dawes (1858) 25 Beav 369. 6 Re Bourne [1906] 2 Ch 427. 7 Re Langmead’s Trusts (1855) 20 Beav 20; affd 7 De G & M G 353.

(d)  General lien 10.9  A more general lien exists1 throughout the term of the partnership, giving a partner (in particular when he is retiring) a right to secure partnership property that has been improperly disposed of in breach of the terms of the partnership agreement, or to secure his share of a partner who has not paid his contribution to capital2. It attaches to all the property for the time being of the firm3. This lien is analogous to a constructive trust4. Sir Frederick Pollock commented5 in relation to section 39: 181

10.9  The partnership share The right of each partner to control within certain limits the disposition of the partnership property … belongs to a class of rights known as equitable liens, which have nothing to do with possession, and must therefore be carefully distinguished from possessory liens which are familiar in several heads of the Common Law… An equitable lien, on the other hand, is nothing else than the right to have a specific portion of a property dealt with in a particular way for the satisfaction of specific claims. The lien, or quasi-lien, as it is sometimes called, of each partner on the partnership property is available against the other partners, and against all the persons claiming an interest in a partner’s share as such.

Similar equitable liens are the right of a workman to a charge over property for his work6, the right of a banker to have a lien on a cheque for what is owed on other accounts7, the right of a solicitor to retain, as security for payment of his remuneration, a judgment debt he has obtained for his client8 and a trustee’s lien9. ‘It exists independently of possession and arises by operation of equity from the relationship of the parties, rather than being created by the act of the party as in the case of an equitable charge’10. In Mycock v Beatson11, Fry J called a partner’s lien ‘a lien on the surplus assets for everything due to him from his fellow partner in respect of the partnership’. Such ‘surplus assets’ will usually not be defined because such definition is only possible after the final winding up of the partnership affairs. But this does not prevent his having before dissolution a partnership ‘share’ which is an undefined or floating interest over the surplus partnership assets: see para 10.1 above. An equitable lien can arise in relation to a future or potential debt, for instance where a solicitor finds that ‘there is a probability of the client depriving him of his costs’12 even if it was at that stage impossible to settle the claims regarding the solicitor’s assessment of costs13. So it might be exercised by partners to restrain partnership property or funds being paid away by another partner where it is rightly due to himself or others, for instance in a limited partnership by limited partners against a general partner whose departure is imminent but who is claiming excessive fees. The court does not encourage self-help and the main value of the lien is to give priority over the rights of a third party who received it with knowledge of the facts. In Holderness v Shackels14 the partners in a whaling expedition were being paid in specie and 20 tons of whale oil had been delivered to a partner called Foxton at the end of the voyage but before the partnership debts had been paid. He went bankrupt. It was held that the partners had a lien over what had been given him so that they could recover from his creditors enough of the whale oil to cover the partnership debts. In Hadlee v CIR15 Lord Jauncey gave the judgment of the Privy Council and stated16 that a partner has ‘a beneficial interest in the entirety of the partnership assets’ and added: He can enforce this interest against his copartners to the extent of seeing that the partnership assets are used for the benefit of the partnership but he cannot assign it to a non-partner. This beneficial interest, expressed in terms of its realisability, is in the nature of a future interest taking effect in possession on (and not before) the determination of the partnership.

182

Mortgagees, assignees, personal representatives, trustees etc of a share 10.10

The words here ‘expressed in terms of its realisability’ are important. The partner may not be entitled to possession of the sum in question before retirement or dissolution, but his lien over it exists before then.  1 Cavander v Bulteel (1873) 9 Ch App 79; Ex p Williams (1805) 11 Ves 3; Holderness v Shackels (1828) 8 B&C 612; Stocken v Dawson (1845) 9 Beav 239; affd (1848) 17 LJ Ch 282.  2 Re Ward [1985] 2 NZLR 352 at 354.  3 West v Skip (1749) 1 Ves Sen 239; Skipp v Harwood (1747) 2 Swan 586.   4 In Soremekun v Omolunde (20  October 2003) a person used partnership money to buy property in the name of himself and another, and the firm was held entitled to the benefit of a share of those properties on a resulting or a constructive trust.   5 Sir Frederick Pollock (the draftsman of the Bill which became the 1890 Act), in the last edition of his Digest of the Law of Partnership for which he was responsible (11th edn, 1920).  6 Hewitt v Court (1949) CLR 639, High Court of Australia.  7 Re Keever [1967] Ch 182 at 192.  8 Re Fuld [1968] P 727.  9 Re Pauling’s Settlement, Younghusband v Coutts (No 2) [1963] Ch 576. 10 Per Wilson and Dawson JJ in Hewitt v Court. They were in a minority, but the dicta of the judges in the majority was to similar effect. 11 (1879) 13 Ch D 384. 12 Mercer v Graves (1872) LR 7 QB 499 at 503. 13 In Re Fuld [1967] 2 All ER 649. Similarly in X v A, B, C [2000] 1 All ER 490, the Court of Appeal held that a trustee had a lien over a trust fund for its costs and expenses, including future liabilities, even if these were contingent. 14 8 B&C 612 (1828); ER 108 KB 1170. 15 [1993] AC 524 on appeal from the Court of Appeal of New Zealand. 16 At 532F.

2 MORTGAGEES, ASSIGNEES, PERSONAL REPRESENTATIVES, TRUSTEES, NOMINEES, LEGATEES AND ATTORNEYS OF A SHARE A B C D E

Assignees and chargees generally   10.10 Charging orders and the appointment of a receiver   10.15 Personal representatives of a partner   10.17 The partnership share held upon trust or given by will   10.20 Attorneys and Enduring and Lasting Powers of Attorney   10.24

A  Assignees and chargees generally (a)  Assignees’ and chargees’ rights 10.10  A partner has a right to assign1 and charge his share as mentioned in para 10.4 above, but the rights of the assignees and chargees are limited because they do not become partners in the place of the partner2 save in the unlikely event that the other partners admit them as partners3, or the 183

10.11  The partnership share

partnership agreement requires them to be thus admitted4. There was once a convention amongst mining and shipping partnerships that a share might be assigned without the consent of the other partners to a new partner, who took over the former partner’s status like a company shareholder, and released him from any liability for partnership debts5, but this convention seems not to have survived the 19th century. The rights of ordinary assignees and chargees are merely: (a) a right to receive the profits of the share6 without any account7 or investigation8 into how it has been achieved save from sight of the balance sheet and profit and loss account9; and (b) a right to a full account after dissolution10. The rights of a partner’s trustee in bankruptcy are discussed at para 22.14ff below.  1 His share may pass involuntarily by matrimonial order: Yahya v Yahya (15  May 1997, unreported), CA.  2 Bray v Fromont (1821) 6 Madd 5; see para 10.4 above.  3 Jefferys v Smith (1827) 3 Russ 158.  4 Re Pennant and Craigwen Consolidated Lead Mining Co, Mayhew’s Case (1854) 5 De GM & G 837; Pinkett v Wright (1842) 2 Hare 120; affd sub nom Murray v Pinkett (1846) 12 Cl & Fin 764, HL.  5 Redmayne v Forster (1866) LR 2 Eq 467; Bentley v Bates (1840) 4 Y & C Ex 182.  6 Cavander v Bulteel (1873) 9 Ch App 79; Glyn v Hood (1859) 1 Giff 328; affd (1860) 1 De GF & J 334.  7 Bergmann v Macmillan (1881) 17 Ch  D  423; in India, Mistry Goa Petha v N  H Moos (1931) ILR 10 Pat 782. The pre-1890 law was more generous to the assignee: see Whetham v Davey (1885) 30 Ch D 574, where at 579 it is suggested that the mortgagee of a share might be entitled to an account from a date earlier than dissolution.   8 He has no right to inspect the partnership books and records: Bergmann v Macmillan (1881) 17 Ch D 423.  9 Morris v Morris (1993) 9 WAR 150. 10 See the Partnership Act 1890, s 39, which is set out in Appendix A below.

(i)  Before dissolution 10.11  The assignee or chargee has no right to take part in the management of the business or to exercise such rights that the partner may have as the right to dissolve the firm on notice1. He may have a contractual right against the assignor partner to compel him to act on his instructions, but that is not a matter of which the other partners need take notice. Section 31(1) of the Partnership Act 1890 provides that until dissolution: An assignment by any partner of his share in the partnership, either absolute or by way of mortgage or redeemable charge, does not, as against the other partners, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any accounts of the partnership transactions, or to inspect the partnership books, but entitles the assignee only to receive the share of profits to which the assigning partner would otherwise be entitled, and the assignee must accept the account of profits agreed to by the partners.

184

Mortgagees, assignees, personal representatives, trustees etc of a share 10.12

Thus if after one partner has assigned or charged his share, the majority of the others take a decision on ordinary matter connected with the partnership business2 which affects the profitability of the share, even agreeing in good faith to allow themselves a salary, the assignee has no right to complain3. In Kelly v Hutton4 the firm of Beeton and Hutton ran The Sporting Life, a newspaper. Beeton assigned his share by way of charge to Wrigley & Sons, paper-makers, who sold it to the plaintiff. Beeton then agreed with Hutton that he owed Hutton £512 as the balance of his unpaid purchase money, and he charged his share to Hutton for this sum. The issue was whether the latter charge was good against the plaintiffs. Held5 that it was, because the assignee or chargee of a partnership share must take it subject to the equities that arise between the partners for so long as the partnership continues: ‘It is impossible that [the plaintiffs] can now take to themselves the subject of that adventure and the profits arising therefrom without being subject to every equity of the co-adventurer.’

The assignee is therefore liable for his share of the partnership losses after the date of the assignment, either by deduction from the profits that are paid to him by the firm, or by his indemnifying the assignor who may have been held primarily liable for them6. But beyond the scope of the equities that arise between the partners running the firm, the other partners may not prejudice the assignee. For instance they and the assignor partner together cannot purport to fix the value of his share7. If the assignor joins with all the other partners in purporting to agree a variation in the partnership terms to the detriment of the assignee, the variation is ineffective if the partners have notice of the assignment8, but not otherwise. 1 Hadlee & Sydney Bridge Nominees v IRC (1993) NPC 40. He has no right to an account except possibly (on old authority which has probably not survived the 1890 Act) if he pays what the assignor owed the firm and thereby puts himself into his shoes: Bergmann v Macmillan (1881) 17 Ch D 423. 2 This is to quote the Partnership Act 1890, s 24(8), which empowers a majority of the partners to take such decisions. A majority cannot (for instance) alter the amount of a partner’s share; this is discussed at para 12.2 below. 3 Re Garwood’s Trusts, Garwood v Paynter [1903] 1 Ch 236. 4 (1868) 3 Ch App 703; Dodson v Downey [1901] 2 Ch 620. 5 By Sir W Page Wood LJ giving the judgment of the Court of Appeal in Chancery: (1868) 3 Ch App 703 at 709. 6 Per Farwell J in Dodson v Downey [1901] 2 Ch 620 at 623. 7 Watts v Driscoll [1901] 1 Ch 294, a case in which the mortgagor partner purported to sell his mortgaged share to the other partner who had notice of the mortgage, for an amount less than the value of the mortgage. Held that this was not binding upon the mortgagee who remained entitled to the full value of the share on dissolution and not merely its sale proceeds. See also Veerappa Chetty v Muthiah Chetty (1929) ILR 52 Mad 509, where the accounts were purportedly agreed behind the back of the assignor. 8 Watts v Driscoll [1901] 1 Ch 294.

(ii)  After dissolution 10.12  After dissolution the assignee or chargee becomes entitled to the full right to an account that the outgoing partner has from the date of dissolution1, 185

10.12  The partnership share

and to payment of the partner’s share computed accordingly, ‘ascertained after satisfying all the partnership liens and other claims’2. This means that he cannot receive anything unless he pays what he owes; even if he is bankrupt, he must give credit for all that he owes to the firm (for instance for capital which he ought to have paid) before he receives his share in the net assets3. As Somers J elegantly put it when giving the judgment of the Court of Appeal in New Zealand in Re Ward4: The interests of creditors of the partnership rank above the interests of the partners. But the interest of each partner in the assets of the firm … is superior to that of creditors of each partner personally.

The assignee or chargee may apply to the court for an order that the business and affairs of the firm be wound up5. Section 31(2) of the Partnership Act 1890 provides: In case of a dissolution of the partnership, whether as respects all the partners or as respects the assigning partner, the assignee is entitled to receive the share of the partnership assets to which the assigning partner is entitled as between himself and the other partners, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution.

The assigning partner’s ‘share of the partnership assets’ is defined in section 39: On the dissolution of a partnership every partner is entitled, as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in what may be due to the partners respectively after deducting what may be due from them as partners to the firm …

The assignee’s right to an account extends to a right to investigate malpractice by the other partners6. But although after dissolution the assignee has a right to an account, he is not to be treated for any other purpose as a partner unless the partnership agreement provides otherwise. Thus he may not be not bound by an arbitration clause in the partnership agreement7, and the original assignor partner is a necessary partner to an action for a partnership account8. A mortgagee’s claim against a share is not reduced by what he may be owed by the firm9. 1 Whetham v Davey (1885) 30 Ch D 574; in Canada, Saskatoon Townsites v Simpson [1920] 1 WWR 884. 2 Per Pickford LJ in Peake v Carter [1916] 1 KB 652. For the partner’s lien, see para 10.6 above. 3 Re Ward [1985] 2 NZLR 352, NZCA, following Holderness v Shackels (1828) 8 B & C 612 at 618; Ex p Williams (1805) 11 Ves 3 at 5–6; West v Skip (1749) 1 Ves Sen 239 at 242; not following Smith v De Silva (1776) 2 Cowp 469. 4 [1985] 2 NZLR 352, NZCA. 5 See the Partnership Act 1890, s 39. 6 Bentley v Bates (1840) 4 Y & C Ex 182 and Re Crawford, ex p Crawford (1873) 28 LT 244, a case of an account being ordered in favour of the trustee in bankruptcy of a partner. 7 Bonnin v Neame [1910] 1 Ch 732. 8 Public Trustee v Elder [1926] Ch 266; affd [1926] Ch 776, CA. 9 Glyn v Hood (1860) 1 De GF & J 334; for set-off in insolvency see Chapter 23, and for set-off as a defence see para 21.10ff below.

186

Mortgagees, assignees, personal representatives, trustees etc of a share 10.15

(b)  An assignee’s liability 10.13  If an assignee is accepted as a partner, he becomes liable as a partner to the other partners for partnership losses, but otherwise an assignee is not directly liable1, but by taking an absolute assignment from a partner he impliedly agrees to indemnify that partner against continuing partnership losses2. When he is a necessary party in a partnership action is discussed at para 15.8 below. The assignee is liable to the assignor for the purchase price, and on the bankruptcy of the assignee, the assignor who claims this against his estate ranks equally with his separate creditors3. 1 Jefferys v Smith (1827) 3 Russ 158. 2 Dodson v Downey [1901] 2 Ch 620; Mills v United Counties Bank Ltd [1912] 1 Ch 231, CA. 3 Re Beater, ex p Edmonds (1862) 4 De GF & J 488; Kelly v Hutton (1868) 3 Ch App 703.

(c)  The continuing liability of the assignor 10.14  An assignee impliedly indemnifies the assignor against the arising and continuing partnership liabilities1 but this does not mean that the assignor is released from primary liability to the creditors of the firm without their consent2, nor from liability to his partners for an account3. Nor does the assignment impose upon the assignor any direct liability to the assignee to pay what the assignor owes to the firm4. 1 Dodson v Downey [1901] 2 Ch 620; Hardoon v Belillos [1901] AC 118; Conway v Wingate [1952] 1 All ER 782. 2 Rodgers v Maw (1846) 15  M & W  444. He is therefore usually a necessary party to a partnership action, as mentioned at para 15.8 below. 3 Public Trustee v Elder [1926] Ch 266; affd [1926] Ch 776, CA. 4 Aulton v Atkins (1856) 18 CB 249. The nature of the asset that is being assigned was discussed in the Privy Council in Hadlee v IRC [1993] AC 447 at 524.

B  Charging orders and the appointment of a receiver (a)  The judgment creditor’s claim for a receiver or a charge 10.15  A judgment against a single partner, as opposed to a judgment against the firm, cannot be enforced against the assets of the firm1 because there is a distinction between the liability of a single partner, enforceable against his share, and the liability of the firm itself, enforceable against its assets. The share of an individual partner may be the subject of a charging order and ancillary receivership2 on the application of a judgment creditor of the individual partner. Section 23(2) of the Partnership Act 1890 provides: The High Court, or a judge thereof, … or a county court may, on the application by summons of any judgment creditor of a partner, make an

187

10.16  The partnership share order charging that partner’s interest in the partnership property and profits with payment of the amount of the judgment debt and interest thereon, and may by the same or a subsequent order appoint a receiver of that partner’s share of profits (whether already declared or accruing), and of any other money which may be coming to him in respect of the partnership, and direct all accounts and enquiries, and give all other orders and directions which might have been directed or given if the charge had been made in favour of the judgment creditor by the partner, or which the circumstances of the case may require.

A charging order must be made under this provision and not under the Charging Orders Act 1979 because the assets which may be charged under the latter Act do not include a partnership share3. The charging order and ancillary receivership cannot be made in relation to the share of a dead partner unless there is a judgment against his personal representatives4, but can be in relation to that of a mentally incapable partner5, and that of a partner in a foreign firm with a place of business within the jurisdiction6. It amounts to no more than an involuntary assignment of the share, and the receiver or the person with the benefit of the order therefore takes no more of an interest than a voluntary assignee7, as discussed at para 10.11 above; in particular he is not entitled to accounts pending dissolution8. Even so, such a charging order may not be made without the partners being given an opportunity to be heard. An application for a charging order by a judgment creditor must be served both on the judgment creditor and upon such of his partners as are within the jurisdiction under CPR, Pt 73 PD para  6 which governs the procedure. The Order does not envisage an ex parte application being made9; if there is a fear of the partner dissipating his share then a ‘Freezing’ (Mareva) injunction should be sought, which is often initially made ex parte. 1 See the Partnership Act 1890, s 23(1); Parker v Pistor (1802) 3 Bos & P 288; Jacky v Butler (1703) 2 Ld Raym 871; Riddell v Botfield [1923] 2 DLR 1056 (Canada); Haribhai v Ardesir Ukadji (1875) ILR 4 Bom 229n (India). 2 Receivership of the firm at the instance of an outside creditor is discussed at para 21.45 below. 3 See the Charging Orders Act 1979, s 2(2). 4 Stewart v Rhodes [1900] 1 Ch 386; Haly v Barry (1868) 3 Ch App 452. 5 Re Seager Hunt [1900] 2 Ch 54n; mental incapacity is discussed in Chapter 3. 6 Brown, Janson & Co v Hutchinson & Co [1895] 1 QB 737, CA. 7 Peake v Carter [1916] 1 KB 652; Cooper v Griffin [1892] 1 QB 740; Sutton v English and Colonial Produce Co [1902] 2 Ch 502. 8 Brown, Janson & Co v Hutchinson & Co [1895] 2 QB 126. 9 Unlike the procedure under the Charging Orders Act 1979.

(b)  The consequences of a charge 10.16  A charge over the share of a partner gives to the creditor priority over his other creditors unless the partner is bankrupt1. It also gives to his fellow partners certain rights, as follows: (a) The other partners may redeem or acquire a share that has been charged involuntarily to a judgment creditor under the procedure described 188

Mortgagees, assignees, personal representatives, trustees etc of a share 10.17

above2. Section 23(3) of the Partnership Act 1890 implicitly refers to the previous parts of section 23 and provides: The other partner or partners shall be at liberty at any time to redeem the interest charged, or, in case of a sale being directed, to purchase the same.

A purchase will be taken by those partners willing to make the purchase in the proportions in which they share profits. The duties of good faith binding upon partners who buy the share of another partner3 extend to such a purchase4. (b) Should any partner suffer such an involuntary charge over his share, the other partners may then dissolve the firm even if they have no other right to dissolve by notice. Section 33(2) of the Partnership Act 1890 provides: A partnership may, at the option of the other partners, be dissolved if any partner suffers his share of the partnership property to be charged under this Act for his separate debt.

The words ‘under this Act’ show that this provision does not apply to a voluntary charge, and the reference to ‘the other partners’ shows that the option of dissolution belongs to the other members collectively, who must presumably act unanimously, since this is not an ‘ordinary matter connected with the partnership business’5 although the point is free from authority. 1 Wild v Southwood [1897] 1 QB 317. 2 The right to redeem or acquire the share does not arise if the share is charged in some other way. 3 Discussed at para 11.44 below. 4 Perens v Johnson (1857) 3 Sm & G 419. 5 See the Partnership Act 1890, s 24(8), discussed at para 12.6ff below.

C  Personal representatives of a partner (a)  The position of personal representatives generally 10.17  The personal representatives of a partner do not themselves become partners in the place of the dead partner save in the unusual case that: (a) the business continues beyond its mere winding up; and (b) the personal representatives involve themselves in the business; and (c) the other partners accept them as partners, or are bound to accept them because there is a provision to this effect in the partnership agreement. The personal representatives can never be compelled to become partners even though there are directions to this effect in both the will and the partnership agreement. If they elect to become partners they acquire the liabilities of partners; if they do not do so, they do not. Then their position is similar to that of the assignee of a partnership share, in that they can take no part in the management. But they are entitled to rather more information 189

10.18  The partnership share

before dissolution than a simple assignee, for section  28 of the Partnership Act 1890 provides: Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.

The continuing partners can meet an account claim by any of the defences that are available to them if sued by a continuing partner as discussed at para 14.31 below, such as accord and satisfaction, illegality, delay, waiver or denial of partnership. Although the personal representatives of a dead partner have a right to sue for an account, a mere beneficiary of a partner’s estate has no right to do so1, unless the personal representatives are the other partners2, in which case he is allowed to sue because, obviously, the personal representatives cannot be relied upon to sue themselves as partners. 1 Taylor v Taylor (1873) 28  LT  189. Nor does an assignee from a personal representative acquire such a right: Clegg v Fishwick (1849) 1 Mac & G 294. 2 Vyse v Foster (1874)  LR  7  HL  318; Re Pickering (1883) 25 Ch  D  247; Macdonald v Richardson (1858) 1 Giff 81 at 87 following Lord Eldon in Freeman v Fairlie (1817) 3 Mer 24; see Law v Law (1845) 2 Coll 41 and Pointon v Pointon (1871) LR 12 Eq 547.

(b)  Where the death dissolves the partnership 10.18  Unless the partnership agreement or subsequent agreement has provided otherwise, the death of a partner dissolves the whole firm1. The winding up of the partnership affairs is in the hands of the survivors2. There can be no claim on the personal representatives for partnership liabilities accruing after the death3. Their rights to an account4 after dissolution is the same as that of an assignee described at para 10.12 above. 1 2 3 4

See the Partnership Act 1890, s 33(1), discussed at para 16.28 below. See the Partnership Act 1890, ss 38 and 42, discussed at Chapter 18. See para 20.17 below for this and for liability on pre-death obligations. See para 14.18ff below.

(c)  Where the death does not dissolve the partnership 10.19  Where the partnership agreement (or other agreement) provides that the death is not to dissolve the partnership, it will also usually provide how the share is to be bought out by the other partners. If there is no such provision or the surviving partners have a right not to invoke it and do not do so, the personal representatives are locked into their ownership of the deceased’s share and must simply be content to await a dissolution that they cannot provoke, and to receive a profit share in the meantime, with similar rights to the assignees described earlier. If they do not interfere in the business, they are not liable as partners1. 190

Mortgagees, assignees, personal representatives, trustees etc of a share 10.20

If (as is common) the partnership agreement gives the surviving partners the right or duty to buy out the share at a valuation2, those provisions are binding upon the personal representatives. Where the surviving partners include a personal representative (for instance where a partner has appointed one or more of his partners to be his executors) that person is accountable to the beneficiaries of the estate for any impropriety3. But such a sale is not voidable by the beneficiaries under the self-dealing rule, in the absence of evidence of impropriety, for the provisions of the will in favour of the beneficiaries cannot prejudice the rights of the partners as defined in the partnership agreement4. The construction of pre-emption clauses is considered at para 18.34ff below. If the personal representatives of a partner are authorised neither by the partnership agreement nor by the will nor by the consent of the beneficiaries to sell his share to one of themselves, such a sale is voidable at the instance of the beneficiaries under ordinary principles of trust law, subject to the usual defences of ratification, acquiescence or laches5. 1 2 3 4 5

Holme v Hammond (1872) LR 7 Exch 218. Such rights of pre-emption are discussed at para 18.34ff below. Macdonald v Richardson (1858) 1 Giff 81; Pointon v Pointon (1871) LR 12 Eq 547. Vyse v Foster (1874) LR 7 HL 318. Beningfield v Baxter (1886) 12 App Cas 167.

D The partnership share held upon trust or given by will (a)  The trustee-partner’s rights and liabilities 10.20  A trustee or personal representative who finds himself carrying on business in common with another will incur personal liability as a partner with him1. By contrast where personal representatives merely carry on a dead sole trader’s business together they do not constitute themselves partners between themselves2. A trustee or personal representative has no power to run the business in which his trust or estate has a share without the consent of the trust instrument or all the beneficiaries3 unless specifically authorised by the settlement or will, save in so far as may be necessary to preserve the business as an asset for long enough to be able to realise it4. If authorised and he suffers losses, he is entitled to an indemnity from his estate which will rank behind the estate’s creditors5 or ahead of them if he can show that he was merely carrying on business with a view to selling the business as a going concern6. As between the beneficiaries such losses are to be borne by those entitled to income rather than capital unless it has been the accounting practice of the firm to write off losses against the partner’s capital account7. 1 2 3 4 5

Re Robinson, ex p Holdsworth (1841) 1 Mont D & De G 475 and see para 3.9 above. Re Fisher & Sons [1912] 2 KB 491 discussed at para 3.9 above. Re Ball (1930) 74 Sol Jo 298. See the Administration of Estates Act 1925, s 33(1); and Re Rooke [1953] Ch 716 at 723. Re Bracey [1936] Ch 690; Re Raybould [1900] 1 Ch 199; Re East (1914) 111 LT 101, CA: Dowse v Gorton [1891] AC 190.

191

10.21  The partnership share 6 Per Lord Herschell in Dowse v Gorton [1891]  AC  190 at 199; Re Evans (1887) 34 Ch D 597, CA. 7 Gow v Forster (1884) 26 Ch D 672.

(b)  The beneficiaries’ rights 10.21  Where the trustees are members of a partnership, the beneficiaries may not interfere with the workings of the partnership business nor may they see the partnership internal books of account; their entitlement extends no further than the right to see the balance sheets and profit and loss accounts1. The reason is that the other partners have never admitted them as partners. Their position can better be compared to that of shareholders in a company2 than to the owners of a business3. 1 Morris v Morris (1993) 9 WAR 150. 2 Butt v Kelson [1952] Ch 197, CA; Re George Whichelow [1954] 1 WLR 5. 3 See Romer LJ in Butt v Kelson [1952] Ch 197, CA at 204.

(c) Nominees 10.22  If a partner is a mere nominee for another1, he will be under an obligation to the other to act on his instructions, which may bring him into conflict with his other partners. His position is similar to that of a chargee, assignee or trust beneficiary, save that the question will arise whether he or the other is the true partner. The question will depend upon the application of the principles mentioned above and especially: (a) prima facie the person who appears to his partners to be the partner is the partner2 because the other partners need only acknowledge as the partner a person whom they have agreed is a partner3; (b) the courts will not recognise ‘a sham’, where the reality of the arrangement differs from its appearance4; (c) the question who is a partner depends upon who is ‘carrying on the business’; (d) where one person is carrying on the business, but on the instructions of another, it is a question of degree which of them is the protagonist; (e) if the arrangement is that the nominee is released from liability on partnership obligations but his principal is so liable (perhaps as ‘guarantor’) then the suspicion must be that the principal and not the nominee is the true partner. 1 Paragraph 8.23 above considers the different question of property bought with partnership money in the name of another. 2 The question of the status of a company ‘member’ to petition the court if either he is a registered shareholder with no beneficial interest, or a beneficial owner who is not registered as a shareholder, was considered in Re McCarthy Surfing Ltd [2006]  EWHC  882 and the cases referred to in it. 3 See para 7.23 above. 4 Alexander Bulloch & Co v IRC (1976) STC 514, Ct of Session.

192

Mortgagees, assignees, personal representatives, trustees etc of a share 10.24

(d)  Will bequests, purported bequests and promised bequests 10.23  A partner may leave his partnership share by will, unless the partnership agreement prohibits this. A gift of a share is a gift of the net share, and the beneficiary is in no better position than any other assignee1. The gift may be interpreted as including money standing to the credit of the testator in his current account or as undrawn profit2 but a contrary view has been taken3. The partnership agreement may provide that a partner may appoint his successor4, but this is rare today. On a partner’s death a purported gift of a specific partnership asset (rather than a gift of the share itself or the profits of that share5 is a nonsense, for no partner can give away what belongs to the firm rather than to him6. But as far as possible the bequest will be given effect and upheld as between his beneficiaries7. This will not be possible if the partnership is insolvent, because then the testator effectively has no financial interest in the partnership asset. But if he bequeaths an asset in a solvent partnership, the court will in effect appropriate the asset to his share and thereby allow the gift to take effect, leaving his liability for the partnership debts to be borne by the remainder of the assets in which he has a share8. Claims to a promised share in a farm or share in a farming partnership under the doctrine of proprietary estoppel are sadly now common, and for this the reader is referred to the textbooks on equity. 1 Farquar v Hadden (1871) 7 Ch App 1; Re Rhagg (1938) 1 Ch 828. For the rights of assignees, see para 10.10 above. 2 In Re Barfield 84 LT 28; In re Hawkins (1913) 109 LT 969. 3 See North J in Re Beard (1888) 58 LT 629 and Re Lanyon (1957) SASR 135. 4 Fox v Cliftons (1812) 9 Bing 115. 5 A gift of the profits of a share was held to be no gift of any interest in the partnership assets in Re Lawes-Wittewronge [1915] 1 Ch 408. 6 Re Ritson [1899] 1 Ch 128. 7 Re Holland [1907] 2 Ch 88. 8 Re Rhagg (1938) 1 Ch 828; Re Holland [1907] 2 Ch 88.

E Attorneys and Enduring and Lasting Powers of Attorney 10.24  A partner may not impose upon his partners another person in his place, without their consent. He may not convey to an agent or attorney his power to take part in the business1. He may only do by an agent or attorney such acts (whether relating to his partners or to outsiders) as the partnership agreement provides or implies that he may do. So where a partner has lost mental capacity the question whether the court may authorise a suitable person (probably his deputy) to perform specific acts on his behalf such as serving notice of dissolution2, depends upon the partnership agreement. It may authorise a suitable person to carry on his trade, business or profession generally, but not to carry on such a business as he carries on in partnership 193

10.24  The partnership share

with others3. The position upon his loss of mental capacity generally is considered at para  3.27 above. Where he has given an Enduring Power of Attorney4 and the attorney has reason to believe that the donor is or is becoming mentally incapable, the attorney is under a duty to register the power with the Public Guardian. If he has given a Lasting Power of Attorney5 it must be registered with the Public Guardian before it can be used6 but there is no need to wait until the donor is or is becoming mentally incapable before registration. The attorney then acquires the authority to act upon his behalf, notwithstanding his incapacity, to the extent defined in the power, which may be anything that could be done by an attorney7 at the time that the power was created. The attorney may also be granted by the court any consent or authorisation which the attorney might obtain from a mentally capable donor8. But this cannot constitute the attorney a partner without the consent of the other partners. At best, his position will be analogous to that of an agent, as considered at para 11.24 below, or an assignee, as considered at para 10.10 above, and normally none of these will have a right to serve a notice under the partnership agreement such as a notice of dissolution or retirement9. But it may be that an attorney will have power to exercise a right if his principal could have exercised it on his own initiative and without discussion with the other partners or concern for the consequences to them10.  1 Hadlee v IRC [1993] AC 524; Bray v Fromont (1821) 6 Madd 5.  2 Dibbins v Dibbins (1896) 2 Ch 348.   3 Mental Capacity Act 2005, s 18.   4 Since the coming into effect of the Mental Capacity Act 2005 on 1 October 2007 no new EPAs may be created. The provisions relating to EPAs created before that date are now to be found in the Mental Capacity Act 2005, Sch 4, which replicate the former provisions of the Enduring Powers of Attorney Act 1985.   5 Mental Capacity Act 2005, s 9.   6 Mental Capacity Act 2005, s 9 and Sch 1, para 4.   7 Mental Capacity Act 2005, s 23.   8 Ibid.  9 Harper v Godsell (1870) LR 5 QB 422; contrast Dibbins v Dibbins (1896) 2 Ch 348 where the contrary seems to have been assumed without argument. 10 I am grateful to my friend David Rees for his thoughts on this.

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11 The duty of good faith Contents

para 1 The general duty of good faith A A duty of good faith: honesty and other duties���������������������������11.1 B A fiduciary duty�������������������������������������������������������������������������11.2 C Limits on the duty of good faith�������������������������������������������������11.3 D Analogy with duties of others���������������������������������������������������11.10 E Duration of duty����������������������������������������������������������������������11.12 F Waiver and consent to breach of duty��������������������������������������11.14 G Enforcement against third parties of the partner’s duty������������11.15 2 The duty to give information and keep accounts A General������������������������������������������������������������������������������������11.16 B The duty to give information����������������������������������������������������11.17 C The duty to keep full and accurate accounts�����������������������������11.22 D Access to books and other records�������������������������������������������11.23 3 Profiting from the firm A Profiting from the firm generally����������������������������������������������11.26 B Renewing partnership leases�����������������������������������������������������11.29 C Reversions on partnership leases����������������������������������������������11.30 D Outside work and office-holding����������������������������������������������11.31 E Use by the partner of other partnership property���������������������11.32 F Bribes and commissions�����������������������������������������������������������11.37 4 Competing with the firm A ‘Consent of the other partners …’��������������������������������������������11.39 B ‘The same nature … and competing’����������������������������������������11.40 C Profits of office�������������������������������������������������������������������������11.41 D What is profit?�������������������������������������������������������������������������11.42 5 Duties when a partner joins the firm or buys or sells his share A The duty�����������������������������������������������������������������������������������11.43 B Duties of the purchaser and of the vendor��������������������������������11.44 C Duty to the remaining partners as regards the transaction��������11.45 D Where no sale materialises�������������������������������������������������������11.46 E Duty of continuing partners to estate of a dead partner�����������11.47 195

11.1  The duty of good faith

1  THE GENERAL DUTY OF GOOD FAITH A B C D E F G

A duty of good faith: honesty and other duties   11.1 A fiduciary duty   11.2 Limits on the duty of good faith   11.3 Analogy with duties of others   11.10 Duration of duty   11.12 Waiver and consent to breach of duty   11.14 Enforcement against third parties of the partner’s duty   11.15

A  A duty of good faith: honesty and other duties 11.1  Each partner owes to the others a duty of honesty and good faith1. This requirement of mutual trust arises because they have all voluntarily constituted one another their agents in relation to the partnership affairs2. In 1677 Lord Nottingham noted, ‘All the partners are to answer to strangers for the acts of any one of them’3, and this principle requires, or echoes, the necessity of mutual trust between the partners4. Being thus ancient, the duty alters and develops with changing conditions. It is not mentioned specifically in the Partnership Act 1890. It can be regarded as an implied term of the partnership agreement5. (a) Its first and unchanging aspect is the obligation to be honest6: ‘I conceive it to be one of the first duties of a partner to be an honest man, and that not merely in his accounts as between himself and his partners, but in relation to third persons, at least to the extent of abstaining from being guilty of a fraud bringing him within the penalties of the criminal law’7.

But this does not mean that a partner satisfies the duty of good faith by mere honesty; the duty has other characteristics; he may be in breach of it without being dishonest or negligent8, for instance if he acts for an improper motive9. Conversely, the fact that he may have been dishonest does not mean that his partners cease to have a duty of good faith towards him10. (b) The second aspect of the duty is the requirement of openness. A partner must conceal nothing from his partners which is relevant to the firm’s business11. The test here may be a subjective one rather than an objective one12. (c) Thirdly, he must act in favour of the firm and not against it13. Loyalty must be present14. He must not exercise for his own advantage the powers which he holds as a partner only15. He may not put himself in a position which militates against discharge of his duty to the firm16. (d) Fourthly, he must treat fairly a minority within the firm17, for instance when contemplating an expulsion18. As Neuberger J observed in Mullins v Laughton19: 196

The general duty of good faith 11.1 ‘Bullying, seeking to trap and intentionally taking by surprise with a view to shock, in hope of obtaining an advantage for the co-partners and a disadvantage for the person concerned, must, in my view, amount to a breach of good faith.’

(e) Finally, he must not compete with the firm or make a profit at the expense of his partners, both of which subjects are dealt with under sections of their own later in this chapter. Most of the above duties can be broken without dishonesty or ‘bad faith’ (in common parlance) by him20. But Sales J in F&C Alternative Investments (Holdings) Limited v Barthelemy21 said, ‘The obligations of good faith of fiduciaries operate by reference to the conscience of the fiduciary and his subjective good faith rather than an objectives standard of competence.’ The enforcement of the duty against him is considered at paras 14.51 and 14.62 below.   1 ‘In societatis contractibus fides exuberat’; Floydd v Cheney [1970] Ch 602 at 608 per Megarry J. The principle is not specifically mentioned in any of the Partnership Acts.   2 Per Lord Blackburn in Cassels v Stewart (1881) 6 App Cas 64 at 79 and see the Partnership Act 1890, s 5 discussed in Chapter 12.   3 Per Lord Nottingham in Mascall v Smith (1676) 79 Seld Soc 464.  4 A similar duty exists between employer and employee: Customer Systems plc v Ranson [2011] EWHC 3304 (QB) and see Sir Nicholas Browne-Wilkinson V-C in Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589 following Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666 at 670.   5 See Neuberger J in Mullins and Laughton [2003] Ch 250, paras 130–1.  6 Cameron v Murdoch (1986) 63 ALR 575 at 587. In Walters v Bingham [1988] 1 FTLR 260 Browne-Wilkinson V-C held invalid a notice of dissolution because it had been served for the dishonest purpose of preventing the firm investigating the fraud of the partner who served the notice. But dishonesty by a partner in a previous business does not entitle his new partners to rescind their partnership agreement with him when they discover it: per Erle CJ in Andrewes v Garstin (1861) 4 LT 580. Dishonesty by a partner is discussed in para 14.54 below.   7 Per Byrne J in Carmichael v Evans [1904] 1 Ch 486 at 492, where he held that a partner who was convicted of travelling on a train without a ticket with intent to avoid payment might be expelled under an expulsion clause for ‘flagrant breach of the duties of a partner’.  8 Winsor v Schroeder (1979) 129 NLJ 1266. A power to expel must be exercised in good faith: see Dillon LJ in Kerr v Morris [1987] Ch 90 at 111B and see para 16.42ff below.   9 Per Sir Richard Scott V-C in Medforth v Blake [2000] Ch 86, a case on the duties of a receiver. 10 Richardson v Blackmore [2005] EWCA Civ 1356. 11 For his obligation to give information see para 11.16 below. 12 GHLM Trading v Maroo [2012] EWHC 61 (Ch). 13 DB Rare Books Ltd v Antiqbooks [1995] 2 BCLC 306. 14 Best v Ghose [2018] IEHC 76 at para 53. 15 Rama v Millar [1996] 1  NZLR  257, PC, a case concerning the question whether a partner preferred his own desires to the interests of the partnership when he disposed of a partnership asset. 16 Burton v Wookey (1822) 6 Madd 367; Aberdeen Rly Co v Blaikie Bros (1854) 1 Macq 461, 471, HL. 17 See para 12.10 below and Const v Harris (1824) Turn & R 496, and cases cited at para 11.12 below. He must give the minority an opportunity to be heard: Russell v Russell (1880) 14 Ch D 471, purportedly following Blisset v Daniel (1853) 10 Hare 493. 18 See para 16.33 below. 19 [2003] Ch 250, para 100. 20 See Patten J in Halton Int v Guernroy [2005] EWHC 1969 (Ch) at para 145. 21 [2011] EWHC 1731 (Ch) at para 253.

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B  A fiduciary duty 11.2  The relationship between partners is today accepted as a ‘fiduciary’ one1 although this has been the subject of debate2; certainly the relationship gives rise to certain fiduciary duties3; but partners do not have, for instance, a trustee’s obligation to act gratuitously4. Rimer LJ5 has quoted with approval the words of Lord Browne-Wilkinson6: The phrase ‘fiduciary duties’ is a dangerous one, giving rise to a mistaken assumption that all fiduciaries owe the same duties in all circumstances. That is not so … The extent and nature of the fiduciary duties owed in any particular case fall to be determined by reference to any underlying contractual relationship between the parties.

A partner’s duties go further than a mere duty not to act in bad faith: he is liable to disgorge an unauthorised profit7 however innocently he acquired it8. Partners are not as such trustees for one another or for the firm9, but a continuing partner has been said to hold former partnership property upon trust for the estate of a dead partner10. In Thompson’s Trustee in Bankruptcy v Heaton11, Pennycuick V-C was concerned with whether a partner was accountable to his firm for a lease. He said: The fiduciary relation here arises not from a trust of property but from the duty of good faith which each partner owes to the other.

The last word on this subject is that of Frankfurter J quoted by Lord Goff in Re Goldcorp Exchange Ltd12: To say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge those obligations? And what are the consequences of his deviation from duty?

These words are not always heeded in the higher courts in England where generalised statements are often made as to the obligations of a ‘fiduciary’13. The obligations of good faith of a partner are different from the obligations of other ‘fiduciaries’ because the relation between partners is to a large extent contractual14 whereas that between other fiduciaries (such as trustees) is not: The confidence which exists between [partners] is a mutual one. There is thus in this respect not necessarily an imbalance of position which usually exists in fiduciary relationships15.

So the cases which discuss fiduciary duties outside the ambit of partnership should be used with caution in partnership cases. Such caution was not shown by Nugee J when he held in Hosking v Marathon Asset Management16 that a partner was like an estate agent who could ‘forfeit’ his profit share for breach of duty, a curious concept discussed at paras 11.3 and 14.51 below. Remedies for breach of partnership duties generally are considered in Chapter 14. The claim for an account is considered at para 14.18ff and the contrast with trustees at para 11.4 below. 198

The general duty of good faith 11.3   1 See the valuable discussion of ‘fiduciary’ by Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 18, and Lawrence Collins J in Conlon v Simms [2006] EWCA Civ 1749 (reversed on other grounds [2008] 1 WLR 484) at para 194ff and the submissions of Robert Walker QC (later Lord Walker) in Mettoy Pension Trustees v Evans [1991] 2  All ER 513.  2 Thompson’s Trustee in Bankruptcy v Heaton [1974] 1 All ER 1239 at 1249; Hogar Estates Ltd in Trust v Shebron Holdings Ltd (1979) 25 OR (2d) 543; Helmore v Smith (1886) 35 Ch D 436; Parker v McKenna (1874) 10 Ch App 96 at 119; Clegg v Edmondson (1857) 8 De GM & G 787.   3 The partner holds partnership property upon trust for the firm: see Gordon v Gonda [1955] 1 WLR 885 and the Partnership Act 1890, s 20(1) and (2) (set out in Appendix A below) discussed at para  8.1 above, but this does not make the property ‘trust property’ for the purpose of the Limitation Act 1980: Sze Tu v Lowe [2014]  NWWCA  462. There is a discussion of the nature of the trusteeship in Chan v Zacharia (1983) 154 CLR 178 and Sze Tu v Lowe [2014] NWWCA 462 (Australia).  4 Re Lewis, Lewis v Lewis [1910] WN 217.  5 O’Donnell v Shanahan [2009] EWCA Civ 751 at 61. The other two Lords Justices agreed with him.   6 Lord Browne-Wilkinson in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 206.   7 See para 11.26 below.   8 See Patten J in Halton Int v Guernroy [2005]  EWHC  1969 (Ch) quoting Lord Russell of Killowen in Regal v Gulliver [1967] 2 AC 134 at 144.  9 Cameron v Murdoch (1986) 63 ALR 575 (Australia); Piddocke v Burt [1894] 1 Ch 343. 10 Gordon v Gonda [1955] 1 WLR 885 at 893, but Evershed MR quotes Sir Frederick Pollock saying that the description of a partner as a trustee for the estate of a dead partner is ‘a metaphorical and inaccurate expression’, a phrase which echoes the speech of Lord Westbury in Knox v Gye (1872) LR 5 HL 656; and see Kingscroft Insurance Co Ltd v HS Weavers (Underwritings) Agencies Ltd [1993] 1 Lloyd’s Rep 187 at 191. 11 Thompson’s Trustee in Bankruptcy v Heaton [1974] 1 WLR 605. 12 [1995] 1 AC 74 at 98, quoting from the judgment in Securities and Exchange Commission v Chenery Corpn 318 US 80 (1943), 85–6. See to similar effect Professor Peter Birks in Trust Law International vol 16 No 1 (2002) commenting upon Re Coomber [1911] 1 Ch 723, CA and Lord Browne-Wilkinson in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 206 and Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 18, cited with approval by the Privy Council in Arklow Investments Ltd v MacLean [2000] 1 WLR 594 at 600. 13 See eg Swindle v Harrison [1997] 4 All ER 705, CA, and cases there cited. 14 See paras 7.2 and 11.1 above. 15 Per MacFarlan JA at para 44 in Trinkler v Beale (2009) 72 NSWLR 365, following Chan v Zacharia (1983) 154 CLR 178 and Hospital Products v United States Surgical Corporation (1984) HCA 64. 16 [2017] Ch 157.

C  Limits on the duty of good faith 11.3  The duty can only be defined by its various characteristics mentioned below. It is depressingly common to hear the argument that because a partner has fiduciary duties to his partners, the same rules apply to him as are applicable to other persons who have fiduciary duties of a quite different nature, such as the duty of an estate agent to his client. In Hosking v Marathon Asset Management LLP1 a fund manager was rightly held accountable for attempting to procure a secret benefit for himself at the expense of his LLP, but the consequence was said to be that he ‘forfeited’ his share of the total LLP profits, some millions of pounds, rather than that he was simply 199

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accountable for his profit under s  29(1) of the 1890 Act, considered under para 11.26 below. 1 [2016] EWHC 2418 (Ch). Contrast Imageview Management v Jack [2009] EWCA Civ 63.

(a)  Trustees contrasted 11.4  Although the general liability of a partner is like a trustee in that it is to disgorge any ill-gotten gain1, the partner’s duty of good faith is not the same as, or as strict as, the duty imposed by the law upon a trustee, and in this respect caution needs to be exercised in applying trust principles to the relations between partners2. Thus a partner may for his own benefit use property3 or information4 belonging to his firm provided that it is not of value to the firm and he does not use it in competition with the firm’s business5. By contrast a trustee may not use for his own benefit the property or information of the trust6. The distinction is that a partner is only an agent in a defined area of business, whereas a trustee is in a general fiduciary position, ‘the limits of which are not readily defined’7. A partner’s fiduciary duties are determined by the nature of the partnership business, which is limited by the terms of the partnership agreement8. Thus a trustee may not renew in his own name a lease which he has held as a trustee: ‘the presumption of personal incapacity to retain the benefit is one of law and cannot be rebutted’9, but the presumption against a partner is (per Collins MR) ‘at most a rebuttable presumption of fact’10 and he cited Sir W Grant in Featherstonhaugh v Fenwick11 as correctly stating the more limited restriction on a partner. The distinction between trustees and partners has been much overlooked12. Another distinction is that trustees can claim to be reimbursed for their losses in performing their duties, out of the capital and income of the trust fund13, whereas a partner’s reimbursement will have to be borne (in part) by himself14.  1 Murad v Al-Saraj [2005] EWCA Civ 959, [2005] WTLR 1573.   2 Per MacFarlan JA at para  44 in Trinkler v Beale (2009) 72  NSWLR, following Chan v Zacharia (1983) 154 CLR 178 and Hospital Products v United States Surgical Corporation (1984) HCA 64.  3 ‘If amongst the effects of the partnership, there were a horse intended for the journeys necessarily made in the business, a partner could not be prevented, at the time when there were no journeys to be made, from himself using the horse for an airing, he leaving to his partners the right of using him, in their turn, if they think proper’: Owen Davies-Tudor (ed) Pothier on Partnership (1854), p  54. He may let his wife run a rival business: Jenkins v Bennett [1965] WAR 42.  4 Aas v Benham [1891] 2 Ch 244.   5 [1891] 2 Ch 244 at 258 per Bowen LJ, approved by Lord Hodson in Boardman v Phipps [1967] 2 AC 46 at 110. See para 11.38ff below.   6 Ibid. Boardman v Phipps [1967] 2  AC  46, in which Aas v Benham [1891] 2 Ch  244 was discussed and approved. The position of a company director is closer to that of a trustee than to that of a partner in this: Industrial Development Consultants Ltd v Cooley [1972] 2 All ER 162; Weber Feeds Ltd v Weber (1979) 24 OR (2d) 754 (Ontario CA).   7 Per Lord Hodson in Boardman v Phipps [1967] 2 AC 46 at 108B.  8 O’Donnell v Shanahan [2009] EWCA Civ 751 at 768.

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The general duty of good faith 11.6   9 Per Collins MR (with whom Romer and Cozens Hardy LJJ agreed) in Re Biss [1903] 2 Ch  40, CA at 56, a case valuable for its note of the otherwise forgotten decision of Sir Francis North, Lord Keeper (later Lord Guildford) in Palmer v Young (27 November 1684), a judgment recovered from the Public Record Office, ‘much mutilated, apparently owing to damp or other causes, consequently the transcript contained several lacunae’, but the law reporter reconstructed these and reminds us that the Solicitor-General who appeared for the unsuccessful defendant was the Hon Heneage Finch, and that he was deprived of office by James II and subsequently acted as leading counsel for the Seven Bishops. 10 Ibid. 11 (1810) 17 Ves 298 at 311, cited by Collins MR at p 57. See para 11.29 below. 12 Thus a judge of the present Court of Appeal (obiter) in John Taylors v Masons [2001]  EWCA  Civ 2106 states at para  41 that the trust rule in Keech v Sandford (1726) Cel Cas 2 King 61 (see para  11.29 below) applies ‘in its full rigour to partnerships’. For this proposition the judge’s authority is surprisingly Lewin on Trusts (17th edn, 2000) pp 444–5 which says the opposite: ‘The rule applies to partners … in the modified form which applies to persons with partial equitable interests … rather than the strict form applicable to trustees.’ Lewin’s editors’ authority for this proposition is Re Biss [1903] 2 Ch 40, CA, quoted in para 11.29 below. The judge continued: ‘It may be that in the present day and age such a rule is too harsh for modern circumstances.’ See further Rimer LJ in O’Donnell v Shanahan [2009] EWCA Civ 751 at 61–72 and Lord Neuberger in a flurry of rhetoric treating Keech v Sandford as applicable to partnerships in Shirt v Shirt [2012] EWCA Civ 1029 at para 43. See further para 11.29 below. 13 See Lord Templeman in Carver v Duncan [1985] 2 All ER 645 at 652, quoted by Chadwick LJ in Emerson v Estate of Emerson [2004] 1 BCLC 575, CA at para 14. 14 This distinction was unfortunately not noted by the Court of Appeal in Emerson v Estate of Emerson [2004] 1 BCLC 575, CA which may have been rightly decided but for the wrong reasons. It is discussed in para 18.9 below.

(b)  A partner’s accountability for his separate business 11.5  If he runs a separate business in breach of an express term in the partnership agreement but not in competition with the firm or profiting from it, he is not accountable for its profits, but is only liable to his partners for damages, if they can show any loss1, because the claim against him is for breach of contract and not for breach of his duty of good faith. 1 Dean v MacDowell (1878) 8 Ch D 345; Lindley LJ in Aas v Benham [1891] 2 Ch 244 at 255; Cameron v Murdoch (1986) 63 ALR 575 (Australia).

(c)  His rights as owner of a partnership share 11.6  A partner’s duty of good faith exists only in relation to the partnership business. It does not bind him in his capacity as the holder of his partnership share, which he may dispose of as he likes1, however detrimental to the firm this may be2, because when he does so he is not acting as an agent for his partners, and it is agency that is the root of the duty of good faith. The question whether property belongs to a partner or a firm cannot be affected by the fact that he owes the firm fiduciary duties; the agreement defines the duties, not the other way round3. 201

11.7  The duty of good faith

There is a similarity here with company law: a company director owes fiduciary duties to the company, but a shareholder does not, and what amounts to ‘unfair prejudice’ is not necessarily a breach of the duty of good faith4. 1 See Lord Selborne in Cassels v Stewart (1881) 6 App Cas 64 at 74. 2 See para 11.45ff below. It has been said in Canada that a partner is under a duty to disclose that he wishes to put an end to his partnership, but probably that is not the law in England: PWA  Corpn v Gemini Group Automated Distribution Systems Inc (1993) 103  DLR (4th) 609, Ont CA. 3 Coward v Phaestos Ltd [2013] EWHC 1292 (Ch) at [210]. 4 Richardson v Blackmore [2005] EWCA Civ 1356.

(d)  Dissolution and expulsion notices 11.7  Partners in a partnership which is dissoluble at will therefore hardly owe a duty to a partner when serving notice of dissolution or serving notice of their own retirement1. Where they serve a notice of expulsion upon a partner it is otherwise2. 1 See Sir William Grant M-R in Featherstonhaugh v Fenwick (1810) 17 Ves 298 and CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704, a company case. The point was left open by Browne-Wilkinson V-C in Walters v Bingham [1988] 1 FTLR 260 at 267C; but his Lordship in that case held invalid a notice of dissolution which was served by a partner for the purpose of halting an investigation into his earlier fraud. 2 Kerr v Morris [1987] Ch  90; Blisset v Daniel (1853) 10 Hare 493, followed by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd [1973]  AC  360 at 381. Expulsion notices are discussed in this context at para  16.42ff below and the question of a majority oppressing a minority at para 12.10 below.

(e) Conflict between his capacity as a partner and his private capacity 11.8  Questions of conflict between his private rights and his rights as a partner1 are resolved by identifying his two capacities as separate ones: In Sykes v Land2 one of two tenants farming in partnership had inherited the landlord’s interest in the land, and she served a notice to quit upon the partnership. This would be ineffective if the tenants served a statutory counternotice. Held she was entitled to serve notice to quit but was obliged to consent to the counternotice in order to preserve the partnership farming lease; to give such consent was her duty as a partner and separate from her right as a landlord.

A provision in an agricultural partnership agreement that a partner might not serve a tenant’s counternotice3 was held to be void in Featherstone v Staples4 on public policy grounds. In Brenner v Rose5 one of two tenants carrying on business in partnership acquired the reversion on the lease at about the same time as the firm went into receivership. The rent was unpaid. Held there was no equity to prevent

202

The general duty of good faith 11.10 his taking possession or exercising any other rights that a landlord might have who was a stranger to the partnership.

Partners need not disclose their own confidential or privileged negotiation with outsiders, save in so far as these affect the partnership6. 1 See Rama v Millar [1996] 1 NZLR 257, PC, where the partner was held accountable for the loss caused by his breach of fiduciary duty in selling partnership assets cheap. 2 (1984) 271 Estates Gazette 1264. 3 Under the Agricultural Holdings (Notices to Quit) Act 1977 (now repealed), whereby a landlord’s notice to quit might in effect be thwarted by a tenant’s counternotice. 4 [1986] 2 All ER 461, following Johnson v Moreton [1980] AC 37. 5 [1973] 2 All ER 535; similarly Metlej v Kavanagh [1981] 2 NSWLR 339 and Benham v Gray (1847) 5 CB 138. 6 PWA Corpn v Gemini Group (1993) 103 DLR (4th) 609, Ont CA at 646 per Griffiths JA.

(f) No duty to do more than the partnership obligation requires 11.9  No partner need do more on the firm’s behalf than he has bargained to do. He need not work more, or be compelled to put in more money than he has agreed, however much the firm may need it1. He need not put his own money at risk on behalf of the firm by embarking upon litigation on its behalf without an indemnity from the other partners2. He is under no duty to tell them that he is embarking upon a business in which they might have been interested but had no actual right to join3. The question what is his own property and what is that of the firm is not affected by his fiduciary duty to it4. 1 Eslin v Hay (1884) 15  LR  Ir 431; capital contributions generally are discussed at para 9.8 above. 2 Rama v Millar [1996] 1 NZLR 257, PC. 3 See Lord Macnaghten delivering the speech of the Privy Council in Trimble v Goldberg [1906] AC 494 at 500. 4 Coward v Phaestos Ltd [2013] EWHC 1292 (Ch) at [210].

D  Analogy with duties of others (a)  Analogy with duties of company directors and employees 11.10  Since company law developed from the law of partnership there are some analogies to be drawn between the respective positions of directors and partners, but the analogies must not be taken too far. Company directors owe duties not to one another nor to the shareholders1 but to the company2; partners’ duties are to each other. Shareholders owe no duty to their company3. The management of the company is entrusted to the directors by the articles of association4 which give powers and impose duties upon the directors which differ from those applicable to most partnerships5 and are themselves subject to statutory regulation6. Lord Hoffmann7 defined the obligation of a director to his company in terms probably stricter than the terms of obligation of a 203

11.11  The duty of good faith

partner to his firm, by reference to section 214(4) of the Insolvency Act 1986. The difference between the fiduciary duties of partners and those of company directors and trustees has been explained by Rimer LJ8; the liability of the former are limited by their underlying mutual contractual arrangement. But a director’s obligations are similar to those of a partner in that he may not (without consent) compete with the company, and may even be under an obligation to disclose his own wrongdoing9. The duties of a director and of an employee differ from one another10. A partner’s obligations go further than the usual obligations of an employee11, although circumstances may impose a fiduciary relationship of trust and confidence between employee and employer12. So an employee may not misuse his employer’s confidential information13 or make secret profits14 and he is entitled to require a bona fide exercise of his employer’s discretions in relation to his employment15. The nature of the particular employment governs the extent of the obligations of the employee and the employer respectively, and these will be different in nature from one another. Where a firm holds out an employee as a partner16, the firm’s duty of good faith to him are as full as those that it owes to a true partner.  1 Oldham v Kyrris [2003] EWCA Civ 1506 following Peskin v Anderson (2001) BCLC 372, CA; Percival v Wright [1902] 2 Ch 421.  2 Selangor United Rubber Estates Ltd v Cradock (a bankrupt) (No 3) [1968] 1 WLR 1555. The duty is a ‘fiduciary’ one (Wallersteiner v Moir (No 2) (1975) QB 373), but as to this see para 11.2 above.  3 Wilkinson v West Coast Capital [2005] EWHC 3009.   4 Eg Table A, Art 70.   5 The liability of a director to his company was considered in Re Duckwari [1999] Ch 253, CA.   6 Companies Act 2006, Chapter 2.  7 Re D’Jan of London Ltd [1994] 1 BCLC 561; see the discussion on this in Whittaker and Machel The Law of Limited Liability Partnerships (2nd edn), Chapter 15, and the approval of it by Arden LJ in her dissenting judgment in Base Metal Trading Ltd v Shamurin [2005] 1 WLR 1157.  8 O’Donnell v Shanahan [2009] EWCA Civ 751 at 69.  9 This was considered by the Court of Appeal in Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244; contrast Bell v Lever Brothers [1932] AC 161. 10 Ranson v Customer Systems plc [2012] EWCA Civ 841. 11 Cook v Deeks [1916] 1 AC 554, PC. 12 Malik v BCCI [1998] AC 20, HL per Lord Nicholls; Imperial Group Trust v Imperial Ltd [1991] 1 WLR 589; Transco v O’Brien [2002] EWCA Civ 379. But an employee does not always owe his employer fiduciary duties: Crowson Fabrics v Rider [2007]  EWHC  2942 (Ch); Cobbetts v Hodge [2009]  EWHC  786 (Ch); Ranson v Customer Systems plc (2012) [2012] EWCA Civ 841. 13 Faccenda Chicken Ltd v Fowler [1987] Ch 117. 14 Sinclair v Neighbour [1967] 2 QB 279. 15 Cantor Fitzgerald v Horkulak [2004] EWCA Civ 1287. 16 Holding out is discussed in Chapter 5.

(b)  Analogy with duties of estate agents and other agents 11.11  Confusion may arise where partners are held to have the rights and liabilities of other ‘fiduciaries’ without thought being given to the differences between them. The subject-matter over which the partner’s obligations extend 204

The general duty of good faith 11.12

must be determined by the character of the venture or undertaking for which the partnership exists; this is ascertained from the express agreement of the partners and from the course of dealing of the firm1. An estate agent hired to sell a house, and rewarded only if he succeeds, has a fiduciary obligation, a duty of loyalty, to his client alone, but the nature of that obligation is different from the fiduciary duty of loyalty that partners owe to one another. We respectfully suggest that Newey J was wrong in Hosking v Marathon Asset Management LLP2 to follow some estate agency cases, including his own judgment in Avrahami v Biran3, to hold that a partner in a property development LLP might ‘forfeit’ part of his profit share. The suggestion is considered further at para 14.52 below. 1 Per Dixon J in Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384 at 407. 2 [2017] Ch 157. 3 [2013] EWHC 1776 (Ch).

E  Duration of duty (a)  The beginning 11.12  The duty of good faith may exist in an embryo form before the partnership itself exists1. But dishonesty by a partner in a previous business does not entitle his new partners to rescind their partnership agreement with him when they discover it2. On the other hand where a person enters into a partnership because of a misrepresentation which he might have discovered to be untrue from the partnership books, the fact that he does not examine the books for four years is no bar to his right to rescission3; he was entitled to treat the representation as true and was not bound to make enquiry until there was something to raise his suspicion4. In Australia it has been held that even where no partnership comes into existence, the relationship between joint venturers imports a duty of good faith if they have reached an arrangement to assume such a relationship and have taken some steps towards its implementation5. The time is when6: the prospective venture reaches the point where the parties became obliged to act in the joint interests of the parties rather than their own commercial interests … 1 LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14; Fraser Edmiston Pty Ltd v AGT (Qld) Pty [1988] 2 Qd R1 (Australia); Hitchens v Congreve (1828) 1 Russ & M 150; see para 2.40ff above and para 11.43ff below. 2 Per Erle CJ in Andrewes v Garstin (1861) 4 LT 580 where he said (perhaps obiter) at 581: ‘It is no justification for breaking a contract that the person with whom it was made is a disreputable character and had been guilty of fraudulent acts.’ Contrast Conlon v Simms [2008] 1 WLR 484. 3 His right to rescission is discussed at para 14.7ff below. 4 Rawlins v Wickham (1858) 3 De G & J 304.

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11.13  The duty of good faith 5 United Dominions Corpn Ltd v Brian Pty Ltd (1985) 157  CLR  1; for joint ventures see para 2.40ff above. 6 Per Robb J in Noble Earth Technologies [2017] NSWSC 502, a reference for which we are grateful to our friend David Raphael.

(b)  The end 11.13  The duty of good faith between partners survives dissolution and endures until the partnership affairs are finally wound up1. Then his duties, such as his duty to account for a new benefit to the business, are at an end2. After a partner has resigned, he is still liable for his breach of good faith in having canvassed clients whilst he was a partner3. The duty does not wholly survive the partnership relationship being repudiated (if repudiation is possible)4 because with the cesser of mutual trust, much of the corresponding obligation ends: In M’Lure v Ripley5 there was a joint venture partnership in shipping goods to China. During the course of it one partner defaulted in making a payment to the other, and negotiations between them ensued which led to the defaulter withdrawing from the partnership on terms. He later sought to set the arrangement aside on the grounds that the other had suppressed, during the course of the negotiations, letters from China relative to the trade. Held that the trust between them had sufficiently failed as a result of the defaulter’s original misbehaviour that the other ceased to be under an obligation to communicate the letters to him.

The expulsion of a partner, even his wrongful expulsion, and his consequent exclusion from the partnership affairs, free him from his obligation not to compete with the firm6. Whether any particular breach or repudiation will absolve the other partner from any particular fiduciary duty to him will depend upon the circumstances. A breakdown in relations, or imminent dissolution, may impliedly relieve a partner of his obligation to share sensitive information with his partners7, but will not relieve him from his obligation not to harm the interests of the firm8. Where a partner has retired and breaches a covenant with his old firm not to compete with it or act for its clients, the question whether he is accountable for profit or only liable in damages depends upon the nature of the breach. If he is acting in breach of his duty of good faith, for instance by misusing information or commercial contacts that he acquired as a partner, he is accountable9. Otherwise he will be liable in damages only10. Rights to have a dissolution agreement set aside are discussed at para 16.19 below. Special rules apply if the claim is for breach of intellectual property right, as discussed at para 14.51 below.   1 See the Partnership Act 1890, ss 29(2) and 38 (set out in Appendix A below); John Taylors v Masons [2001]  EWCA  Civ 2106; Thompson’s Trustee in Bankruptcy v Heaton [1974] 1 WLR 605; Chan v Zacharia (1983) 154 CLR 178; Metlej v Kavanagh [1981] 2 NSWLR 339 at 343 and see Yasuda Fire and Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd [1995] QB 174; see also Sew Hoy v Sew Hoy [2001] 1 NZLR 391, NZCA. The duty of a director to his company may survive his resignation if

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The general duty of good faith 11.14 he resigns in order to take a business opportunity of the company: Island Export Finance Co Ltd v Umunna [1986] BCLC 460; Archibald Finlayson v Turnbull 1997 SLT 613; Recovery Partners GP Ltd v Rukhadze [2018] EWHC 2918 (Comm).  2 Nilsen v Murcott (2007) 2 NZLR 750; Nilsen v Murcott (2008) NZLR 759.  3 Kao Lee Lip v Koo (2003) WTLR 1283. He may make preparatory acts towards the setting up of his own business but this cannot justify a breach of his current fiduciary obligation: Cobbetts v Hodge [2009] EWHC 786 (Ch); following Helmet Integrated Systems v Tunnard [2007] FSR 16.  4 Dale v Hamilton (1847) 2 Ph 266; A Akman & Sons (Fla) Inc v Chipman (1988) 45 DLR (4th) 481. As to repudiation, see para 14.11ff below.   5 (1850) 2 Mac & G 274. This case is an illustration of the principle but might not be followed on its facts today: see Hogar Estates Ltd in Trust v Shebron Holdings Ltd (1979) 25  OR (2d) 543 (Canada). See also Reilly v Walsh (1848) 11 I Eq R 22 and Plus Group Ltd v Pyke [2002] EWCA Civ 370, [2000] All ER (D) 330 (Mar), followed in Eaton v Caulfield (No 2) [2013] EWHC 2214 (Ch).  6 Eaton v Caulfield (No  2) [2013]  EWHC  2214 (Ch) following Plus Group Ltd v Pyke [2002] EWCA Civ 370.   7 See para 11.17 below.  8 Woodfull v Lindsley [2004] EWCA Civ 165; Campbell v Frisbee [2002] EWHC 328 (Ch), [2000] All ER (D) 211 (May).  9 Floydd v Cheney [1970] Ch 602; Printers and Finishers Ltd v Holloway [1965] 1 WLR 1. 10 Dean v MacDowell (1878) 8 Ch D 345; but see A-G v Blake [2001] 1 AC 268, discussed at para 18.68 below.

F  Waiver and consent to breach of duty 11.14  Since the relationship between the partners is based upon mutual assent, their duties may be varied by agreement which may be inferred from a course of dealing1. Variation of the partnership agreement, and waiver, is discussed at para 7.21ff above. Any consent to a breach of duty must be informed consent of all other partners2, unless the power to consent has been delegated by the partners to one of them or to an employee, in which case his informed consent will suffice. Mere disclosure by the partner is insufficient; consent must be given by the firm, either expressly or impliedly3, and the burden of showing such consent is on the partner asserting it4. The question of the extent of a partner’s liability for his own negligence is one that should be settled in the partnership agreement. In a solicitor’s firm it will follow the unspoken practice of most firms (discussed further at para 14.53 below) namely that: (a) the price of ‘ordinary’ negligence will be borne by the firm as to the excess on any insurance, but (b) any tort or wrong outside ‘ordinary’ negligence, or uninsured, or in excess of the insurance limit, or where insurance is refused by the individual partner’s default, must be borne by the partner concerned. 1 See the Partnership Act 1890, s 19 (printed in Appendix A below). 2 Woodfull v Lindsley [2004] EWCA Civ 165; Dunne v English (1874) LR 18 Eq 524; Imperial Mercantile Credit Association v Coleman (1871) 6 Ch App 558: unless they signify their election to waive the breach of duty without requiring full disclosure: Law v Law [1905] 1 Ch 140, CA.

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11.15  The duty of good faith 3 Hurstanger v Wilson [2007] 1 WLR 2351 where commission was disclosed but not its amount: see para 11.37 below and FHR European Ventures LLP v Mankarious [2011] EWHC 2308 (Ch) in which Mr Justice Simon gives a full review of the law relating to secret and unlawful commission. 4 Cobbetts v Hodge [2009]  EWHC  786 (Ch), following Hurstanger v Wilson [2007] 1 WLR 2351 per Tuckey LJ at [36].

G Enforcement against third parties of the partner’s duty 11.15  A third-party outsider who takes property from a partnership with knowledge of a breach of duty by a partner, or who induces such a breach, will render himself liable1. This is considered in the context of restrictive covenants at para 18.67 below. 1 LC Services v Brown [2003] EWHC 3024 (QB); see paras 18.68 and 18.71 below.

2 THE DUTY TO GIVE INFORMATION AND KEEP ACCOUNTS A General  11.16 B The duty to give information   11.17 C The duty to keep full and accurate accounts   11.22 D Access to books and other records   11.23

A General 11.16  The obligation to keep records and to be honest and open with his partners is central to a partner’s duty of good faith. The duty continues after dissolution; so in an action between former partners even those partnership records which have no bearing on the issues in the action must be disclosed1. The limits on the general duty of good faith, and its duration, and questions of waiver, are considered above in the earlier part of this chapter. Actions for an account are considered at para 14.18ff below, and the form of accounts at para 12.21 below. Section 28 of the Partnership Act 1890 provides: Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.

This provision, like all those in the Act dealing with the relations of partners to one another, may be varied by the consent of all partners, either expressly or by inference from a course of dealing2. The ‘course of dealing’ or practice of the firm will decide the form of the accounts. A partner’s right to true 208

The duty to give information and keep accounts 11.17

accounts may be ended by release, by deeming provisions, by settled accounts or by passage of time3. 1 Re Pickering (1883) 25 Ch D 247. 2 Partnership Act 1890, s  19, which is printed in Appendix  A below and discussed at para 7.21ff above. 3 This is considered at para 14.31ff below.

B  The duty to give information 11.17  It is advisable in a large professional practice that the duty of each partner to pass on information be defined. Section 28 of the 1890 Act, quoted in the last paragraph, is unclear as to when information must be given when it has not been asked for. The answer is that partners have a duty to pass on to each other unasked any matter affecting the partnership1 and partnership opportunities or other information which the other partners need to know2, such as the true price paid by the firm on making a major purchase3. Partners are not obliged to inform their colleagues of everything that occurs in the course of partnership business as otherwise one could not delegate management powers to a managing partner …4

A partner must volunteer to his firm information which amounts to a business opportunity or which is commercially valuable to it, such as the fact that land adjoining its site has become available for purchase5 or has planning permission6, or the fact that a client wants to be served by a firm of a particular nature7 or that a competitor is developing a threat to the business or enticing away its staff8. He must draw the attention of his partners to the meaning of a document that they were signing which had wider effect than they might have supposed9. He must disclose his own breaches of duty to the firm10 and there is a duty upon partners who are together planning misconduct to disclose and report to the firm on each other’s misconduct11. His breach of duty depends upon his subjective intention12. But he need not and should not pass on to his partners confidential information about a client: see paras 8.69 and 19.75.  1 Huyton SA v Distribuidora Internacional de Productos Agricolas SA [2003] EWCA Civ 1104, a joint venture case where the quasi-partner was held to be under an obligation to disclose to the other the fact that the storage arrangements for the partnership goods had changed.  2 Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384. Query whether a partner must reveal that he intends to seek to retire from the partnership: PWA Corpn v Gemini Group Automated Distribution Systems Inc (1993) 103  DLR (4th) 609, Ont CA; Archibald Finlayson v Turnbull 1997 SLT 613, OH or propose changes in the partnership deed: Hanlon v Brookes (1996) ATPR 49–523 (Vic SC) and see para 11.3 above.  3 Battye v Shammall (2005) 91 SASR 315.  4 Sim v Howat (2012) CSOH 171, per Lord Hodge at para 40.  5 Re Bhullar Bros [2003] EWCA Civ 424.  6 JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162, a case on the analogous liability of a director to his company.  7 Kao Lee Lip v Koo (2003) WTLR 1283.  8 Thomson Ecology v APEM [2013] EWHC 2875 (Ch) (John Martin QC).

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11.18  The duty of good faith  9 Van Heeren v Kidd (2016) NZCA 401. 10 Item Software (UK) Ltd v Fassihi [2004] BCC  994; British Midland Tool Ltd v Midland International Tooling Ltd [2003] EWHC 466 (Ch); Hydra plc v Anastasi [2005] EWHC 1559 (QB); contrast Bell v Lever Bros [1932] AC 161. 11 Deacon v White & Case (2003) 3 HKLRD 670. 12 Per Newey J in GHLM Trading Ltd v Maroo [2012] EWHC 61 (Ch).

(a)  Disclosure relating to contracts with a partner 11.18  If a partner has an interest in a contract with the firm and does not disclose it, for instance if he is secretly the vendor in a transaction in which the firm is purchaser, then he is in breach of this duty. He will then be accountable to the firm for his profit1. The transaction will not be void, but will be voidable at the election of the firm2 until the other partners are in a position to reach an informed decision whether to adopt the transaction, or have indicated that they are happy to adopt it without such information3. 1 JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162 a case on the analogous liability of a director to his company; Woodfull v Lindsley [2004] EWCA Civ 165. 2 Albion Steel and Wire Co v Martin (1875) 1 Ch D 580 (a company case); but compare Brown and Owen v Hall (1956) 6 DLR (2d) 460 (Canada). 3 Woodfull v Lindsley [2004] EWCA Civ 165; Law v Law [1905] 1 Ch 140, CA.

(b)  Disclosure of the partner’s own financial standing 11.19  It is the widespread practice of partners (like other businessmen) to take steps to ensure that they have no substantial assets in their own names lest these be available for creditors of the firm. In a partnership relationship this has the effect of passing a potential burden onto their partners, but it has never been suggested that it is breach of duty as such, perhaps because the practice is so widespread as to be thought a normal custom of the firms in question1. It has been held in Canada, but not in England, that a partner should tell the other partners if he is making himself financially judgment-proof2. 1 But the Insolvency Act 1986, s 423 gives the court wide powers to set aside transactions which were made for the purpose of prejudicing a person who might have a claim against the donor, provided that this is a substantial, even if not the dominant, purpose of the transaction: IRC v Hashmi [2002] EWCA Civ 981. 2 Korz v St Pierre (1987) 43 DLR (4th) 528.

(c)  Information when a partnership share is disposed of 11.20  A duty of disclosure arises when a partnership share is disposed of, particularly when the share is bought by a continuing partner from the personal representatives of a dead partner. This duty is discussed in the last section of this chapter. 210

The duty to give information and keep accounts 11.23

(d)  Information from outsiders 11.21  Knowledge of a partner of ‘any matter relating to partnership affairs’ is generally notice to the firm and his duty to pass it on may override any confidentiality in the information1. Such ‘affairs’ are the inter-partner matters relating to the firm rather than to its business or clients: see paras 12.8 and 19.10 below. 1 Partnership Act 1890, s 16; see para 20.32ff below; Moser v Cotton (1990) 134 Sol Jo 1190.

C  The duty to keep full and accurate accounts 11.22  It is part of the partner’s duty of good faith that he keeps financial records that are full, accurate1 and available to his partners2. If he fails to do so then when an account is ordered by the court, the matters in issue will be presumed against the partner at fault3. In the Canadian case of Cameron v Julien4 the managing partner charged hundreds of thousands of dollars against bad debts. On an account being ordered against him he refused to produce some books of account and said that others had been destroyed. Held that the burden was on him to prove the bad debts, and upon his failure to do so he was personally accountable for the sums in question.

The right to accounts is not lost by misbehaviour5 by the partner entitled to them. Nor is it lost when the share of the partner seeking accounts is taken in execution6. In Walmsley v Walmsley7 10% per annum was ordered as notional profits against a partner who withheld partnership books. The books and records of the firm are admissible as evidence against any partner or firm8. Errors in accounts are considered at para 14.43 below. 1 Re Hay, ex p Smith (1821) 6 Madd 2. 2 Rowe v Wood (1822) 2 Jac & W  553. What accounts should be kept is discussed at para 12.21ff below. 3 Cameron v McMurray (1855) 17 D 1143. 4 (1957) 9 DLR (2d) 460. 5 Ram Singh v Ram Chand (1923) LR 51 Ind App 154, PC; Park v Park 1970 SLT (Notes) 59. 6 Habershon v Blurton (1847) 1 De G & Sm 121. 7 (1846) 3 Jo & Lat 556; see Re Burnand [1904] 2 KB 68, CA. 8 Lodge v Prichard (1853) 3 De GM & G 906.

D  Access to books and other records 11.23  Every partner has a right to inspect the partnership books1 at all reasonable times2 even after dissolution3, until the partnership affairs have been finally settled. His right is not limited so that he can only inspect the books to fulfil his duties to the firm4. Section  24(9) of the Partnership Act 1890 provides that they are to be available at the principal place of business: 211

11.23  The duty of good faith The partnership books are to be kept at the place of business of the partnership (or the principal place, if there is more than one), and every partner may, when he thinks fit, have access to and inspect and copy any of them.

This may be waived by agreement5 or by implication or course of dealing6, and an order for delivery up will not be made against a former managing partner who offers access to them7. The phrase ‘partnership books’ includes any written documents8 and any information recorded electronically, and information muddled with other records9. To quote Norris J10: In Re Pickering the beneficiary of a deceased partner applied for an order that the surviving partner should file an affidavit ‘of all the books and documents relating to the affairs of the partnership’. The court (which included Lindley LJ) ordered him to disclose the whole of ‘the letters entered in the letter book of the partnership unless he stated on affidavit the nature of the transactions to which those letters related and demonstrated that they did not pertain to the partnership business’. But the surviving partner was obliged to produce letters to his private friends, to his solicitors and to his bankers (simply because they were found in the letters book of the partnership) because they might relate to partnership matters and because it was not right that the surviving partner should be trusted to decide whether they did or not.

It includes any document paid for by the firm11. It means the firm’s financial records and the papers relating to the partnership relationship rather than all papers to do with every aspect of the business or its customers or clients, some of which will be confidential12. Papers relating to the partnership relationship are the partnership deed and the schedules which show the capital commitments of the parties, and legal opinions paid for by the partnership13. The purpose of section 24(9) is to enable partners to inform themselves of the position of the partnership14. What documents fall within the disclosable category will vary from case to case depending on the nature of the partnership business: ‘There is little to be gained from looking at decided cases to see if they establish categories of document which as a matter of law … every partner has a right to expect. The test is a functional one’15. The mere fact that a partner may not have asked to see accounts for ten years is no bar to his right to inspect them16, although an action for an account may be barred by lapse of time as discussed at paras 14.38 and 15.50ff below.   1 As to the firm’s internal accounting see para 12.19 below, and as to disclosure in litigation see para 15.11 below.  2 Van der Walt v Pelser (1895) 12 SC 353 (South Africa).  3 Romersa v Bush [1917] TPD 266 (South Africa).   4 Contrast the rights of a company director to inspect company books: Oxford Legal Group Ltd v Sibbasbridge Services plc [2007] EWHC 2265 (Ch).  5 Turney v Bayley (1864) 4 De GJ & Sm 332.   6 See the Partnership Act 1890, ss 19 and 24.  7 Dacie v John M’Cle (1824) 13 Price 446.  8 Inversiones Frieira SL  v Colyzeo Investors II LP  [2011]  EWHC  1762 (Ch) Norris J at para 21(d).  9 Re Pickering (1883) 25 Ch D 247; Freeman v Fairlie (1817) 3 Mer 24 at 43. 10 Inversiones Frieira SL v Colyzeo Investors II LP [2011] EWHC 1762 (Ch), para 21(e) followed in Hilton v D IV LLP [2015] EWHC 2 (Ch) Pelling HHJ sitting as a High Court judge. 11 Dockril v Coopers & Lybrand (1994) 111 DLR (4th) 62.

212

The duty to give information and keep accounts 11.25 12 This statement appeared unsupported by any authority in earlier editions but has now been approved by Norris J in Inversiones Frieira SL v Colyzeo Investors II LP [2011] EWHC 1762 (Ch) at para  21(c) and so is now of itself of the highest authority; Hilton v D IV LLP [2015] EWHC 2 (Ch) Pelling HHJ sitting as a High Court judge. 13 Inversiones Frieira SL  v Colyzeo Investors II LP  [2011]  EWHC  1762 (Ch) Norris J at para 21(e). 14 Collins LJ in Bevan v Webb [1901] 2 Ch 59 at 68. 15 Inversiones Frieira SL  v Colyzeo Investors II LP  [2011]  EWHC  1762 (Ch) Norris J at para 23(k), followed in Hilton v D IV LLP [2015] EWHC 2 (Ch) Pelling HHJ sitting as a High Court judge. 16 Re Martindale (1832) 1 Deac & Ch 464; Wilson v Carmichael (1904) 2 CLR 190 at 195 per Griffiths J.

(a)  Access by accountants or other agents 11.24  Access to books and records by a partner includes access by an agent of his1 provided that he is a person to whom no reasonable objection could be taken, and that he is willing to undertake not to use for any other purpose than for confidentially advising his client on the information he acquires during the inspection of the books2. If there are reasonable grounds for refusing inspection to the agent3 (eg because he has business interests which compete with those of the firm)4, then inspection by him may be refused5. A bankrupt partner’s trustee may not have custody of the firm’s books but must be given reasonable facilities for inspecting them6. An outgoing partner’s executors or trustees, or their accountants, may not be limited in when they may see the books of account to, say, once a year, but neither are they entitled to access without reason7. A good reason for professional advisers to be allowed virtually unlimited access is where there is a dispute between the partners relating to the accounts. Williams v Prince of Wales Life etc Co (1857) 23 Beav 338. Bevan v Webb [1901] 2 Ch 59, CA; Healy v Healy Homes Ltd [1973] IR 309. Dodd v Amalgamated Marine Workers’ Union [1924] 1 Ch 116. Dadswell v Jacobs (1887) 34 Ch D 278. Draper v Manchester, Sheffield and Lincolnshire Rly Co (1861) 7 Jur NS  86; Dadswell v Jacobs (1887) 34 Ch D 278; Duché v Duché (1920) 149 LT Jo 338. 6 Re Burnard [1904] 2 KB 68. 7 Re, Bennett, Jones v Bennett [1896] 1 Ch 778. In that case the Court of Appeal held that the accountants of the trustee of a dead outgoing partner might inspect: ‘Once a year, but that, in the absence of special circumstances, it ought not to be done more than once a year’ per Lindley LJ at 783. Kay LJ at 786 was inclined to be more liberal but assented; Bilton v Blakely (1856) 6 Gr 575. 1 2 3 4 5

(b)  Access by partners personally 11.25  By contrast with the position of agents, partners themselves are not restricted in their access to the partnership books, irrespective of their motive1 and irrespective of the fact that the documents might be privileged in litigation2. In Trego v Hunt3 an application to restrain a partner from ‘making any copy or extract from the books of the partnership for any purpose other 213

11.26  The duty of good faith

than the business of the partnership’ was rejected in the House of Lords, Lord Davey stating4: The plaintiffs have no right to prevent the defendant from making any extracts from the books he thinks fit.

He dealt with the possibility of misuse of the information in this way5: It is conceivable that, if the defendant proposed to use such extracts for purposes injurious or hostile to the interests of his firm, he might be restrained from so doing. But in such case it would not be the obtaining of the information, but the use the partner proposed to make of it when obtained, which would be restrained.

Motive is irrelevant if a partner desires to exercise his statutory right of access to books, but the position may be different if the partner is exercising a mere contractual right and it is clear that he intends using the information he obtains for some manifestly improper purpose6. 1 Inversiones Frieira SL v Colyzeo Investors II LP [2011] EWHC 1762 (Ch) Norris J at para 26; Trego v Hunt [1896] AC 7 at 26; Romersa v Buch [1917] TPD 266 (South Africa). 2 Hilton v D IV LLP [2015] EWHC 2 (Ch) Pelling HHJ sitting as a High Court judge para 51. 3 [1896] AC 7 at 26 per Lord Davey. 4 See note 2. 5 See note 2. Misuse of information may be restrained: Floydd v Cheney [1970] Ch 602; Mutter v Eastern and Midlands Rly Co (1888) 38 Ch D 92, CA; Duché v Duché (1920) 149 LT Jo 338, and see para 8.68ff above and paras 11.35 and 15.32 below. 6 Inversiones Frieira SL v Colyzeo Investors II LP [2011] EWHC 1762 (Ch), Norris J, following Conway Petronius Clothing Ltd [1978] 1 WLR 72 at 90E and Oxford Legal Group Ltd v Sibbasbridge Services plc [2007] EWHC 2265 (Ch); Hilton v D IV LLP [2015] EWHC 2 (Ch) Pelling HHJ sitting as a High Court judge.

3  PROFITING FROM THE FIRM A B C D E F

Profiting from the firm generally   11.26 Renewing partnership leases   11.29 Reversions on partnership leases   11.30 Outside work and office-holding   11.31 Use by the partner of other partnership property   11.32 Bribes and commissions   11.37

A  Profiting from the firm generally 11.26  A partner may not take advantage of his position as a partner to make a private profit without his partners’ consent, or he is liable to them for any profit he may make, subject to any question of allowances. This does not merely mean that he may not compete with the firm (a matter considered at para 11.38ff below). It means that he may not use the firm’s position for his own advantage, or that of his family or his company1 but must disclose to it information which is relevant to its business – see para 11.17 above. 214

Profiting from the firm 11.27

Section 29 of the Partnership Act 1890 provides: (1) Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership, or from any use by him of the partnership property, name or business connection. (2) This section applies also to transactions undertaken after a partnership has been dissolved by the death of a partner, and before the affairs thereof have been completely wound up, either by any surviving partner or by the representatives of the deceased partner.

What is ‘profit’ is considered at para  11.42 below; what is the extent of the duty of good faith is discussed at para  11.1ff above, and questions of limitation at para 15.60 below. 1 Woodfull v Lindsley [2004] EWCA Civ 165; Coxon v Small (13 December 2001, unreported), NLD; Trustor AB  Ltd v Smallbone (No  2) [2001] 2  BCLC  436; Broadhurst v Broadhurst [2006] EWHC 2727 (Ch).

(a) Benefit from transactions with the firm and purchases from it 11.27  As considered in detail below, a partner is liable to the firm for the profit he may make without the consent of his partners, but only in a transaction that concerns the firm’s business. So where a partner in a property letting business negotiated with a third party to acquire a hotel, it was held that this business opportunity was outside the scope of the partnership business, and he was not accountable for it1. For instance, if a partner is the manager he may make no profit for himself beyond his agreed return, nor exploit a business opportunity of the firm2 and if he sells partnership property to himself he is accountable for the profit3. His transactions are to this extent voidable at the instance of the firm4. As Nugee J observed5: The primary remedy where a fiduciary has failed in breach of duty to disclose his interest in a transaction with his principal is to set aside the transaction and restore the parties to the position they were in. It is however well established that if this cannot be done, the fiduciary can come under a liability to pay equitable compensation in lieu, the locus classicus being Nocton v Lord Ashburton6 and I see no reason to doubt that the same applies if the claimant does set aside the agreement but is unable to receive back from the counterparty all the sums paid under it with interest.

When he sells (in breach of his partnership agreement) to a bona fide purchaser for value who then resells it to him, he is accountable for the profit7 unless the two sales can be shown to be entirely unconnected8. Where his purchase of a partnership business is set aside he may be granted an allowance for his time, energy, skill and expenditure9. His liability continues after dissolution until the partnership business has been wound up10 and is enforceable against him by the personal representatives of a dead partner11. It will not continue indefinitely12. 215

11.28  The duty of good faith  1 Parkin v Alabaster (1997) 6 NZBLC 102,009 (HC).  2 Re Bhullar Bros [2003] EWCA Civ 424.  3 Denison v Fawcett (1958) 12 DLR (2d) 537.   4 Contrast the general right of a beneficiary to set a transaction aside where a trustee purchases trust property: Holder v Holder [1968] Ch 353.  5 Glenn v Watson [2018] EWHC 2016 (Ch) at para 526.   6 [1914] AC 932.  7 Gordon v Holland (1913) 108 LT 385, PC, following Jessell MR in Re Stapleford Colliery Co, Barrow’s Case (1879) 14 Ch D 432; and see para 11.28 below.  8 Re Postlethwaite (1888) 60 LT 514.  9 Re Sherman [1954] Ch 653. For allowances see para 14.28 below. 10 Pathirana v Pathirana [1967] 1 AC 233, PC; Blundon v Storm [1972] SCR 135, 20 DLR (3d) 413 (Canada). 11 Thompson’s Trustee in Bankruptcy v Heaton [1974] 1 WLR 605. 12 See Jackson v Royal Bank of Scotland [2005] 1 WLR 377.

(b)  Interest in partnership contracts 11.28  A partner who is himself a party to any contract with the firm will be liable to it for any profit that he makes on that contract1 unless his partners expressly or implicitly agree otherwise, which may be inferred from the practice of the firm2. Thus if a partner who is the buyer for the firm buys goods for himself and then sells them to the firm at a profit, he is liable for the profit, even if the firm could not have acquired the goods in the market at any cheaper price3. If he improperly sells partnership property to a purchaser for value without notice and then repurchases it himself, he is liable for the profit4. It may be implicit that he can keep the profit if it is known to his partners that he carries on a separate trade from the firm and is making the profit in the course of that separate trade. So a partner in a firm of solicitors may run an office furniture business to the knowledge of his partners; if he sold a desk to them, he would be liable for his profit if he conceals the fact that it is he who is the seller; but if they know it is he, they will have impliedly consented to the profit being his. Nothing but full disclosure will suffice5. The renewal of partnership leases by a partner in his own name for his own benefit is considered next below, and renewal of other contracts at para 11.34 below. 1 JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162 a case on the analogous liability of a director to his company; Dunne v English (1874)  LR  18 Eq 524; Denison v Fawcett (1958) 12 DLR (2d) 537. 2 ‘Inferred from a course of dealing’, per the Partnership Act 1890, s 19. 3 Bentley v Craven (1853) 18 Beav 75. 4 Gordon v Holland (1913) 108 LT 385, PC; Blundon v Storm [1972] SCR 135, 20 DLR (3d) 413 (Canada). 5 Woodfull v Lindsley [2004] EWCA Civ 165; Dunne v English (1874) LR 18 Eq 524.

B  Renewing partnership leases 11.29  If a firm has the benefit of a lease or tenancy, no partner may renew the lease or tenancy into his own name or otherwise for his own benefit; if he 216

Profiting from the firm 11.29

attempts to do so, he will hold the resulting benefit upon trust for the firm1 unless the firm elects not to adopt it2. It is irrelevant that the landlord might have refused to grant a new lease to the firm3. The new lease is treated as if engrafted on or forming part of the old4 unless the partner has given his firm a full and informed opportunity to continue the lease and they have refused5. In Keech v Sandford6, which was a case of a family trust and not a partnership, the trustee was liable where he renewed for himself in his own name a beneficiary’s lease, even where such renewal in favour of the beneficiary had been refused. The full rigour of the rule in Keech v Sandford is not applied to a partner7; he will be entitled to take the lease in his own name if his partners have refused to take it8 or if the possibility of renewal is not open to them and the partnership is about to expire9. The presumption against a partner renewing a partnership lease in his own name (‘at most a rebuttable presumption of fact’) was contrasted by the Court of Appeal with that against a trustee (‘one of law and cannot be rebutted’) in Re Biss10 where Sir W  Grant in Featherstonhaugh v Fenwick11 was cited with approval as authority for the narrower restriction: One partner cannot treat privately, and behind the backs of his co-partners, for a lease of the premises, where the joint trade is carried on, for his own individual benefit: if he does so treat, and obtains a lease in his own name, it is a trust for the partnership.

Obiter statements in recent judgments12 where partners have been called trustees should be viewed with caution if these cases were not drawn to the attention of the court.  1 John Taylors v Masons [2001] EWCA Civ 2106; Don King Productions Inc v Warren [2000] Ch 291, CA; Featherstonhaugh v Fenwick (1810) 17 Ves 298. Similarly if he obtains a new lease by representing that he is taking it for the partnership: Gibb Australia Pty v Cremor Pty (1992) 108 FLR 129 (ACT SC, Full Ct).  2 Clements v Norris (1878) 8 Ch D 129.  3 Featherstonhaugh v Fenwick (1810) 17 Ves 298; Clegg v Edmondson (1857) 8 De GM & G 787.  4 Re Biss [1903] 2 Ch 40; Clegg v Fishwick (1849) 1 Mac & G 294.  5 Chan v Zacharia (1983) 154 CLR 178, in which the majority in the High Court of Australia considered the difference between the fiduciary duties of a trustee and of a partner in this context, and observed obiter that against a trustee there was an irrebuttable presumption of law that he had obtained the lease renewal by use of his position whereas against a partner the presumption was rebuttable. The decision is followed in Gibb Australia Pty Ltd v Cremor Pty Ltd (1992) 108 FLR 129 and in Don King Productions Inc v Warren [2000] Ch 219, CA.  6 (1726) Sel Cas Ch  61. Consequential conflicts of interest for the partner/landlord are considered at para 11.8 above.   7 See the distinction between Keech v Sandford and the partnership case of Aas v Benham [1891] 2 Ch  244 drawn by Lord Hodson in Boardman v Phipps [1967] 2  AC  46 at 108, not cited in Popat v Shonchhatra [1995] 1  WLR  908, or in Don King Productions Inc v Warren [2000] Ch 219, CA or John Taylors v Masons [2001] EWCA Civ 2106, but explained with approval by Rimer LJ (with whom the two other Lords Justices agreed) in O’Donnell v Shanahan [2009] EWCA Civ 751 at 68.   8 Section  29(1) itself may be excluded by agreement; for the position in Australia contrast Chan v Zacharia (1983) 154  CLR  178 discussed above, with Metlej v Kavanagh [1981] 2 NSWLR 339 at 348.  9 Welzel v Kain (1926) 27 SRNSW 140; Mah Kong Doon v Mah Cap Doon (1918) 1 WWR 610; see also Fraser Edmiston Pty v AGT (Qld) Pty [1988] 2 Qd R 1; Chan v Zacharia (1983) 154 CLR 178 and Metlej v Kavanagh [1981] 2 NSWLR 339, SC (NSW).

217

11.30  The duty of good faith 10 [1903] 2 Ch 40. 11 (1810) 17 Ves 298 at 311; not cited in John Taylors v Masons [2001] EWCA Civ 2106, where the issue of secrecy was said to be irrelevant. 12 Eg John Taylors v Masons [2001] EWCA Civ 2106, and see para 11.4 above. In Shirt v Shirt [2012] EWCA Civ 1029 Keech v Sandford was followed but not as regards the more extreme aspects of that case mentioned above.

C  Reversions on partnership leases 11.30  A partner may acquire for his own benefit the reversion expectant upon the expiry of the firm’s lease unless it is a breach of his duty of good faith to do so, as it will be if the reversion has any value to the partnership and he does it behind the backs of his partners. In Bevan v Webb1 Warrington J reviewed the earlier authorities and found no general prohibition upon a partner purchasing such a reversion by the firm for his own benefit. He observed that equity would only intervene where an acquisition of the reversion would ‘enure for the benefit of the partnership firm’2 in other words that the reversion in question would be of some particular value to the firm. Today, when the status of tenant is often an inconvenient one, this will more often be the case than it was in the 19th century. In Brenner v Rose3 Brightman J held that there is no objection to a landlord enforcing his right to possession against a firm of which he is a member, since his rights as landlord are not held for the benefit of the firm. He said: I do not see that the defendant’s fiduciary capacity as a member of a partnership which includes the benefit and burden of the underlease raises any sort of equity which should be allowed to prevent him from exercising the rights as landlord which he would have had if he were a stranger to the partnership. I need only refer to Bevan v Webb4.

Brightman J did not feel any need to comment that the landlord had acquired the reversion whilst he was a partner. In Protheroe v Protheroe5 the Court of Appeal held (without any citation of authority at all) that in a family trust ‘If a trustee, who owns the leasehold, gets in the freehold, that freehold belongs to the trust and he cannot take the property for himself’. This decision was followed6 by Pennycuick V-C in the partnership case of Thompson’s Trustee in Bankruptcy v Heaton7 (where Bevan v Webb was not cited) and he held that it was a breach of a partner’s fiduciary duty to acquire the reversion without the other partner’s consent. If Bevan v Webb had been cited to Pennycuick V-C we do not suppose that he would have found such a general prohibition against the purchase of a reversion. But probably this would have made no difference to the outcome of the case; the purchase of the reversion in question, together with the lease itself, gave the land a marriage value which was entirely taken by the landlord and which would otherwise have been shared with the firm. In Popat v Shonchhatra8 the same point arose and once more Bevan v Webb was not cited but Thompson’s Trustee was followed, which may have led to a wrong result. The partner acquired the reversion after the partnership had been dissolved but before its business had been wound up. He was held to 218

Profiting from the firm 11.31

be accountable because a purchase of the reversion had been contemplated by the partners when they had originally acquired their lease and because the ownership of the lease by the firm had ‘probably enabled’ the purchasing partner ‘to negotiate for the freehold’9. Whether this would satisfy the test in Bevan v Webb is debatable. Where a partner buys the reversion but is found accountable to the firm for it in this way, he is allowed, as an advance to the firm, the amount he has had to pay for it10. A partner could not say he had not consented to the purchase of the reversion by his partner’s trustee if in fact he had refused to pay his share: The beneficiary under the trust in such circumstances cannot be compelled to accept and pay for the reversion. If he refuses to do so, either before or after the acquisition by the trustee, no doubt the latter is entitled to acquire and retain the reversion for his own use, but if the beneficiary does require that the reversion be brought into the trust estate, then the trustee must deal with it accordingly, subject of course to recoupment out of the trust estate11.

A conflict arises (considered at para  11.8 above) where a partner has an interest in a partnership lease both as landlord and as tenant.   1 [1905] 1 Ch 620.   2 Ibid at 630. For instance if the firm’s lease had been in practice a renewable one in the hands of the previous landlord, a matter which was jeopardised if the partner could exercise the rights of landlord for his own benefit: Randall v Russell (1817) 3 Mer 190.   3 [1973] 2 All ER 535.   4 [1973] 2 All ER 535 at 539c.   5 [1968] 1 WLR 519, CA.   6 With Phillips v Phillips (1885) 29 Ch D 673, a reversion bought by a tenant for life.   7 [1974] 1 WLR 605, approved in Don King Productions Inc v Warren [2000] Ch 291, CA.   8 [1995] 1 WLR 908.   9 [1995] 1 WLR 908 at 917A. To similar effect is Foreman v King [2008] EWHC 592 (Ch). 10 Popat v Shonchhatra [1995] 1  WLR  908, partly reversed on other grounds [1997] 3  All ER 800, CA. 11 Per Pennycuick V-C in Thompson’s Trustee in Bankruptcy v Heaton [1974] 1 WLR 605.

D  Outside work and office-holding 11.31  The partnership agreement should provide for the extent to which a partner may undertake work outside the firm, and the nature of such work. Or it may be clear from the nature of the business that each partner should work full-time1, although there is no rule of law to that effect. In the absence of contrary agreement a partner may busy himself elsewhere provided that: (a) he does not compete with the firm (which is considered at para 11.38ff below); (b) he does not use the firm property (in the widest sense) in the furtherance of such business2, as discussed next below; and (c) his appointment does not originate from his position as a partner, for instance as a partner in a firm of accountants carrying out work as a liquidator, administrator or receiver3. 219

11.32  The duty of good faith

Whether a pension or an outside engagement or office of profit should be regarded as that of the particular partner or that of his firm so that he is accountable for it is therefore a matter of fact: there is no presumption either way4. If he holds an office because of his capacity as a partner, the court may order him to relinquish it when he retires in favour of his partners if they are qualified to take it5. Even if his activities are a breach of the partnership agreement (for instance in breach of a covenant that he should engage in no other business) he may be liable for damages but is not accountable for his profits unless they were earned in competition with the firm or derive from partnership property or his position as a partner6. This is so unless the partnership agreement provides that he is accountable for the money. In Carlyon-Britton v Lumb7 the partnership deed provided that the salary or benefit from any office held by a partner should form part of the firm’s profits. A partner served for four years in the trenches and survived to learn that he was accountable to his partners for all of his army pay.

But the pay from a public office will not (in the absence of agreement) be presumed to fall within the ambit of the firm8. The receipt or payment of money or reward for any public office or participation in its profits is illegal and a criminal offence9. But the firm can have the benefit of a public contract which, if non-assignable, will have to be valued rather than sold on the firm’s dissolution10.  1 Gardner v M’Cutcheon (1842) 4 Beav 543; contrast Dean v MacDowell (1878) 8 Ch D 345.  2 Aas v Benham [1891] 2 Ch 244, discussed below.  3 Casson Beckman & Partners v Papi [1991]  BCC  68, CA. Till v Morris (14/2/2012) Birmingham District registry (HHJ Cooke).  4 Goldup v Cobb [2017]  EWHC  526 (Ch), following Casson Beckman & Partners v Papi [1991] BCC 68, CA.  5 Clements v Udal [2001] BPIR 454, Neuberger J.  6 Dean v MacDowell (1878) 8 Ch D 345.   7 (1922) 38 TLR 298.  8 Collins v Jackson (1862) 31 Beav 645; Alston v Sims (1855) 1 Jur NS 438; Smith v Mules (1852) 9 Hare 556.   9 See the Criminal Law Act 1967, s 1; and Sterry v Clifton (1850) 9 CB 110. 10 Smith v Mules (1852) 9 Hare 556, considered at para 18.50 below.

E  Use by the partner of other partnership property (a)  Partnership property 11.32  The partner is liable for his profit earned from use of partnership ‘property, name or business connection’1, which is to be interpreted broadly, and includes the firm name2, commercial information3, goodwill and other property of use to the firm, even the most tenuous licence to trade4. He is liable for the profit if he uses partnership money for speculation of his own5. 220

Profiting from the firm 11.33 In Blundon v Storm6, Storm was a partner in a partnership of treasureseekers. He secretly obtained for himself a renewal of the treasure trove licence and unsuccessfully purported to terminate the partnership. Held that he was liable to account when he subsequently found the treasure.

If he purchases partnership property from the partnership at an undervalue or without giving full disclosure as to its value or quality or obtaining his partners’ informed consent, he is liable for the profit7 and the transaction is liable to be set aside8 and the firm has a proprietary claim against him which may be followed into other property which represents what he has taken9. 1 See the Partnership Act 1890, s  29; quoted at para  11.26 above. Partnership assets are discussed in Chapter 8, and intellectual property at para 8.71 above. 2 Ball v Eden Project [2002] 1  BCLC  313; Aas v Benham [1891] 2 Ch  244, discussed at para 11.35 below and the firm name is discussed at para 8.55 above. 3 See note 2 above and para  8.68 above for confidential information. See also Finlayson v Turnbull 1997 SLT 613 where damages were awarded, and Re Bhullar Bros [2003] EWCA Civ 424, where the defendant company director was ordered to restore the property that he had acquired for himself with the information in question. 4 Pathirana v Pathirana [1967] 1 AC 233; John Taylors v Masons [2001] EWCA Civ 2106. 5 Morice v Hubbard (1909) 10  WLR  703; Olson v Gullo (1994) 113  DLR (4th) 42; future profit was discussed in Potton Ltd v Yorkclose Ltd [1990] FSR 11. 6 (1972) 20 DLR (3d) 413, SC Canada. The case is principally of importance on the question of laches, which is discussed at para 15.61 below. 7 JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162 a case on the analogous liability of a director to his company. 8 Woodfull v Lindsley [2004] EWCA Civ 165; Newgate Stud Co v Penfold [2004] EWHC 2993 (Ch), David Richards J, Ch D, another company case. 9 Sinclair Investments v Versailles Trade Finance [2011] 3 WLR 1153 CA esp para 80; contrast the disapproval of A-G for Hong Kong v Reid [1994] 1 AC 324 (a case of a bribe) in that case.

(b)  Appropriation of the partnership business 11.33  A partner may not sound out clients as to whether they would follow him if he left the firm1 and when he continues to trade with partnership property after the firm has been dissolved or after he retires2, he is accountable for the profit3. There is no absolute rule that he may not take preparatory steps to set up a rival business4, but he may not lay the groundwork for diverting a partnership opportunity to himself and then take it himself when he leaves the partnership5, for instance by misappropriating the list of customers6. If after dissolution one partner continues the business when he ought to have sold it, and it reduces in value, it may be treated as having been appropriated by him and he will be debited with its value at the date of such misappropriation7. 1 Voaden v Voaden [1997] CLY 3873. 2 Woodfull v Lindsley [2004] EWCA Civ 165; CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704; Recovery Partners GPB Ltd v Rukhadze [2018] EWHC 2918 (Comm). 3 See the Partnership Act 1890, s 42(1); Featherstonhaugh v Fenwick (1810) 17 Ves 298; Davis v Firman (1902) 28 VLR 53; John Taylors v Masons [2001] EWCA Civ 2106; Newman (IN) Ltd v Richard T Adlem [2005] EWCA Civ 741, discussed at para 18.66 below.

221

11.34  The duty of good faith 4 Batstone Ltd v Headline Filters Ltd [1990]  FSR  385, followed in Coleman Taymar Ltd v Oakes [2001] 2 BCLC 749, but contrast Voaden v Voaden [1997] CLY 3873. How much preparatory work he may do is a question of degree: Kao Lee Lip v Koo (2003) WTLR 1283. 5 Crown Dilmun v Sutton [2004] All ER (D) 222; Kao Lee Lip v Koo (2003) WTLR 1283; Kingsley IT  Consulting Ltd v McIntosh [2006]  All ER (D) 237 (Feb) (a company case), following Boardman v Phipps [1967] 2  AC  46 and Regal (Hastings) v Gulliver [1967] 2 AC 134. 6 Gorne v Scales [2006] EWCA Civ 311. For confidential information see para 8.68 above. 7 Latchan v Martin (1984) 134 NLJ 745, see para 18.42 below.

(c)  Renewal of partnership contracts by a partner 11.34  If the partnership has the benefit of commercial contracts (even of a tenuous nature) and they expire, a partner may not renew them in his own name without the consent of the firm or he is accountable to the firm for his profit, for he holds the benefit of the agreements upon trust for the partnership as much as if they had been commercial leases1. Renewals of partnership leases are considered at para 11.28 above. The test is: Whether the renewal was obtained or received in circumstances where a conflict or significant possibility of a conflict existed between the partner’s duty of good faith and his personal interest in the pursuit or possible receipt of the renewal agreement … or whether the renewal … was obtained or received by use of or by reason of his fiduciary position or of any opportunity or knowledge2 resulting from it3. 1 Don King Productions Inc v Warren [2000] Ch  291, CA; Pathirana v Pathirana [1967] 1  AC  233, PC; Woodfull v Lindsley [2004]  EWCA  Civ 165; John Taylors v Masons [2001] EWCA Civ 2106; Russell v Austwick (1826) 1 Sim 52. 2 As to information obtained by a partner, see below. 3 Per Morritt LJ, with whom the other members of the Court of Appeal agreed, in Don King Productions Inc v Warren [1999] 3  WLR  276 at 316–317, but Aas v Benham [1891] 2 Ch 244 was not cited to them, and see para 11.29 above.

(d) Information and business opportunities obtained as a partner 11.35  A partner is accountable for any profit that he may make from ‘information which the partnership is entitled to’1. But unlike a trustee2, he is not accountable for the use of stray information irrelevant to the partnership. He may use information that he has gleaned as a partner for his personal benefit or profit without being accountable if: (a) he does not compete with the firm with it; and (b) it is not information which ‘is valuable to them as a partnership, and to the use of which they have a vested interest’3. His position can be contrasted with that of a company director, who is (like a trustee) liable to the company for any profit that he may make from 222

Profiting from the firm 11.35

information he has obtained as a director, whether or not the company could itself have made the profit which the director made4. Thus in Aas v Benham5 a member of a firm of ship-brokers helped to form a company for building ships and in doing so he used information that he had obtained as a member of the firm. His partners sued for an account of his profits. Held he was not liable, as the information was ‘wholly without the scope of the firm’s business’: per Lindley LJ6 who went on to say7: ‘To hold that a partner can never derive any personal benefit from information which he obtains as a partner would be manifestly absurd.’ Similarly in Re Coffey’s Registered Designs8 the firm dealt in home brewing materials but did not make them itself. A partner designed a container for brewing beer. Held he might exploit this independently of the firm, since the firm did not design or manufacture such things. In Glassington v Thwaites9 the firm ran a morning newspaper and some of its partners began to run an evening newspaper. An injunction to restrain them was refused, but they were restrained from using in their paper any news which had been gathered by the firm before it had appeared in the firm’s morning paper. In Gorne v Scales10 some outgoing partners were held liable for wrongly removing a confidential customer database from their dissolved partnership. Held that because their former partner was in no position to profit from the database but could only have sold it, the proper award was the sale value of the database rather than its value to the outgoing partners’ new concern.

In O’Donnell v Shanahan11 Rimer LJ commented upon Aas v Benham12 with characteristic clarity: The extent of Mr Benham’s fiduciary duties was determined by the nature of the partnership business, which was expressly limited by the terms of the partnership agreement. The consequence was that if he used partnership information for any purpose that fell within the scope of the partnership business, he was required by the fiduciary obligations to which the contract subjected him to account to the firm for any profits so made; but his fiduciary obligations did not require him similarly to account to the firm for any profits made by the use of such information for a purpose that was beyond the scope of the business of the partnership. To those familiar with the wider obligations of accountability to which trustees and directors are subject, the decision in Aas v Benham may at first sight appear to reflect a surprisingly narrow approach. But the explanation is that a trustee’s and director’s fiduciary duties are not similarly circumscribed by the terms of a contract.

But like a director, a partner is liable if he appropriates a business opportunity which is maturing when he leaves the firm. In Recovery Partners GP Ltd v Rukhadze13 Cotterill J said: A business opportunity may be regarded as ‘maturing’ so long as there is contact between the principal and a third party with regard to future business and that contact has progressed to the stage where some outlines of future contractual relations are in play. There need not be a draft contract or any imminence of agreement …

223

11.36  The duty of good faith A fiduciary may be in breach by diverting an opportunity even if it is unlikely that the principal will be able to secure that opportunity … It must have come to the director or fiduciary by reason (and only by reason) of his position as such fiduciary and it must be an opportunity which the company/person to whom duties are owed is ‘actively pursuing’ …

A partner cannot be liable for the misuse of the firm’s secrets unless he knows the identity of the secrets and that they are being used: ‘an action for breach of confidence if based ultimately on conscience’14.   1 Per Cotton LJ in Dean v McDowell (1878) 8 Ch D 345 at 258; PennWell Publishing (UK) Ltd v Ornstien [2007] EWHC 1570 (QB). Kao Lee Lip v Koo (2003) WTLR 1283; Peter Pan Manufacturing Corpn v Corsets Silhouette Ltd [1963] 3 All ER 402. Partnership assets are discussed in Chapter 8, and intellectual property at para 8.72 above.  2 Boardman v Phipps [1967] 2  AC  46; Industrial Development Consultants Ltd v Cooley [1972] 2 All ER 162.   3 Per Bowen LJ in Aas v Benham [1891] 2 Ch  244 at 258, approved by Lord Hodson in Boardman v Phipps [1967] 2 AC 46 at 110; unfortunately neither case was cited in Don King Productions Inc v Warren [2000] Ch 291, CA.  4 Industrial Development Consultants Ltd v Cooley [1972] 2 All ER 162; Weber Feeds Ltd v Weber (1979) 24 OR (2d) 754 (Ont CA).   5 [1891] 2 Ch 244, discussed with approval in Boardman v Phipps [1967] 2 AC 46, where a trustee’s liability to account for profit that he made from information obtained when he was acting as a trustee, was held to be wider than that of a partner acting as a partner.   6 [1891] 2 Ch 244 at 256.   7 In words quoted by Lord Hodson in Boardman v Phipps [1967] 2 AC 46 at 107.   8 [1982] FSR 227; Bissell v Cole [1998] CLY 4071, CA.   9 (1823) 1 Sim & St 124. 10 [2006] EWCA Civ 311. 11 [2009] EWCA Civ 751 at para 68. 12 [1891] 2 Ch 244. The pronunciation of the name of the claimant is a matter of doubt: to avoid indelicacy the case was referred to in argument in O’Donnell as ‘Benham’s case’. 13 [2018]  EWHC  2918 (Comm) at para  60, following Pennyfeathers Ltd v Pennyfeathers Property Company Ltd [2013] EWHC 3530 (Ch), Don King Productions Inc v Warren & ors [2000] Ch 291 and Wilkinson v West Coast Capital [2007] BCC 717 per Warren J at [300]. 14 Per Lord Neuberger in Vestergaard Frandsen A/S  v Bestnet Europe (2013)  UKSK  31 at para 22, following Coco v A N Clark (Engineers) Ltd (1969) RPC 41, 46.

(e) Disclosure 11.36  If there is evidence of wrongdoing, the partner may be ordered to disclose the business contacts whether he made them before or after ceasing to be a partner1. 1 Intelsec Systems Ltd v Grech-Cini [2000] 1 WLR 1190, an employment case.

F  Bribes and commissions 11.37  A firm may be guilty of the criminal offence of bribery and also of failing to prevent bribery1. The meaning of bribery in civil litigation where 224

Profiting from the firm 11.37

the person who takes the bribe is a confidential agent for his principal (as a partner is such an agent for his firm) was stated by Romer LJ in Hovenden v Millhoff2: If a gift be made to a confidential agent with a view of inducing the agent to act in favour of the donor in relation to transactions between the donor and the donor’s principal and that gift is secret as regards the donor and the agent – that is to say, without the knowledge and consent of the principal – then the gift is a bribe in the view of the law ….

He stated the consequences: First, the court will not enquire into the donor’s motive in giving the bribe, nor allow evidence to be gone into as to the motive. Secondly the court will presume in favour of the principal and as against the briber and the agent bribed, that the agent was influenced by the bribe, and this inference is irrebuttable ….

A partner is accountable to the firm for any secret commission or bribe that he may receive relating to a partnership transaction unless it is agreed or to be implied from the custom of the firm that he may keep it3. That the firm may have suffered no loss is irrelevant4. Nor is he entitled to credit for any benefit it conferred upon the firm: In Murad v Al-Saraj5 (strictly a joint venture rather than a partnership case) an agent persuaded two investors to buy a hotel with him, but he fraudulently misrepresented to them the true price and the extent of the ‘commission’ he received on the purchase. The purchase proved highly profitable, but the Court of Appeal6 held him accountable for the whole of his commission and profit, and that he was not entitled to any allowance for the profit made by the venture.

Once the liability to account has arisen, it is for the accountable party to prove any deductions from his gross profit7. As Kekewich J observed in relation to 19th-century ship-owners in Williamson v Hine8: If the managing owner is also, as frequently happens, a ship-broker, he can, so to speak, employ himself, if it is fair and above-board; but there must be no secret arrangement, and no secret profit. If he employs another broker, of course he can pay on behalf of the ship-owner the moneys necessary to pay that broker. If he employs himself, he of course can pay what is necessary to be expended in making a bargain; but unless it is outside his duty as managing owner, he cannot make a profit if he employs himself, and he cannot receive a commission for his own benefit from the outside broker.

Questions of waiver or consent are considered at paras 7.21 and 11.14 above. If the partner conceals the bribe or commission, the inference will be that he admits that his partners would not agree to his keeping it. If the partner makes limited disclosure, for instance disclosing that he received commission but not how much it was, then the full armoury of remedies will not be used against him, and the court may order equitable compensation rather than full rescission of the arrangement9. The firm may alternatively claim its loss as damages at law; it must elect before taking judgment either to recover the bribe or to recover its loss as damages for fraud, and cannot do both10. 225

11.37  The duty of good faith

The firm may elect whether or not to affirm or rescind the transaction in which the other party bribed the partner, and its affirmation is no bar upon the recovery of the bribe from the partner or from the outside briber who is also liable11. He who takes the bribe or commission holds it upon trust for the firm12 In Fawcett v Whitehouse13 the parties were partners who needed premises. A landlord paid Whitehouse £12,000 for persuading the others to accept his lease. Held Whitehouse held this sum as a trustee for himself and his partners.

He is liable for the bribe or commission itself, but not for property which he has purchased with the money, A contrast must be drawn between a claim: (a) against a partner enriching himself by depriving the firm of an asset that it owns or is entitled to own, in which case the firm has a proprietary claim against him which can be traced into other assets; and (b) against a partner enriching himself by doing a wrong to the firm, for instance by taking a bribe, which creates a claim against him for an account but not a proprietary claim14.   1 Bribery Act 2010, s 7.  2 Hovenden v Millhoff 83  LT  41 at 43, followed Armagas v Mundogas [1985] 1 Lloyd’s Rep 1.  3 FHR  European Ventures v Cedar Holdings [2014]  UKSC  45; Daraydan Holdings Ltd v Solland Int [2004] 3 WLR 1106; Logicrose Ltd v Southend United Football Club Ltd [1988] 1  WLR  1256; Gordon v Gonda [1955] 1  WLR  885, where a partner was held liable to the firm (together with simple interest at 5%) for the value of shares that he had received personally as part of a transaction whereby he sold the partnership property to a third party. See also Allwood v Clifford [2002] EMLR 3, Park J (an agency case), and waiver or consent by the firm at para 11.14 above.  4 Reading v R  [1949] 2  KB  232; aff sub nom Reading v A-G  [1951]  AC  507. In Beck v Kantorowicz (1857) 3 K & J 230 the bribe procured a favourable contract but this was held to be irrelevant.   5 [2005] EWCA Civ 959.   6 Arden and Parker LJJ; Clarke LJ dissented, agreeing with Etherton J (at first instance) that if the agent could show that he made a contribution to the profit it might be inequitable not to give him an allowance for this. But a petition for leave to appeal to the House of Lords was dismissed.  7 Condliffe v Sheingold [2007] EWCA Civ 1043.   8 [1891] 1 Ch 390 at 394.  9 Hurstanger Ltd v Wilson [2007] EWCA Civ 299. 10 Mahesan v Malaysia Government Officers’ Co-operative Housing Society Ltd [1979] AC 374 at 383; Horcal Ltd v Gatland [1984] BCLC 549. 11 Logicrose Ltd v Southend United Football Club Ltd [1988] 1  WLR  1256; cf English v Dedham Vale Properties Ltd [1978] 1  WLR  93; Arab Monetary Fund v Hashim [1996] 1 Lloyd’s Rep 589. 12 FHR  European Ventures v Cedar Holdings [2014]  UKSC  45; Daraydan Holdings Ltd v Solland International Ltd [2004] EWHC 622 (Ch). For a company case see Tesco Stores v Pook [2003] EWHC 823 (Ch). The firm’s right is an equitable one and before the Judicature Acts the claim to recover the bribe as money had and received was unknown: see the comment of Lord Diplock in the judgment of the Privy Council in Mahesan v Malaysia Government Officers’ Co-operative Housing Society Ltd [1979] AC 374 at 380 on the judgment of Bowen LJ in Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339 at 367. 13 (1829) 1 Russ & M 132, followed by the Board of the Privy Council in A-G for Hong Kong v Reid [1994] 1 AC 324 at 332.

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Competing with the firm 11.39 14 Sinclair Investments v Versailles Trade Finance [2011] 3 WLR 1153 CA esp para 80, Lister & Co v Stubbs (1890) 45 Ch  D  1, CA (but see FHR  European Ventures v Cedar Holdings [2014] UKSC 45); Metropolitan Bank v Heiron (1880) 5 Ex D 319 CA, and dictum of Lord Chelmsford in Tyrrell v Bank of London (1862) 10 HL Cas 26 at 59–60 HL which had suggested that the firm’s claim to the bribe was that of a creditor and was not of a proprietary nature.

4  COMPETING WITH THE FIRM A B C D

‘Consent of the other partners …’   11.39 ‘The same nature … and competing’   11.40 Profits of office   11.41 What is profit?   11.42

11.38  Without the consent of his fellow partners, no partner may carry on a business competing with that of the firm1, either himself or by a company that he controls2. Section 303 of the Partnership Act 1890 provides: If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business.

Every partner is an agent of his firm, and generally no agent can act for two principals with conflicting interests save where both principals agree4. If there is evidence of wrongdoing he may be ordered to disclose the names of his business contacts5. What other injunctions may be ordered is considered at para 15.31ff below, and the question of allowances to him is considered in the last paragraph above and at para 14.28 below and waiver or consent by the firm at para 11.13 above. His liability extends to profits that he may make after he has retired, if he obtains them from a partnership business opportunity6. The extent of duration of the duty of good faith is discussed at the beginning of this chapter. 1 Dean v MacDowell (1878) 8 Ch D 345; Miller v Mackay (No 2) (1865) 34 Beav 295; Russell v Austwick (1826) 1 Sim 52; Glassington v Thwaites (1823) 1 Sim & St 124; Burton v Wookey (1822) 6 Madd 367; Somerville v Mackay (1810) 16 Ves 382; Gibson v Tyree (1900) 20  NZLR  278; Fleming v Mckechnie & McMillan (1906) 25  NZLR  216 (New Zealand); Orton v Melman [1981] 1 NSWLR 583 (Australia). 2 Woodfull v Lindsley [2004] EWCA Civ 165; Coxon v Small (13 December 2001, unreported), NLD; Trustor AB v Smallbone (No 2) [2001] 2 BCLC 436. 3 Reproduced as Appendix A below. 4 Rossetti Marketing Ltd v Diamond Sofa Co Ltd [2012] EWCA Civ 1021. 5 Intelsec Systems Ltd v Grech-Cini [2000] 1 WLR 1190. 6 See paras 11.13 and 11.33 above. For a limit to this see Sew Hoy v Sew Hoy [2001] 1 NZLR 391; Kao Lee Lip v Koo (2003) WTLR 1283.

A  ‘Consent of the other partners …’ 11.39  Consent must be by all members of the firm unless the partnership agreement or the management structure of the firm permits the giving of 227

11.40  The duty of good faith

consent by fewer, or if consent is implied1. Consent means informed consent2; but if the partners discover that the truth is being withheld from them, and indicate that they do not insist upon full disclosure, they may be taken to have waived the right to complain even though no full disclosure is made to them3. 1 Consent may be implied or inferred from course of conduct: see the Partnership Act 1890, s 19 and Gardner v M’Cutcheon (1842) 4 Beav 543. Express consent may be revoked if the agreement underlying it is rescinded: Voaden v Voaden [1997] CLY 3873. 2 See Tuckey LJ in Hurstanger Ltd v Wilson [2007]  EWCA  Civ 299, [2007] 1  WLR  2351, para 35; Woodfull v Lindsley [2004] EWCA Civ 165; Peyman v Lanjani [1985] Ch 457. 3 Law v Law [1905] 1 Ch 140.

B  ‘The same nature … and competing’ 11.40  The Act considers a rival business inoffensive unless it is both of the same nature and competing with the partnership business1. A partner who retires from his firm or whose firm has been fully wound up may set up a rival business unless restrained by covenant from so doing as discussed in para 18.63 below. What he may not do is to make arrangements, whilst he is a partner, to take with him staff on terms that they bring key clients with them2. What the partnership business may be is a question of fact3. In Glassington v Thwaites4 the publication of an evening newspaper was held to be no rival to that of a morning newspaper in the same locality, and an injunction to restrain some of the partners from carrying it on was refused. In Aas v Benham5 the firm carried on the business of shipbrokers. A partner used the firm’s name and paper in setting up business as a ship-owner. Held that the new business was beyond the scope of, and did not compete with, that of the firm, and his use of the firm name and paper was not sufficient to show the contrary. In Trimble v Goldberg6 three partners agreed to buy and resell certain property, company shares and plots of land in South Africa. One went out to South Africa and bought them; while he was there he privately bought other plots from the company. Held that he was not liable to the firm for the benefit of the purchase, since the purchase was not within the scope of the partnership nor in any way in rivalry to it. In Bissell v Cole7 a wife was a partner in her husband’s travel agency business both before and after divorce. When the divorce proceedings had begun he set up an additional tour operating business. Her name appeared on its notepaper and brochures. The Court of Appeal held that she had not become a partner in the new business venture because she had never agreed to a change in the old business or taken part in the new, and it was of a different nature to the old. In Voaden v Voaden8 a partner gave notice of retirement. Held he ought not to have discussions with his clients about transferring their work to him after he left. 1 Dean v MacDowell (1878) 8 Ch D 345, CA. 2 Deacons v White & Case (2003) HKLRD 670. 3 It is discussed in the context of the firm’s liability at para 19.8ff below.

228

Competing with the firm 11.42 4 (1823) 1 Sim & St 124. 5 [1891] 2 Ch 244; Jenkins v Bennett [1965] WAR 42; cf Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384. 6 [1906] AC 494, PC. 7 [1998] CLY 4071, CA. 8 [1997] CLY 3873.

C  Profits of office 11.41  At one time partnership agreements would often provide that the remuneration of a partner for outside work would form part of their firm’s profits1. This is now unusual but is discussed at para 11.31 above. 1 Carlyon-Britton v Lumb (1922) 38 TLR 298 (an army officer’s pay) but the presumption was against this: Alston v Sims (1855) 1 Jur NS 438.

D  What is profit? 11.42  Section  30 of the Partnership Act 1890 requires a partner who competes with the firm to account for his ‘profit’ in the same way that a partner who derives unauthorised ‘profit’ from the firm is accountable under section 29 as discussed in para 11.26 above1. (The Court of Appeal has said2 (Arden LJ dissenting) that damages rather than an account of profit should be the basis where the wronged firm could not have made any profit.) Where a solicitor improperly obtained fees for himself, his ‘profit’ will be computed after deduction of his disbursements and probably his staff and overhead expenses, but no allowance will be given to him for his own notional salary save in very exceptional circumstances3. In Abbott v Design and Display Ltd4 Hacon HHJ (with guidance from the Court of Appeal) ruled upon how the court should deal with the overhead costs of a defendant who had been held liable for wrongful infringement of a patent: (1)  Costs that were associated solely with the defendant’s acts of infringement are to be distinguished from general overheads which supported both the infringing business and the defendant’s other, non-infringing, businesses. (2) The defendant is entitled to deduct the former costs from gross relevant profits. (3) A proportion of the infringer’s general overheads may be deducted from gross relevant profits unless (a) the overheads would have been incurred anyway even if the infringement had not occurred, and (b) the sale of infringing products would not have been replaced by the sale of noninfringing products. (4)  The evidential burden rests on the defendant to support a claim that costs specific to the infringement and/or a proportion of general overheads are to be deducted from profits due to the claimant.

229

11.43  The duty of good faith

For allowances see para 14.28 below, and for the position where the firm takes a benefit see para 11.37 above. 1 Profits of a firm generally are discussed in Peter Pan Manufacturing v Corsets Silhouette Ltd [1963] 3 All ER 402 at 412; Colbeans Palmer Ltd v Stock Affiliates Pty Ltd [1972] RPC 303, and see Broadhurst v Broadhurst [2006] EWHC 2727 (Ch) and para 12.26 below. 2 Gorne v Scales [2006] EWCA Civ 311. 3 In Phipps v Boardman [1964] 1 WLR 993 at 1018 Lord Wilberforce gave an accountable trustee an ‘allowance’ for his skill and labour, but a trustee is in a different position from a partner. 4 [2017] EWHC 2975 (IPEC).

5 DUTIES WHEN A PARTNER JOINS THE FIRM OR BUYS OR SELLS HIS SHARE A The duty  11.43 B Duties of the purchaser and of the vendor   11.44 C Duty to the remaining partners as regards the transaction   11.45 D Where no sale materialises   11.46 E Duty of continuing partners to estate of a dead partner   11.47

A  The duty 11.43  A person has a duty of positive disclosure to the other party when he is engaged in the sale or purchase of a share and his knowledge is superior in some relevant way to that of the person with whom he is dealing1. This duty may be owed to one who is not at the time a partner at all but a person negotiating to become one2, and by a prospective partner to existing partners: I am satisfied on principle and authority that prospective partners have a duty to disclose material matters3.

It is not a duty of total disclosure amounting to a warranty4: a partner is not under an obligation to an incoming partner to disclose what is apparent from the firm’s books of account which are available to him5, nor can he be blamed if he honestly sells his share at an overvalue, and ‘it would be absurd to expect perfect accuracy’6. There is not a mutual obligation of disclosure, but a duty on the party with the superior relevant knowledge. In Andrewes v Garstin7 a claim was made to enforce an agreement to take the plaintiff into partnership; the defence was that the plaintiff was (or had been) dishonest in his previous dealings with others. It was held that the plaintiff had been under no obligation to disclose this, it was irrelevant and his claim was upheld. 1 Conlon v Simms [2006] 2  All ER  1024; (reversed on other grounds [2008) 1  WLR  484) Lawrence Collins J reviews the earlier authorities. In Australian law see United Dominions

230

Duties when a partner joins the firm or buys or sells his share 11.44

2 3 4 5 6 7

Corpn Ltd v Brian Pty Ltd (1985) 60 ALR 741; Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1 and in Canada see Powell v Maddock and Dart (1915) 9 WWR 353. ‘The duty of a person proposing an insurance arises before a contract is made; so of an intending partner’: per Lord Atkin in Bell v Lever Bros Ltd [1932] AC 161 at 227. Per Lawrence Collins J in Conlon v Simms [2006] 2 All ER 1024 (reversed on other grounds) [2006] EWCA Civ 1749 at para 199. Andrewes v Garstin (1861) 10 CBNS 444. This is implicit from Weed v Ward (1889) 40 Ch D 555, CA. Knight v Marjoribanks (1848) 11 Beav 322. (1861) 10 CBNS 444. The cases on return of premiums for non-disclosure such as Mackenna v Parkes (1866) 36 LJ Ch 366 are discussed at para 18.62 below.

B  Duties of the purchaser and of the vendor 11.44  In general a purchaser of a chose in action owes no duty of positive disclosure to the vendor. Directors may purchase shares in their company without disclosing information in their possession as to the prospects of the company which may be relevant to the share price1. Only by dishonesty may a purchaser make himself liable: thus one who secretly applied for planning permission in the vendor’s name and obtained it was made liable for the profit2. With partners it is different3. The principle of caveat emptor does not apply to the making of a partnership agreement and a party negotiating such an agreement owes the other parties a duty to disclose all material facts of which he has knowledge and of which they might be unaware4. When one partner buys a partnership share from another, there is a duty on the purchaser who knows (and knows that he knows) more about the partnership accounts than the vendor, to: Put the vendor in possession of all material facts with reference to the partnership assets, and not to conceal what he himself knows5.

If the information is not given, the sale is voidable at the instance of the person wronged6, unless it can be shown that had they known the true facts they would have proceeded anyway7. At one time it was thought that the mere fact that the sale was at a gross undervalue was sufficient to render it voidable8 but this is not the law today: there is no requirement that partners ‘in an objective sense receive full value for their interests if they want to terminate their relationship. Rather, effect should be given to the parties’ own bargain’9. Nor is it sufficient that the purchaser might (but did not) prove as an executor the will of the partner whose share he subsequently bought and thereby constitute himself a trustee, whose purchase of trust property is always voidable10. The Court of Appeal would have set the sale aside where the managing partner bought the share of another without disclosing some valuable mortgages that the firm owned11. Similarly sales will be set aside where the purchaser kept the accounts and knew that his offer was not a fair one12, or where he knew that there was a better offer for the share available from a third party and failed to disclose this13, or where the accounts simply turned out to have been grossly inaccurate through an accountant’s mistake14. Where a partner in a mining venture became insolvent, his fellow partners hid the 231

11.44  The duty of good faith

mining gear and concealed the evidence of the likely imminent success of the mine, and bought his share cheaply from the sheriff. It was ordered that the sale be set aside and that the purchasers be declared trustees of the share on repayment of the purchase money15. In Canada it has been held that where the concealed facts are material, the onus of showing that the partner who was ignorant of them would have entered into the agreement if he had full knowledge of them, is on the partner who has concealed them16. But mere proof of a breach of ‘fiduciary’ duty (in the absence of undue influence or fraud) will not set aside a sale if the purchaser would have proceeded even if he had known the true position17. The obligation to make disclosure is a continuing one: In Hogar Estates Ltd in Trust v Shebron Holdings Ltd18 one of two partners in a development project represented that the planning permission that they needed would not be forthcoming, and arranged that he buy out the share of the other. The representation was true when made but subsequently became untrue. Held that the purchase should be set aside.

There is a similar duty of disclosure uberrimae fides where (in the more usual case) the knowledge of the vendor is better than that of the purchaser19. Lord Mansfield CJ said in a case concerning the governor’s insurance against capture of Fort Marlborough in Sumatra20: Good faith forbids either party, by concealment of what he knows, to draw the other into a bargain which he would certainly avoid if the information were equal.

In the absence of fraud, breach of this duty gives rise merely to a right of rescission, but where there is fraud (such as deliberate non-disclosure), the party who suffers may recover damages in the tort of deceit21.  1 Brown and Owen v Hall (1956) 6 DLR (2d) 460; Percival v Wright [1902] 2 Ch 421; Allen v Hyatt (1914) 30 TLR 444, PC.  2 English v Dedham Vale Properties Ltd [1978] 1 WLR 93.  3 Conlon v Simms [2006] 2 All ER 1024 (reversed on other grounds [2006] EWCA Civ 1749) Lawrence Collins J reviews the earlier authorities.  4 Conlon v Simms [2008] 1 WLR 484, CA, following Bell v Lever Bros [1932] AC 161, 227.  5 Law v Law [1905] 1 Ch 140, CA per Cozen Hardy LJ at 157, citing Maddeford v Austwick (1826) 1 Sim 89; see also Sachs v Johnston (1915) 17  GLR  511 (New Zealand) and the judgment of the Supreme Court of Western Australia in Dempster v Mallina Holdings Ltd (1994) 15  ACSR  1 following Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41.  6 Law v Law [1905] 1 Ch 140, CA; Everingham v Everingham (1911) 12 SRNSW 5 (Australia).  7 Swindle v Harrison [1997] 4 All ER 705, CA.  8 Rice v Gordon (1848) 11 Beav 265.   9 Per MacFarlan JA in Trinkler v Beale (2009) 72  NSWLR at para  47, following Chan v Zacharia (1983) 154 CLR 178 and Hospital Products v Unuited States Surgical Corporation (1984) HCA 64. 10 Clark v Clark (1884) 9 App Cas 733. 11 Clark v Clark (1884) 9 App Cas 733. The sale was not set aside because an earlier action based upon non-disclosure had been compromised, and the court held that this compromise amounted to an election by the vendor not to pursue his claim for yet further non-disclosure, following Scarf v Jardine (1882) 7 App Cas 345. 12 Maddeford v Austwick (1826) 1 Sim 89; affd (1833) 2 My & K 279. 13 Sachs v Johnston (1915) 17 GLR 511, a New Zealand case.

232

Duties when a partner joins the firm or buys or sells his share 11.46 14 Charlesworth v Jennings (1864) 34 Beav 96. 15 Perens v Johnson (1857) 3 SM & G 419. 16 Tyson v Waldie [1954] 2 DLR 401 (Canada); Coles v Trecothick (1804) 9 Ves 234; in England, see Swindle v Harrison [1997] 4 All ER 705, CA; Wright v Carter [1903] 1 Ch 27. 17 Swindle v Harrison [1997] 4 All ER 705, CA. 18 (1979) 25 OR (2d) 543. 19 Conlon v Simms [2008] 1 WLR 484, CA, Spencer-Bower Turner and Sutton on Actionable Non-disclosure (2nd edn), p 196, nn 1 and 3. 20 Carter v Boehm (1766) 3 Burr 1905: see Campbell’s Lives of the Chief Justices (1849) v II p 406. 21 Conlon v Simms [2008] 1 WLR 484, CA per Parker LJ at paras 129–131, following Bell v Lever Bros [1932] AC 161, 227.

C Duty to the remaining partners as regards the transaction 11.45  There is no duty preventing a partner from buying or selling a partnership share without the knowledge or consent of his fellow partners1. He needs no consent if he is purchasing the share of an outgoing partner2, or of a partner who is dead3 or bankrupt4. The share of an individual partner is his own property and not that of the firm5.

A provision in a partnership agreement that it was not ‘in the power’ of a partner to assign his share is not interpreted as a covenant that he shall not assign it, but merely means that the firm need not treat the purchaser as having the rights of a partner6. It does not impeach the validity of the sale as between vendor and purchaser. A partner has a right to assign his share even secretly and though it leaves his fellow partners oblivious of the fact that they have lost his ‘vigilance and judgment in the partnership affairs’7. But he must explain to them the meaning of a document that they are signing if there is a danger of mistake8. 1 Cassels v Stewart (1881) 6 App Cas 64; Trimble v Goldberg [1906]  AC  494, PC; Hogar Estates Ltd in Trust v Shebron Holdings Ltd (1979) 25  OR (2d) 543, 101  DLR (3d) 509 (Ontario); and see the cases noted at para 11.1 above. 2 Law v Law [1905] 1 Ch 140, CA; Everingham v Everingham (1911) 12 SRNSW 5 (Australia). 3 Chambers v Howell (1847) 11 Beav 6. 4 Knight v Marjoribanks (1849) 2 Mac & G 10. 5 Cassels v Stewart (1881) 6 App Cas 64 per Selborne LC at 73–74. 6 Cassels v Stewart (1881) 6 App Cas 64. The case is a Scottish one but no distinction was made for that fact. 7 Cassels v Stewart (1881) 6 App Cas 64 per Lord Penzance at 78. 8 Van Heeren v Kidd [2016] NZCA 401.

D  Where no sale materialises 11.46  If no concluded agreement is reached by the negotiating parties then the property, information and other benefits they each may have received 233

11.47  The duty of good faith

must be returned. The prospective partner will hold any property that he has acquired towards the proposed agreement upon a resulting trust. He will be a constructive trustee of any secret information he may have been given in anticipation of agreement being reached, and he may not use it for his own benefit1. But he will not be entitled to restitutionary compensation for work that he may have done for the benefit of the project merely because the other party abandons the project for his own reasons2. 1 LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14; contrast Aas v Benham [1891] 2 Ch 244, approved in Boardman v Phipps [1967] 2 AC 46. There is a discussion of failed partnerships under ‘Joint Ventures’ in para 2.40ff above. 2 Per Rattee J in Regalian Properties plc v London Docklands Development Corpn [1995] 1  WLR  212 at 231, not following the Australian law as exemplified in Sabemo Pty Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880.

E Duty of continuing partners to estate of a dead partner 11.47  Where a partner has died and his personal representatives are entitled to elect whether to take a share of the profits of the firm or interest on his share under section 42(1) of the Partnership Act 1890, it is the duty of the surviving partners to disclose uberrimae fide every fact that the personal representatives might need in order to enable them to decide which course to pursue1. 1 Clements v Hall (1858) 2 De G & J 173 at 188 per Lord Cranworth LC.

234

12 Internal management Contents

para 1 Management and decision-making within the firm A Decision-making generally���������������������������������������������������������12.1 B Decisions that can only be taken by the partners unanimously���12.2 C Decisions that may be taken by a majority���������������������������������12.6 D The right of a single partner to act in the management�������������12.11 E The management committee�����������������������������������������������������12.12 F Gardening leave and exclusion from participation�������������������12.13 G Salaried partners and employees�����������������������������������������������12.14 2 Accounts, profits and financial management A Taxation and account keeping��������������������������������������������������12.19 B Remuneration, profits and losses����������������������������������������������12.24 C A partner’s right to indemnity from the firm����������������������������12.33

1 MANAGEMENT AND DECISION-MAKING WITHIN THE FIRM A Decision-making generally  12.1 B Decisions that can only be taken by the partners unanimously   12.2 C Decisions that may be taken by a majority   12.6 D The right of a single partner to act in the management   12.11 E The management committee   12.12 F Gardening leave and exclusion from participation   12.13 G Salaried partners and employees   12.14

A  Decision-making generally 12.1  An outsider is entitled to hold the firm liable on any act of any partner ‘for carrying on in the usual way business of the kind carried on by the firm’1. 235

12.2  Internal management

But this does not mean that within the firm every partner always has authority to bind the firm in this way. Every firm that has a substantial business or has more than a dozen partners must have a management structure that should be outlined in the partnership agreement2 but will be defined by the practice of the firm: all rules of internal management yield to express or implied contrary agreement between the partners3. Section 24 of the Partnership Act 1890, which sets out some rules as to the rights and duties of the partners between themselves, commences with the statement that it is the agreement between the partners that prevails: The interests of partners in partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement express or implied between the partners …

Even a written partnership agreement may be varied by implication arising merely from the manner in which the firm carries on its business4. Section 19 of the Partnership Act 1890 provides: The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all the partners, and such consent may either be express or inferred from a course of dealing.

The firm should therefore agree, preferably in its partnership agreement: (a) what management powers are to be vested in which members, and particularly in what senior or managing partner or management committee (who are otherwise given no specific powers by the Act); (b) what powers are vested in a majority at a partners’ meeting, either voting equally or on a weighted basis according to their capital or profit share or seniority or usefulness; (c) whether there should be a partner to head every division within the firm, or a management committee, and if so what their powers should be; (d) In what circumstances a minority of partners may requisition a partnership meeting. In the absence of agreement the question may arise what decisions within the firm must be taken unanimously, and what can be taken by a majority, by a particular partner or by a particular employee. 1 2 3 4

See the Partnership Act 1890, s 5; discussed in Chapter 19. The need for a written agreement is discussed at para 7.1 above. See the Partnership Act 1890, ss 19 and 24; quoted below. Variation is discussed further at para 7.21ff above.

B Decisions that can only be taken by the partners unanimously (a)  Unanimity generally 12.2  On any internal matter the unanimous decision of the partners is of course binding: it is the decision of the firm. Individual partners can only do 236

Management and decision-making within the firm 12.4

the acts mentioned below if they are authorised to do so by the partnership agreement or by the members unanimously. But if the majority makes plain its intention and ‘clearly and distinctly bring this to the knowledge’ of another who does not protest, he will be held to have acquiesced in the proposal1. 1 See Hurst v Bryk (11 April 1995, unreported at first instance, discussed at para 12.12 below); Natusch v Irving (1824) 2 Coop temp Cott 358; Gregory v Patchett (1864) 33 Beav 595.

(b)  Change in the business 12.3  There can be no change in the nature of the business unless the partnership agreement provides for this or all the partners agree. Section 24(8) of the Partnership Act 1890 provides: … subject to any agreement express or implied between the partners … (8) … no change may be made in the nature of the partnership business without the consent of all existing partners.

So a single partner can veto the intention of the others to take the firm into another area of business, and similarly to sell the whole existing business1. In Natusch v Irving2 the six partners ran a life assurance business. Held that no majority, even five to one, could compel the firm to diversify into marine insurance, and the burden was on the majority to establish such consent.

The liability of the firm for the acts of a partnership acting within the scope of the firm’s business is discussed in Chapter 19; in that context what matters is not what the partners agree that the business is, but what it actually is or what it appears to outsiders to be. 1 Chapple v Cadell (1822) Jac 537. 2 (1824) 2 Coop temp Cott 358, cited by Lord Atkin in Hole v Garnsey [1930] AC 472 at 494.

(c)  Admission of a new partner 12.4  The effect of the admission of a new partner is to construct a new firm or to reconstruct the firm with different membership, and this may not be done without the consent of all the existing members, save where the partnership agreement lays down a different machinery for the introduction and save in the exceptional circumstances mentioned at para  7.23ff above where this subject is discussed. Section 24(7) of the Partnership Act 1890 provides: … subject to any agreement express or implied between the partners … (7) No person may be introduced as a partner without the consent of all existing partners.

A partner may assign his share in the partnership, but this does not make the assignee a partner1. However, if the old partners and the incomer find 237

12.5  Internal management

themselves carrying on business in common with a view of profit, he will be a partner with them whatever they may have agreed2. 1 Bray v Fromont (1821) 6 Madd 5; the rights of an assignee are discussed at para 10.11 above. 2 See the Partnership Act 1890, s 1(1), discussed at para 2.12ff above.

(d) Matters that are not ‘ordinary’ ones connected with the business 12.5  The Act1 gives to a majority the right to decide any difference as to ordinary matters connected with the partnership business, as discussed in the next section of this chapter. Issues which do not fall within that category must be decided unanimously. They are most notably: (a) the terms of the partnership agreement2; (b) the proportions in which the partners share profits, losses and capital3; (c) the duration of the firm4; (d) in matters on which the partnership agreement requires unanimity. 1 See the Partnership Act 1890, s 24(8). 2 See Chapter 7. A partnership agreement (even oral) is a contract between the members which cannot be varied by a mere majority against the wishes of a single member, a principle as applicable to a partnership of 600 as to a partnership of six (Natusch v Irving (1824) 2 Coop temp Cott 358). 3 See para 12.24 below. 4 See para 7.4ff above.

C  Decisions that may be taken by a majority (a)  The firm and its majority 12.6  It has been mentioned earlier in this chapter that the partners acting unanimously can determine and vary all their mutual rights, duties and interests in the partnership, whether established by agreement or defined by the Act. They can accordingly regulate the powers of a single member or a majority of their number, and can define whether ‘majority’ means majority by number or by relative weight in capital or profit share. This is an important function of the partnership agreement. If the agreement is silent, ambiguous or non-existent then most disputes relating to the business can be resolved by a majority under section 24(8) of the Act which will be considered next. If there is an equal division of votes and no mechanism in the partnership agreement for a casting vote, then the proposal in question will fail1. If there is deadlock in the firm the court may appoint a receiver2 or dissolve the firm3. The individual partner is intended by the Act4 to bear the ordinary management of the business of the firm as is mentioned below5; only when a ‘difference’ occurs does the question arise whether a majority may resolve it. 238

Management and decision-making within the firm 12.9 1 2 3 4 5

Harris v Black (1983) 46 P & CR 366. See Harman J in Re a Company (No 00596 of 1986) [1987] BCLC 133 and para 15.38ff below. See para 17.24 below. Ie the Partnership Act 1890 which is included as Appendix A below. See para 12.11 below.

(b)  Ordinary matters connected with the partnership business 12.7  Section 24(8) of the Partnership Act 1890 provides: … subject to any agreement express or implied between the partners … (8) Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners …

(i) ‘Business’ 12.8  A majority can only decide a disagreement within the firm under this section if the disagreement relates to the ‘business’. Differences on matters which relate not to the partnership ‘business’ but to what the Act calls ‘partnership affairs’1 must be agreed unanimously; ‘affairs’ are such matters as the partners’ own profit shares or their proprietory rights in the firm, but not such a question as whether to terminate a partner’s management agreement2. So a disagreement about the form or content of the partnership accounts may (in the absence of contrary agreement) be decided by a majority if the issue relates to the business accounts but not if it relates to the partners‘ relations between themselves. 1 See the Partnership Act 1890, s 38. 2 Hartin v Hunter (1996) AILR 4376 (NSW SC).

(ii)  ‘Ordinary matters’ 12.9  What may be ‘ordinary matters connected with the partnership business’1 will vary from firm to firm and little help is to be derived from old authorities2, which may be positively misleading. Two examples may be given: In Beveridge v Beveridge3 the House of Lords held that a majority of three out of four partners could not authorise the manager of a business to sign cheques in the firm name. In Highly v Walker4 two out of the three partners wished to employ the son of one of them in the firm; the third partner objected. Held that the majority prevailed because this was an ‘ordinary matter’.

Each of these cases might now be decided differently because what is such an ‘ordinary matter connected with the partnership business’ must depend upon the present practice of the particular firm5. 239

12.10  Internal management 1 See the Partnership Act 1890, s 24(8), quoted above. 2 On a similar point Staughton LJ in United Bank of Kuwait v Hammoud [1988] 1 WLR 1051 wisely observed at 1063 that ‘elderly cases … showing what types of transaction are or are not within the ordinary authority of a solicitor … should be treated with caution’. See further on this para 19.11 below. 3 (1872) LR 2 Sc & Div 183, HL (Scotland). 4 (1910) 26 TLR 685. 5 By contrast a creditor seeking to bind the firm by the act of a partner apparently acting within the scope of the business of the firm will be concerned with what the business appears to be, which is a different question, discussed at para 19.10 below.

(c)  The majority oppressing a minority 12.10  It is the corollary of the partner’s right to take part in the management, mentioned below, that the majority must disclose all relevant information to him1 and must allow him a reasonable chance to be heard2 on matters of disagreement3. He should be notified of any meeting at which he is entitled to vote4. Although the majority can outvote a minority as mentioned above, the majority still owes a duty of good faith to the minority5; this duty does not prevent it outvoting the minority after reasonable discussion6, and the rights of the minority will soon be lost by acquiescence7. The mere fact that a minority partner is outvoted does not amount to oppression8. A large partnership should have a liaison partner to guard the interests of those partners who have the least management responsibility. 1 Tyson v Waldie [1954] 2 DLR 401 (Canada); see further para 11.15ff above. 2 Mullins v Laughton (2003) Ch  250 at 274, 275; Abbatt v Treasury Solicitor (1969) 1 WLR 1575; Russell v Russell (1880) 14 Ch D 471, but only if he is available: Smart, Donkin & Co (1870) 2 QSCR 66 (Australia). 3 Great Western Rly Co v Rushout (1852) 5 De G & Sm 290. As to his right to be heard on the question of his own expulsion see para 16.43 below. 4 Hanlon v Brookies (1997) 15 ALC 1626 (Vic SC CA). 5 Blisset v Daniel (1853) 10 Hare 493, referred to by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 381 and by Lord Hoffmann in O’Neill v Phillips [1999] 1 WLR 1092 at 1100D. In Const v Harris (1824) Turn & R 496 Lord Eldon put it high when he said: ‘I call that the act of all, which is the act of the majority, provided all are consulted, and the majority are acting bona fide, meeting not for the purpose of negativing what anyone may have to offer, but for the purpose of negativing what, when they are met together, they may, after due consideration, think proper to negative’. The duty of good faith is discussed at Chapter 11. 6 Wall v London and Northern Assets Corpn [1898] 2 Ch 469, CA. 7 See observations of Carnwath J in Hurst v Bryk at first instance quoted in para 12.12 below, and Abbatt v Treasury Solicitor [1969] 1 WLR 1575; Gregory v Patchett (1864) 33 Beav 595; Natusch v Irving (1824) 2 Coop temp Cott 358. 8 PWA  Corpn v Gemini Group Automated Distribution Systems Inc (1993) 103  DLR (4th) 609, Ont CA; Mullins v Laughton [2003] Ch 250 at 275. For variation in the partnership agreement see para 7.21 above.

D The right of a single partner to act in the management 12.11  Often a partnership agreement will require a partner to devote his whole time and attention to the partnership business1, subject to provision for holidays, 240

Management and decision-making within the firm 12.12

and this may be implicit. Or it may be agreed that a partner will take little or no part in the management of the firm, or manage a certain part only2; if he takes no part he is a ‘sleeping’ partner. But in the absence of contrary agreement it is the right of every partner to participate in the management of the business3. How he may be excluded is discussed at para 12.13 below. What his ostensible authority may be, as regards outsiders, is considered at para 19.1ff below. Subsections 24(5) and (9) of the Partnership Act 1890 provide: … subject to any agreement express or implied between the partners … (5) Every partner may take part in the management of the partnership business … (9) The partnership books are to be kept at the place of business of the partnership (or the principal place, if there is more than one), and every partner may, when he thinks fit, have access to and inspect and copy any of them.

The Act gives the management powers (in the absence of agreement to the contrary) to all of the partners equally: In Donaldson v Williams4 one of two partners regularly dismissed a certain employee, and the other as regularly reinstated him. Held that each was within his rights. In Clements v Norris5 two partners were in partnership for a fixed term at such premises as they should agree, and they expanded into the business of ironfounders, taking a lease for this purpose. When the lease expired (still within the originally agreed partnership term) one refused to agree its renewal, with the consequence that there was no ‘agreed’ premises for the business. Held that the business must cease because one partner could not require it to be continued without consent by the other as to the premises.

A partner in breach of his partnership agreement may forfeit his right to work and be compelled to endure his notice period in idleness6. The partners may delegate to a partner, especially a senior or managing partner, powers which are wider than those he would otherwise have. He may be given sole authority to sign cheques, dismiss employees and even to expel partners or to pay the firm’s money into his own account. But without the further authority of the firm, he cannot delegate the power that the firm has given him7. 1 A failure to comply with his obligation to do his work may result in a financial allowance being made against him: Airey v Borham (1861) 29 Beav 620 discussed at para 12.24 below. 2 Smith v Mules (1852) 9 Hare 556. 3 Rowe v Wood (1822) 2 Jac & W 553; Peacock v Peacock (1809) 16 Ves 49 at 51. 4 (1833) 1 Cr & M 345. 5 (1878) 8 Ch D 129, CA. 6 According to the analogous agency case Standard Life Health Care v Gorman [2010] IRLR 233, CA following SG & R Valuation Service v Boudrais [2008] IRLR 770, HL. For garden leave, see para 12.13 below. 7 Re Robinson and Farrand, ex p Holdsworth (1841) 1 Mont D & De G 475, Ct of R.

E  The management committee 12.12  Management is often delegated to a management committee1 and the right of an individual to take part in the management of the business will 241

12.13  Internal management

then be restricted. Such delegation requires the unanimous resolution of the firm, which may be express as when effected by the partnership agreement or implied as when evidenced by the practice of the firm. In Hurst v Bryk the management committee made a decision outside the ambit of its express authority. Carnwath J held2: Any partner who was unhappy with such a decision could bring it up at a partners’ meeting … Acquiescence, in the affairs of a partnership or a company, may be inferred from failure to object at the appropriate time. 1 As in Voaden v Voaden [1997] CLY 3873, discussed at para 12.13 below. 2 At first instance, Carnwath J  (11  April 1995); citing Lord Denning in Abbott v Treasury Solicitor [1969] 1 WLR 1575 at 1583. See also Houldsworth v Evans (1868) LR 3 HL 263.

F  Gardening leave and exclusion from participation 12.13  ‘Gardening leave’ means requiring a partner to stay away from the business but keep his full profit share; it is an expensive course for his other partners to take. When the firm is not in dissolution but the relationship with a certain partner has broken down, especially when he is under notice to leave, nothing can be done to prevent him from attending the office as usual1, unless: (a) he is actively breaking his partnership obligations, in which case the firm may be justified in locking him out or excluding him by injunction2; or (b) the partnership agreement confers management powers on a senior partner or management committee of the firm, which are wide enough to require a partner to work only at a certain place or time or not at all3. In Voaden v Voaden4 a firm of 80 partners had a management board with no specific power to impose ‘garden leave’. A partner had given notice of retirement. Lindsay J said that for the board to exclude him from the premises might be wrong, but: I see no problem in the board requiring him, for example, not to mention his intending retirement to any clients other than in the terms and in cases agreed with the board and not to mention to clients his intention to practise on his own account and to work out his notice under the supervision of some delegated partner so as to introduce continuing partners to the clients with whom he has been dealing … without there being poaching for his next practice.

The injunctions that the partners might obtain are discussed at para 15.31 below. 1 Because the Partnership Act 1890, s 24(5), gives him the right to take part in the management of the business, subject to express or implied agreement to the contrary, see para 12.11 above and William Hill Organisation Ltd v Tucker [1999] ICR 291, an employment case, following Langston v AUEW (No  2) [1974]  ICR  510; contrast Voaden v Voaden [1997]  CLY  3873 discussed in the text. 2 Green v Howell [1910] 1 Ch 495; Standard Life Health Care v Gorman [2010] IRLR 233, CA following SG & R Valuation Service v Boudrais [2008] IRLR 770, HL; contrast Anon (1856) 2  K & J  441 where the mere fact that a partner had temporarily gone mad from overwork was held to be no ground for excluding him.

242

Management and decision-making within the firm 12.14 3 The partnership agreement will thereby exclude s 24(5) mentioned at para 12.11 above. In Crédit Suisse Asset Management Ltd v Armstrong [1996]  ICR  882 it was unsuccessfully argued that a garden leave provision in an employment contract affected the post-employment restrictive covenants. 4 [1997] CLY 3873, Ch D.

G  Salaried partners and employees (a)  Salaried partners 12.14  The firm may delegate powers of management to any of its employees on ordinary employment and agency principles. The phrase ‘salaried partner’ should be avoided because it has no single meaning and its use creates confusion. As Megarry J observed in Stekel v Ellice1: It seems to me impossible to say that as a matter of law a salaried partner is or is not necessarily a partner in the true sense. He may or may not be a partner, depending on the facts. What must be done, I think, is to look at the substance of the relationship between the parties.

The expression ‘salaried partner’ is used loosely to describe a person who is less than a full profit-sharing or ‘equity’ partner because he is one or other of the following: (a) an employee who is not a partner but who is described as a partner to enhance his own status or that of the firm. As he allows himself to be held out as a partner, he suffers the liabilities of a partner as described in Chapter 5. For this position he is deserving of sympathy; (b) a true partner who receives all or most of his remuneration in the form of a salary rather than a simple share of profits2. Whether he is a true partner will be decided according to whether his agreement with the firm leans rather towards an agreement for partnership rather than an employment agreement3, and whether his relationship with the firm satisfies the other requirements of partnership considered at Chapter 2. The mere fact that he is called an ‘equity’ partner or ‘salaried’ partner is not of itself decisive, although the usual modern meaning of the latter term is in the first of the two senses given above4. Even if he is only an employee he owes duties of good faith to his employers5 which are akin to some of those of a partner: In Casson Beckman & Partners v Papi6 a salaried partner in an accountancy firm took office as receiver and liquidator of various companies. Held he was accountable to his employers for his fees, less an allowance for his reasonable remuneration; the receivership and liquidation papers were his own, but his working papers belonged to his employers.

If he is an employee he is entitled to a full indemnity from the partners for any firm liability (such as its overdraft) upon which he may be liable7; if he is a partner he is merely entitled to a contribution from the other partners. An 243

12.15  Internal management

employee of the firm is in turn liable to indemnify the firm for any loss he may cause to it8. 1 [1973] 1 All ER 465 at 473d after reviewing the authorities. 2 Stekel v Ellice [1973] 1 All ER 465; Nationwide Building Society v Lewis [1997] 3 All ER 498 and [1998] Ch 482, CA; Re Hill [1934] Ch 623. 3 Stekel v Ellice [1973] 1 All ER 465. 4 Nationwide Building Society v Lewis [1998] Ch 482, CA. 5 Finlayson v Turnbull 1997 SLT 613. 6 [1991] BCC 68, CA. 7 Re Famatina Development Corpn Ltd [1914] 2 Ch  271, CA, Lord Cozens-Hardy MR referred, at 282, to: ‘the well settled rule that an agent had a right against his principal, founded upon an implied contract, to be indemnified against all losses and liabilities, and to be reimbursed all expenses incurred by him in the execution of his authority’. 8 Semtext Ltd v Gladstone [1954] 1 WLR 945.

(b) Employees (i)  Employment protection 12.15  If a person is an employee rather than a partner he is entitled to the benefits of the employment protection legislation which a partner is not.

(ii)  Tax disadvantages of employee status 12.16  If a person is an employee rather than a partner, his employers are liable for National Insurance contributions. He himself is liable for class 1 contributions rather than class 2 and class 4 contributions, of which the latter are eligible for 50 per cent income tax relief. His income tax will be due monthly under PAYE rather than twice-yearly under Schedule D.

(iii) Indemnity 12.17  The right of an employee to an indemnity from the firm is mentioned at para 12.14 above.

(c)  Those who are neither partners nor employees 12.18  A person working in a firm may be neither a partner nor an employee. He may be self-employed or a subcontractor or the employee of an outside contractor or an agency1, each of whose contractual positions will be different. 1 SP Bunce v Postworth Ltd [2005] EWCA Civ 490.

244

Accounts, profits and financial management 12.20

2 ACCOUNTS, PROFITS AND FINANCIAL MANAGEMENT A Taxation and account keeping   12.19 B Remuneration, profits and losses   12.24 C A partner’s right to indemnity from the firm   12.33

A  Taxation and account keeping (a)  Accounts generally 12.19  Partners have a duty to HMRC and to each other to keep proper accounts1. Partnership law itself does not require the partners to adopt any particular accounting policy or to file accounts save as is mentioned in the next paragraph, but the firm’s own needs require that their accounts show at least: (a) what property and liabilities are those of the firm and what are those of each partner; (b) what are the profits or losses of the firm; (c) what sums each partner has advanced to the firm and what is his capital. Solicitors, stockbrokers and most other professions also have accounting requirements of their own which need not be stated here. The partner’s duty to account is discussed at para  11.15ff above, and disputes relating to partnership accounts are discussed at para  14.18ff and manifest errors at 14.42 below. The form of the accounts should be that of the usual practice of the firm2 (unless positively misleading3) and even if this departs from the terms of the partnership agreement4. But in practice the current requirements of tax authorities often decide the matter. Dissolution and retirement accounting is discussed in Chapter 18. 1 See the Partnership Act 1890, s 28; the obligation to the other partners is discussed at paras 11.16ff above and 14.18ff below. 2 Garwood v Garwood (1911) 105  LT  231; Watney v Wells (1862) 1 New Rep 82; Binney v Mutrie (1886) 12 App Cas 160, PC; Browne v Collins (1871) LR 12 Eq 586; Re Barber (1870) 5 Ch App 687; Coventry v Barclay (1863) 33 Beav 1; on appeal (1864) 3 De GJ & Sm 320. 3 Noble v Noble 1965 SLT 415. 4 Because the variation in practice implies a variation in the partnership agreement; Coventry v Barclay (1863) 2 DJ&Sm 320; Jackson v Sedgwick (1818) 1 Swan 460.

(b) Accounts of partnerships comprising only corporate partners or a mixture of individual and corporate partners 12.20  Generally firms, unlike companies, need not file accounts. Exceptional are ‘qualifying partnerships’ composed entirely of corporate members1, other 245

12.21  Internal management

than those which already file group accounts in a certain approved form2. Under the Partnerships (Accounts) Regulations 20083, the members of a qualifying partnership are required to prepare audited accounts in statutory form within nine months of the end of the financial year4. These must then be appended to the member’s own annual accounts and delivered to the Registrar of Companies5 with certain additional information. In the case of certain foreign entities they must also be available for inspection at the firm’s head office in the UK6. The Regulations, which were introduced to implement certain Council Directives7, are naturally not simple, but are set out in full in Appendix E below for the benefit of the interested reader. Where the firm has a partner which is a company or trust, HMRC has power to re-allocate the profits between the partners where it is thought that the allocation to the individual partners is too low8. 1 See the Partnerships (Accounts) Regulations 2008, SI 2008/569, reg 3. 2 See the Partnerships (Accounts) Regulations 2008, SI 2008/569, reg 7. 3 SI  2008/569, as amended by the Companies and Partnerships (Accounts and Audits) Regulations 2013, SI 2013/2005, the LLPs, Partnerships and Groups (Accounts and Audits) Regulations 2016, SI 2016/545, and the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016, SI 2016/1245. 4 See the Partnerships (Accounts) Regulations 2008, SI 2008/569, reg 4(3). 5 See the Partnerships (Accounts) Regulations 2008, SI 2008/569, reg 5(1). 6 See the Partnerships (Accounts) Regulations 2008, SI 2008/569, reg 6. 7 Council Directive 90/605/EEC amending previous directives and Directive 2006/43/EC. 8 Finance Act 2014 s  74 and Sch  17, Income Tax (Trading and Other Income) Act 2005, s 850(c).

(c)  Accounting conventions of the firm 12.21  In the absence of agreement, current approved accounting practice will prevail. The courts treat compliance with published professional standards as strong evidence that the accounts in question present a true and fair view1. The firm’s accountants should agree with the partners and HMRC as to how work in progress should be treated in the accounts2, and whether a figure for goodwill3, stock and bad debts should be included. The capital assets must be agreed and shown in the opening and successive balance sheets of the firm4. Partners will usually charge against profits the depreciation on plant and machinery5. Tacitly the partners will usually accept the usual form of accounts acceptable to HMRC6 as decisive of the practice of the firm which will then be binding on them except: (a) where what appears in the accounts is what their accountant has dreamt up rather than what they have agreed7; or (b) where the accounting convention of the firm infringes the right of every partner to have proper accounts drawn8; or (c) where there is agreement that the position for tax purposes will not be the same for internal purposes9. The accounting conventions of the firm, even if specified in the partnership agreement, may be varied by unanimous agreement or implication from 246

Accounts, profits and financial management 12.22

conduct, and in particular by the partners tacitly adopting a new accounting practice. For such implied variation see para 7.22 above. A simple majority may be able to agree the variation under the partnership agreement or under section  24(8) of the Partnership Act if the matter is an ‘ordinary matter connected with the partnership business’, which it will probably not be if it affects the position of the partners between themselves. Where a new accounting standard is adopted by the firm’s accountants and accepted by the partners signing the accounts, the new basis will become the firm’s accounting basis, although it may not bind the valuation of a departing partner’s share, as discussed in para 18.35 below. What are profits is considered at para 12.26 below. Provision for a partner to be deemed to accept the accounts is discussed at para 14.34 below. Self-assessment has removed the statutory requirement for partnership tax to be assessed in one sum, because a partnership is not regarded as an entity for tax purposes10.  1 Macquarie Internationale Investments Ltd v Glencore UK Ltd [2010] EWCA Civ 697.   2 It was once said that profits should be calculated on a cash basis and should not include work in progress, but of course this is subject to agreement to the contrary, which will be implied if the accounts follow the form acceptable to HMRC: such accounts will not be on a ‘cash’ basis today. See Maclaren v Stainton (1861) 3 De GF & J 202 at 214; J P Hall & Co Ltd v IRC [1921] 3 KB 152 and para 12.26 below.  3 Stewart v Gladstone (1878) 10 Ch D 626.   4 In Scotland a partner may require that the capital assets of the firm are properly valued notwithstanding past practice: Noble v Noble 1965 SLT 415.  5 Rishton v Grissell (1868) LR 5 Eq 326 where the depreciation on the lease was allowed as a deduction against profits.   6 See para 12.26 below.  7 Barton v Morris [1985] 1  WLR  1257; Cf Miles v Clarke [1953] 1  WLR  537; Powsey v Armstrong (1881) 18 Ch D 698.  8 Thus in Scotland a partner can require a proper valuation of the firm’s capital assets notwithstanding a practice to the contrary: Noble v Noble 1965 SLT 415, and an auditor’s certificate based upon a mistaken interpretation of a written instrument was held not binding by Goulding J in Smith v Gale [1974] 1 All ER 401, following Frank H Wright (Constructions) Ltd v Frodoor Ltd [1967] 1 All ER 433.  9 Kent v British Railways Board [1995]  PIQR Q42, CA, doubting Anderson v Davies [1993] PIQR Q87. 10 Income Tax (Trading and Other Income) Act 2005, s 848.

(d)  Capital and current accounts and interest 12.22  In the absence of agreement to the contrary, a partner is not entitled to interest on either his capital account or his current account with the firm (as opposed to ‘advances’ he may make for the firm’s purposes, considered in para 12.23 below). The meaning of a current account, and its difference from a capital account, is discussed at para 9.5 above, and the meaning of partnership capital, the firm’s capital and a partner’s capital account, in para 9.2 above. If a partner for no consideration contributes capital in the form of money or an asset such as a business, a farm or a car to the firm, either at its commencement or subsequently, then the partners must either agree that it is 247

12.23  Internal management

to remain his property or that it becomes the property of the firm and its value credited to the partner’s capital account. The capital of the firm is the total of these capital accounts and is discussed at para 9.1ff above. In the unlikely event that they agree nothing (even implicitly) as to their respective interests in capital they are said to have advanced it equally1, for section 24(1) of the Partnership Act 1890 provides: … subject to any agreement express or implied between the partners … (1) All the partners are entitled to share equally in the capital and profits of the business …

A partner may not withdraw his capital from the firm without his partners’ consent, but other advances that he has made to the firm may be withdrawn by him unless he has agreed to the contrary. All capital advances by a partner to the firm ought to be treated in the accounts differently from current account advances and notional advances from partners to the firm which are created daily in any business, for instance by a partner paying a partnership debt or failing to draw his petty cash or the whole of his entitlement to profits2. Each partner should be shown in the balance sheet as having a separate capital account and current account. Too often there is only a single item in the balance sheet for each partner which is called ‘Capital account’, to which undrawn profit is added every year3. This results in a partner’s capital account fluctuating from year to year without the consent of the other partners, which may be undesirable especially if the partners never appreciate the consequence of the accounting practice that they have adopted. 1 But as to this see para 9.9 above. 2 See para 9.4 above. The reason why a partner’s capital is to be distinguished from his advances to the firm is because the Partnership Act 1890, s 44 requires that on dissolution the two are given different priority. 3 See para 9.6 above.

(e)  Interest on advances to the firm 12.23  Without agreement, a partner is not entitled to interest on his capital account, as mentioned in para 9.7 above. But if a partner makes a cash advance to the firm, as opposed to either an increase in his capital, or perhaps a mere notional advance such as when he fails to draw the whole of his profits1, then he is entitled2 (in the absence of contrary agreement) to interest at five per cent3 under section 24(3) of the Partnership Act 1890: … subject to any agreement express or implied between the partners … (3) A partner making, for the purpose of the partnership, any actual payment or advance beyond the amount of capital which he has agreed to subscribe is entitled at the rate of five per cent per annum from the date of the payment or advance.

The reasoning is that a partner’s capital is what he has agreed to contribute, and he is rewarded for it by his profit share, whereas ‘advances’ have been 248

Accounts, profits and financial management 12.24

contributed because the firm has required it, beyond his call of duty, so he should be entitled to recompense for it. In fact this provision is seldom invoked because contrary agreement between the partners is usually implied from the accounting practice of the firm4. 1 Dinham v Bradford (1869) 5 Ch App 519, LC: Klaue v Bennett (1889) 62  DLR (4th) 369, for which reference I am grateful to my friend D K L Raphael. Contrast this with the wider meaning of the word ‘advances’ in the Partnership Act 1890, s  44(b)2, discussed at para 18.56 below. 2 Wood v Scoles (1866) 1 Ch App 369. 3 Or such other rate as the partners may have agreed expressly or inferentially from the custom of the trade (Bate v Robbins (1863) 32 Beav 73) or the practice of the firm (Re Magdalena Steam Navigation Co (1860) John 690). 4 Once there was an equitable jurisdiction to disallow such interest, for instance where the partner had kept the books so badly that there was delay in ascertaining the balance, Boddam v Ryley (1783) 1 Bro CC 239, but it is questionable whether such jurisdiction survived the Partnership Act 1890, which makes no mention of it.

B  Remuneration, profits and losses (a)  A partner’s remuneration 12.24  Section 24(6) of the Partnership Act 1890 provides: … subject to any agreement express or implied between the partners … (6) No partner shall be entitled to remuneration for acting in the partnership business.

The court has no jurisdiction to award a partner remuneration1, at least until after dissolution where different rules apply2. His profit share is his remuneration for his work, so he does not receive any other payment for what he does for the firm unless agreement3 or the convention of the firm is to the contrary4. In Robinson v Anderson5 two solicitors were employed jointly by the same client and thereby constituted themselves partners as regards the project. They performed unequal amounts of work. Held that they were entitled to an equal amount of the joint fees, irrespective of the amount of work that each did.

Contrast where a partner is in breach of his partnership obligation by failing to do the work he is meant to do: In Airey v Borham6 there had been an agreement that each should devote their whole time to the partnership; one had not done so, and an enquiry was ordered as to what was proper to be allowed to the other in respect of the business having been exclusively conducted by him.

Such an allowance may be given if his non-attendance is involuntary, for instance if he is sick, but not if it is caused by his partners’ fault, for instance if they wrongfully excluded him from the business. Allowances may also be 249

12.25  Internal management

given after dissolution7 or if one partner has been appointed receiver of the business8. If contrary to the general rule the firm has expressly agreed that one partner will receive a so-called ‘salary’ (really a fixed prior share of profits), that arrangement ceases upon dissolution9. 1 Medcalf v Mardell [2000] EWCA Civ 63, not following O’Sullivan v Management Agency and Music Ltd [1985] QB 428.Similarly a claim to remuneration for ‘unjust enrichment’ will fail: Smith v Crawshay [2019] EWHC 2507 (Ch) at [66]. 2 After dissolution an allowance may be made to him in the rather narrow circumstances mentioned at para 18.11 below. 3 Miller v Mackay (No  2) (1865) 34 Beav 295, distinguished in Hancock v Heaton (1874) 30 LT 592. 4 Hutcheson v Smith (1842) 5 I Eq R 117 (Ireland). 5 (1855) 20 Beav 98. 6 (1861) 29 Beav 620. See also Robinson v Anderson (1855) 20 Beav 98 and Webster v Bray (1849) 7 Hare 159. 7 For allowances after dissolution see paras 18.9 and 18.7 below. 8 Harris v Sleep [1897] 2 Ch 80; see para 15.38ff below. 9 Tibbits v Phillips (1853) 10 Hare 355. The distribution of profits after dissolution is discussed in Chapter 18.

(b)  Implied agreement 12.25  An agreement that a partner is to have additional remuneration beyond his profit share will usually only be inferred if this is the practice of the firm known to all the partners1. In New Zealand a claim to remuneration has succeeded where the claimant had been led to believe (under an agreement too vague to be enforced) that he was to be remunerated2, but it is very doubtful whether such a claim could succeed in England3. Agreement may also be inferred from custom of the trade4, but not merely because one of the partners is working harder5 or is using his professional qualifications to aid the firm. In Holmes v Higgins6 one of a partnership of railway promoters was the surveyor, but he failed to obtain an order for fees from his partners for his work in connection with the scheme; in Milburn v Codd7 an attorney was a member of a firm (comprising the members of a dissolved company) and his fees for defending claims against the firm were disallowed; and in Whittle v M’Farlane8 those partners who collected the debts of the firm were not allowed commission on the debts. 1 Barratt v Hartley (1866) LR 2 Eq 789. 2 Perrott v Perrott (1911) 31 NZLR 6; 3 Smith v Crawshay [2019]  EWHC  2507 (Ch) at [66], following Medcalf v Mardell [2000] EWCA Civ 63 at 81, mentioned in the last paragraph. 4 Hutcheson v Smith (1842) 5 I Eq R 117 (Ireland). 5 Joyce v Morrissey [1999] EMLR 233, CA; Medcalf v Mardell [2000] EWCA Civ 63. 6 (1822) 1 B & C 74, applied in Lucas v Beach (1840) 4 Jur 631; distinguished in Day v Sharp (1846) 7 LTOS 62; followed in Wilson v Viscount Curzon (1847) 15 M & W 532. 7 (1827) 7 B & C 419. 8 (1830) 1 Knapp 311.

250

Accounts, profits and financial management 12.26

(c)  What are profits and losses? 12.26  What ‘profits’ means depends upon the nature of the business, but it is only possible to compute profits ‘after setting against the receipts the expenditure necessary to earn them according to the ordinary principles of commercial accounting’1. They are the amount of the excess of actual income over expenses for a given period, without regard for any unusual accounting method or taxation2. Realised capital gains may be included where the business deals in shares3. It was once said that in the absence of agreement, profits should be ascertained according to the actual receipts and payments made in the year of accounting regardless of when the work was done4, but this view is seldom now correct in that modern accounts will include work in progress which has not yet yielded cash, and may make provision for sums not yet payable5. Profits are still profits and distributable even though the capital of the business is being lost6 and even though the capital loss is borne by the partners in proportion to their profit shares7. Lord Bramwell stated8: A sole trader with a capital of £10,000, who makes in a year a profit of £2,000 and spends £1,000 only, leaving the other £1,000 in his business, may well in the next year be said to have a capital of £11,000; not so when there is a partnership, whether an ordinary partnership or an incorporated partnership. There the undivided profits of any period, a year, or shorter or longer time, continue to be undivided profits unless something in the articles of partnership or some agreement by all the partners makes them capital. They do not become capital by effluxion of time or by their being used in the trading.

Partnership trading profits and losses are conceptually quite different from partnership assets and liabilities9: The two things are entirely different. A loss, like a profit, is an accounting measure of the firm’s performance over a given period. Liabilities, like assets, vary from day to day. Just as you do not make a profit by acquiring an asset, so you do not sustain a loss by incurring a liability … The incurring of the loss bears no necessary relationship to the discharge of the debts and the obligations of the firm, far less to their discharge out of capital …

How profits should be ascertained is a matter of accountancy10, the account to be ‘framed consistently with the ordinary principles of commercial accounting’11. In the absence of agreement to the contrary, credit may be given for improvements to property by the firm12, and deduction made for such matters as business entertainment even though this is not allowed for tax purposes, but there are slight differences between those accounts prepared for HMRC purposes and those prepared for an outgoing partner’s departure, as mentioned in para 12.27 below. The phrase ‘business … with a view of profit’ in s 1(1) of the 1890 Act is considered further at para 2.16 above.   1 Per Lord Templeman in Beauchamp v Woolworth plc [1990] 1 AC 478 at 489 following Lord Herschell in Gresham Life Ass Soc v Styles [1892] AC 309 at 323.  2 Ingenious Games LLP v Revenue and Customs Commissioners [2019] UKUT 226 (TCC) at para 302.

251

12.27  Internal management  3 Re Spanish Prospecting Co Ltd [1911] 1 Ch 92, CA.  4 Badhams v Williams (1902) 86 LT 191. For a manufacturing case see Peter Pan Manufacturing v Corsets Silhouette Ltd [1963] 3 All ER 402 at 412; Colbeans Palmer Ltd v Stock Affiliates Pty Ltd [1972] RPC 303, and see para 11.42 above.  5 Southern Railway of Peru v Owen [1957] AC 334, a reference given to me by my friend Sir Launcelot Henderson.  6 Ammonia Soda Co v Chamberlain [1918] 1 Ch 266, CA.   7 Sharing of capital is discussed in Popat v Shonchhatra [1997] 1  WLR  1367, especially at 1374H, CA, and at paras 9.2 and 9.9 above.   8 In Bouch v Sproule (1887) 12 App Cas 385 at 405, adopted as part of their reasoning by Lindley and Lopes LLJ in Re Bridgewater Navigation Co [1891] 2 Ch 317 at 327.   9 Per Nourse J in Reed v Young [1984] STC 38 at 57–58, quoted with approval by Lord Oliver in Reed v Young [1986] 1 WLR 649 at 654. 10 This has not deterred judges from giving their views: Proudfoot v Bush (1859) 7 Gr 518 (Canada); Dinham v Bradford (1869) 5 Ch App 519; Bond v Barrow Hæmatite Steel Co [1902] 1 Ch  353; Badham v Williams (1902) 86  LT  191; Re Spanish Prospecting Co Ltd [1911] 1 Ch 92; Naval Colliery Co (1897) Ltd v IRC (1928) 138 LT 593; Rushden Heel Co Ltd v Keene [1946] 2 All ER 141. 11 Whimster & Co v IRC 1926 SC 20; Southern Railway of Peru v Owen [1957] AC 334, a reference given to me by my friend Sir Launcelot Henderson. 12 Miles v Clarke [1953] 1 WLR 537; Powsey v Armstrong (1881) 18 Ch D 698.

(d)  The effect of HMRC requirements 12.27  The partners may implicitly alter their basis of computing profit, if for tax reasons their signed accounts are drawn on a new basis: see para 12.21 above. The profit and loss account will be framed with tax considerations chiefly in mind, but there may be some expenditure which is allowable as a business expense as between the partners whilst not allowed by HMRC. From 19991 most partnerships have had to account for their profit on a ‘true and fair’ basis, bringing into account work in progress. This change to the profit and loss account created an uplift which is taxable over six (sometimes ten) years. This uplift is best credited to a reserve account which is released to the partners in ten annual instalments or (with their consents) added to their capital accounts. However a partnership which qualifies as a small business (which means its revenue is below a certain level calculated by reference to the VAT threshold2) may elect to account on a cash basis3. From December 2003 the work in progress became liable to be valued at selling price, and not the traditional basis of the lower of cost or realisable value4. From the year of accounting in which 22 June 2005 fell, partnerships are required (by UITF  40) to recognise revenue in accordance with UK GAAP, which means it should be recognised when the right to consideration has arisen as a consequence of the performance of the contract. As a consequence work done in producing the revenue is an expense of the period in which it is recognised, and cannot be carried forward5. Save in unusual cases (such as in relation to conditional contracts) there will therefore be no work in progress for tax purposes to be carried forward. (As regards a partner’s retirement, work in progress will still have to be valued, see para 18.36 below.) Spreading the load of the consequential tax charge (‘adjustment income’6) over a threeyear period (in certain circumstance six years) was available in the strict 252

Accounts, profits and financial management 12.28

circumstances set out in Schedule  15 to the Finance Act 2006 which refers to the uplift as ‘the amount of adjustment income attributable to the change of basis’. Between the partners it could not simply be treated as ordinary profit, because it was by definition money which has not yet been paid or become due to the firm, and certainly has not reached the firm. Because of this obscurity, accountants did not put it into the partners’ current accounts but into a reserve account to await the time when it could be paid to them. In the absence of agreement between the partners, it was payable to the partners as soon as the fee income which it represents had become paid to the firm, and all deductions (including tax) to be borne by it had been paid. Once more, partners who retire or whose profit shares went down in this period may have to bear tax on more profit than they actually receive. For internal accounting purposes, and in particular for the purpose of calculating the entitlement of an outgoing partner, work in progress will sometimes be accounted for in a different way from this. 1 Finance Act 1998, s  40 and Sch  6, now the Income Tax (Trading and Other Income) Act 2005, ss 226–240, which came into force on 6 April 2005. 2 Income Tax (Trading and Other Income) Act 2005, Pt 2, Ch 3A. 3 Income Tax (Trading and Other Income) Act 2005, s 25A. 4 FRS 102 (with effect from 1 January 2015). 5 Authority which is inconsistent with this, such as Duple Motor Bodies v Ostime (1961) 39 TC 537, is no longer consistent with good accounting practice. 6 Income Tax (Trading and Other Income) Act 2005, s 860 and Pt 2, Ch 17.

(e)  No agreement as to shares of profits and losses 12.28  If anything is agreed between the partners it is usually their profit shares. In the absence of such agreement1, profits and losses before dissolution are borne equally2; they are not defined by the proportions in which the capital has been contributed3, nor by the amount of work that each partner does4, nor his indebtedness to the firm5. Under section  24(1) of the Partnership Act 1890: … subject to any agreement express or implied between the partners … (1) All the partners are entitled to share equally in the … profits of the business, and must contribute equally towards the losses … sustained by the firm.

The presumption of equality will not be rebutted if an agreement has been reached with HMRC for some different proportion for tax purposes only6 or where the only evidence of a variation is in accounts which have been sent by the firm to a member who has neither read nor understood them7. 1 The burden of proof is on the partner alleging that shares are not equal: Robinson v Anderson (1855) 20 Beav 98; affd (1855) 7 De GM & G 239, and on this point a mere implication will have to be a strong one: Brensell v Brensell [1998] NZFLR 28. 2 This is old law: eg Thompson v Williamson (1831) 7 Bli NS 432; contrast Peacock v Peacock (1809) 2 Camp 45. 3 Nowell v Nowell (1869) LR 7 Eq 538.

253

12.29  Internal management 4 Robinson v Anderson (1855) 20 Beav 98; Webster v Bray (1849) 7 Hare 159 at 178. In Ogle v Sansom (1715) 1 Bro Parl Cas 149, two ships’ captains agreed to share their prize money. The ship belonging to one was then laid up for repairs and it captured nothing. Held that its captain was still entitled to half of the prize money earned by the other. 5 Crawshay v Collins (1826) 2 Russ 325. 6 Kent v British Railways Board [1995] PIQR Q42, CA; Ward v Newalls Insulation Co Ltd [1998] 1 WLR 1722, CA. 7 Joyce v Morrissey [1999] EMLR 233, CA.

(f)  Agreement as to sharing profits 12.29  Profit-sharing agreements1 will often be complicated but may be impliedly settled by the custom of the firm2. In Bell v Barnett3 the plaintiff architect agreed to take an equal share as one of five partners in a property speculation. Two dropped out; the other two raised the equivalent of the two missing shares by themselves contributing £18,000 borrowed on the security of the partnership land. Held the plaintiff was still entitled to a one-fifth share, but not liable for the mortgage debt of £18,000.

There is no obligation that the agreement should reflect the actual contribution of the parties to the partnership in terms of money or work. It is often reached purely with tax purposes in mind4. So a claim by an active partner against an outsider for loss for personal injury may lead to an award in his favour which is larger than his entitlement under his partnership share5. 1 Eg Marsh v Stacey (1963) 107 Sol Jo 512; Warner v Smith (1863) 1 De GJ & Sm 337. 2 Gow v Forster (1884) 26 Ch D 672; Stewart v Forbes (1849) 1 Mac & G 137. 3 (1872) 21 WR 119; similarly Galbraith v McDougall (1913) 24 OWR 234 (Canada). 4 Ward v Newalls Insulation Co Ltd [1998] 1  WLR  1722, CA; Pooley v Driver (1876) 5 Ch D 458 at 473. 5 Ward v Newalls Insulation Co Ltd [1998] 1  WLR  1722; Taroperewall v Berkery [1983] 3 NSWLR 28; contrast Kent v British Railways Board [1995] PIQR Q42, CA.

(g) Lock-step, ladders and escalators and other variations in profit-sharing 12.30  Most partnership agreements will specify how each partner’s share can be altered. A system which increases the share on a points system in line with seniority in the firm, regardless of merit, is called a lock-step system. A system whereby a partner’s share reflects what he has achieved is called (in the USA) ‘Eat what you kill’. An ‘escalator’ scheme allows automatic increases in profit share with seniority; a ‘ladder’ scheme provides that increases have to be earned. Age discrimination is discussed in Chapter 13. Any system should reflect the continuing merit or productivity of each partner. It can be a formula based on financial or other success, which will mean that some discretion is given to a remuneration committee or senior partner, whose decision will seldom satisfy everyone. 254

Accounts, profits and financial management 12.31

If the question arises what is the entitlement of the partners to this slice before it has been allocated, the answer must be that it is to be treated as owned equally1. 1 Hitchins v Hitchins (1997) 47 NSWLR 35.

(h)  Sharing losses 12.31  As between partners the losses will be borne (in the absence of agreement to the contrary) not equally but in the same proportion as they share profits1, regardless of their capital accounts2, and this is reflected in the statutory provision for losses in winding up after dissolution3. If the profit share is uncertain, perhaps because it is at the discretion of a remuneration committee, then losses will be divisible equally4. Partners may agree that the liability of some of them is to be limited5, or that only one of them is to bear losses6. In Walker West Developments Ltd v Emmett7 a profit-sharing agreement between a developer and a builder contained a provision that the builder would not have to bear any losses, and it was argued that this militated against the existence of a partnership, for in a partnership all partners are liable for losses. Goff LJ pointed out8 the fallacy in this: ‘If there be a partnership, then both the partners are liable to third parties, but as between themselves the partnership accounts must be taken in accordance with the agreement.’ Held they were partners but losses were borne by one to the exclusion of the other.

If some partners have priority over others the effect of the profit-sharing arrangement may be that they take sums which are greater than the total partnership profit whilst others have to contribute as if to losses. For income tax purposes it is not open to a partner who is bearing such a loss to claim loss relief if the partnship itself did not make a loss9. If the arrangement produces a mixture of profits and losses for the partners, the actual partnership profit or loss must be re-allocated between actual profit-taking or loss-bearing partners alone10. This may mean that the profit-taking partners are taxed on a sum which is less that the full amount that they are taking, and the loss-bearing partners are not entitled to loss relief. An equitable adjustment between them should therefore be made, to compensate the loss-bearing partners for this. An employee and a salaried partner with the status of an employee rather than a true partner both have a right of indemnity against the firm for any losses that they are called upon to bear, as discussed at para 12.14 above.  1 Re Albion Life Assurance Society (1880) 16 Ch D 83; Storm v Cumberland (1871) 18 Gr 245; Bodin v Ducher (1909) 11 WLR 145 (Canada); contrast the Partnership Act 1890, s 24(1).  2 Nowell v Nowell (1869)  LR  7 Eq 538; Garner v Murray [1904] 1 Ch  57; Hornabrook v Parsons (3 February 1995, unreported), CA, Hoffmann LJ discussed at para 7.11 above.

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12.32  Internal management   3 See the Partnership Act 1890, s 44(a): ‘Losses … shall be paid … lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits’.  4 Hitchins v Hitchins (1997) 47 NSWLR 35.  5 Hallett v Dowdall (1852) 18 QB 2. Such an arrangement may be based on a tacit understanding but is only binding between themselves (Coleman v Bellhouse ((1859) 9 UCCP 31) and has no effect upon their collective liability to outsiders, as against whom liability can only be limited through the stringent requirements of the Limited Partnerships Act 1907, considered in Chapter 24, or through an LLP, discussed in Chapter 25.  6 Geddes v Wallace (1820) 2 Bligh 270.   7 (1978) 252 Estates Gazette 1171.   8 (1978) 252 Estates Gazette 1171 at 1173, col (b).  9 PDC Copyprint v George (1997) SPC 326. 10 Income Tax (Trading and Other Income) Act 2005, s 850A(1).

(i)  Drawings and overdrawings 12.32  Because profits can only be ascertained at the end of the accounting period of the firm, it is necessary for the partners to agree that they may draw remuneration from the firm on account of their anticipated profit shares; how much may be drawn and when is a matter for the partners, acting by a majority in the case of difference1. It may be settled by the practice of the firm. On the other hand a partner will have difficulty in claiming that there is a custom that he can overdraw. As Jessel MR puts it2: The mere fact that the partner has been allowed by his co-partner, contrary to the partnership articles, to overdraw his account on two occasions would not imply anything so absurd as that he was to be allowed to overdraw it to any extent and whenever he liked.

There is no corresponding duty on a partner to pay interest (before dissolution) on what he owes the firm3, but interest is ordered if he is guilty of misappropriation of partnership property or fraud4. In Scotland the law is different, and compound interest on overdrawings may be usual5. 1 See the Partnership Act 1890, s 24(8), considered at para 12.3 above. 2 Lacey v Hill (1876) 4 Ch D 537 at 547. 3 Suleman v Abdul Latif (1930) LR 57 Ind App 245, PC; Turner v Burkinshaw (1867) 2 Ch App 488; Meymott v Meymott (1862) 31 Beav 445; Cooke v Benbow (1865) 3 De GJ & Sm 1. 4 Wilks v Howey [1954] VLR 22 (Australia); Wilson v McCarthy (1877) 25 Gr 152 (Canada); Evans v Coventry (1857) 8 De GM & G 835; Hart v Clarke (1854) 6 De GM & G 232; York and North Midland Rly Co v Hudson (1853) 16 Beav 485 at 505. 5 Ogle v Dinardo (1992) Times, 11 February, Ct of Sess, not followed Guardian Ocean Cargoes Ltd v Banco do Brasil SA (No 2) [1992] 2 Lloyd’s Rep 201.

C  A partner’s right to indemnity from the firm (a)  Indemnity and loss of indemnity 12.33  A partner who discharges a liability of the firm is entitled in equity1 to a contribution from his partners (discussed at para  14.57ff below) or 256

Accounts, profits and financial management 12.33

an indemnity from the firm2, unless the understanding between the parties rebuts this3. He cannot recover from them if he has already been paid by his insurers4, nor is he entitled to demand in advance payment of debts for which no demand had been made by the creditor5, or security for them6 as discussed at para 18.40 below. But he can obtain against his partners a declaration that he is entitled to an indemnity7. The obligation on the firm is to make good to him the indemnity by payment ‘when the demand is made and not before’8. An express indemnity clause9 is often found in a dissolution or retirement agreement. Where a retired partner is given an indemnity, he becomes in the position of a surety from the point of view of an outside creditor who is aware of it. If the outside creditor then varies the arrangement with the continuing partners in a way potentially prejudicial to him, the law of suretyship gives the retired partner a release from the obligation10. If one partner is insolvent, then the other partners must bear his share of the indemnity in the proportion which they are liable for losses11. A partner’s enforcement of the right to a contribution or an indemnity is discussed at paras 14.57ff and 18.40 below. Illegality is considered at para 4.21 above. He need not set off against his entitlement sums that might be due from him on the taking of the partnership accounts12. He may refuse to incur a personal liability on behalf of the firm until he receives security on his indemnity13. Section 24(2) of the Partnership Act 1890 provides: … subject to any agreement express or implied between the partners … (2) The firm must indemnify every partner in respect of payments made and personal liabilities incurred by him – (a) In the ordinary and proper conduct of the business of the firm, or (b) In or about anything necessarily done for the preservation of the business or property of the firm.

When he has paid a partnership debt he is entitled to take over the creditor’s security but cannot be subrogated to the rights of the creditor against the firm14. Where a partner and the firm pay purchase-money jointly then it must be a matter of inference whether he is making his payment on behalf of the firm in which case he will be entitled to an indemnity from the firm, or on his own behalf in which case there is a resulting trust in his favour for so much of the purchase money as he advanced15, and he will not be entitled to an indemnity but to a share in the property acquired16.  1 Sadler v Nixon (1834) 5 B & Ad 936.   2 See the Partnership Act 1890, s 24(2); Sedgwick v Daniell (1857) 2 H & N 319; Batard v Hawes (1853) 2 E & B 287; Boulter v Peplow (1850) 9 CB 493. Whether he paid more than his share voluntarily or involuntarily is irrelevant: Wilson v Cutting (1834) 10 Bing 436.  3 Berghoff Trading v Swinbrook Developments [2009] EWCA Civ 413, where the understanding was that the partner who paid the firm debt would be repaid out of his own share of the sale proceeds in the business and not by an indemnity from the firm.  4 Stratti v Stratti (2000) 50 NSWLR 324.  5 Bradford v Gammon [1925] Ch  132. The recent English and Australian authorities are discussed in Wakim v HIH Casualty & General Insurance (2001) FCA 103.  6 Murray v Hogarth & Co (1835) 13 Sh (Ct of Sess) 453.

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12.34  Internal management  7 Re Richardson, ex p Governors of St Thomas’s Hospital [1911] 2 KB 705, CA. Contribution from other partners is discussed at para 14.55ff below.   8 Per Eve J in Bradford v Gammon [1925] Ch 132 at 129 and see para 18.40 below.   9 But it is also implied: Gray v Smith (1889) 43 Ch D 208. It may be voidable by the firm if he is guilty of non-disclosure: Kintrea v Charles (1865) 12 Gr 123 (Canada). 10 Oakeley v Pasheller (1836) 10 Bli NS 548, affirmed in Rouse v Bradford Banking Co [1894] 2 Ch 32, CA; affd [1894] AC 586, HL; Re Debtor (No 14 of 1913) [1913] 3 KB 11, and see para 8.6 above. 11 Wadeson v Richardson (1812) 1 Ves & B 103. How losses are borne when the firm is dissolved is discussed at para 18.60ff below as to a solvent firm and Chapter 23 as to an insolvent firm. 12 Re A  Debtor (No  303 of 1997) (2000) Times, 3  October, Ferris J, approved as Hurst v Bennett [2001] EWCA Civ 182, [2001] 2 BCLC 290. 13 Rama v Millar [1996] 1 NZLR 257, PC. 14 R  v Connor (1906) Exch CR  183 (Canada); Dale v Powell (1911) 105  LT  291; the effect of such subrogation would be to give the partner the priority of a creditor against his own firm which is almost never allowed, as is discussed in Chapter 23, but the question is one of intention: Kamruz Zaman v Hamid Yusuf Zoha [2006] EWCA Civ 770. 15 Gissing v Gissing [1971] AC 886 at 902. 16 The property of an individual partner as against that of the firm is discussed at para 8.16 above.

(b)  Acts beyond his authority 12.34  His indemnity does not extend to every voluntary act that he feels might be advantageous1 but only to liabilities in the ordinary and proper conduct of the business2, such as claims against the partnership that are enforced against him alone3, or the costs of resisting them4, or for calls on shares or for goods he has bought5 or for liabilities under a lease that he holds as a trustee for the firm6. But he must particularise such expenditure7. He will be indemnified for a breach of trust for which all members of the firm were liable8. The firm need not indemnify him for liability that he has incurred on its behalf in excess of his authority9 or in fraud on his partners10, or in an arrangement relating to a loan by him to another partner11 or to his partnership share rather than to the partnership business12. It need not indemnify him against criminal liability unless he committed the crime innocently or negligently rather than deliberately13. If he makes a large partnership payment in cash at the request of a recipient who no doubt had a nefarious motive, he may still claim the indemnity against the firm unless he has to rely upon the illegal act itself to support his claim14. But an indemnity against tortious liability may be unenforceable: In Gray v Barr15 the claimant was liable for an assault with a loaded gun. Held on grounds that public policy could not enforce an indemnity.

His costs may have to be apportioned accordingly16.  1 Bras v Bras 463 F 2d 413 (1972); Burdon v Barkus (1862) 4 De GF & J 42 at 51.  2 See the Partnership Act 1890, s  24(2)(b), quoted above; and Medcalf v Mardell [2000]  EWCA  Civ 63. In Stevens v Britten [1954] 3  All ER  385 he was entitled to a contribution for an income tax assessment on the firm.  3 Evans v Yeatherd (1824) 2 Bing 133.  4 Croxton’s Case (1852) 5 De G & Sm 432.

258

Accounts, profits and financial management 12.36  5 Browne v Gibbins (1725) 5 Bro Parl Cas 491.  6 Hardoon v Belilios [1901] AC 118; Matthews v Ruggles-Brice [1911] 1 Ch 194; Stainton v Carron Co (1857) 24 Beav 346.  7 Medcalf v Mardell [2000] EWCA Civ 63; York and North Midland Rly Co v Hudson (1853) 16 Beav 485.  8 Jackson v Dickinson [1903] 1 Ch 947.  9 Gleadow v Hull Glass Co (1849) 13 Jur 1020, unless ratified by the firm, or preserving its property: s 24(2)(b). Re German Mining Co, ex p Chippendale (1853) 4 De GM & G 19, contrast Ledbetter v Ledbetter (1996) 476 SE 2d 636 where there was no approval given by the partners. 10 Robertson v Southgate (1848) 6 Hare 536. 11 Ryall v Rowles (1750) 9 Bli NS 377n. 12 Stocken v Dawson (1843) 6 Beav 371. 13 Burrows v Rhodes [1899] 1 QB 816, DC. 14 Miah v Islam [2010]  EWHC  1569 (Ch), Judge Purle, citing Tinsley v Milligan [1994] 1  AC  340, but the latter case was not followed by the Supreme Court in Patel v Mirza [2017] AC 467 discussed at paras 4.16–4.21 above. 15 Gray v Barr [1971] 2 QB 554, a case of an insurance policy indemnity. 16 Medcalf v Mardell [2000] EWCA Civ 63.

(c) Necessity 12.35  His indemnity is limited to his acts for the ‘ordinary and proper conduct of the business’ which are implicitly acts which he had authority to do, and ‘preservation of the business or property’ of the firm, which may have been necessary although outside the scope of his authority1. 1 Re German Mining Co, ex p Chippendale (1853) 4 De GM & G  19; Re Royal Bank of Australia Robinson’s Executor’s Case (1856) 6 De GM & G 572; Prole v Masterman (1855) 21 Beav 61; Wright v Hunter (1801) 5 Ves 792.

(d) Negligence 12.36  Except where there is express or implied agreement to the contrary1, if he incurs liability by his own fraud or negligence the firm will not indemnify him: for instance if negligently he loses the firm’s goods2 or pays a claim against the firm that is not due3. This may reflect his potential liability to the firm for his own negligence that causes the firm loss4. The modern standard of negligence may apply, although the nineteenth century judges were prone to use language suggesting something stronger5. If the liability was caused by his fault, but not to the extent that he could be called negligent, he will be indemnified6, for instance if he merely buys something for the firm which proves useless7. In Cragg v Ford8 a partnership was being wound up. One wanted to sell the stock immediately, but the other delayed, and in the meantime the sale price fell. Held that the latter had acted bona fide and within his discretion and the loss should be borne equally. 1 The practice of solicitors’ firms is discussed at para 11.13 above. 2 Tann v Herrington [2009]  EWHC  445 (Ch) Bernard Livesey QC, discussed at para  14.53 below; Re Webb (1818) 8 Taunt 443; Chapman v Great Western Rly Co (1880) 5 QBD 278.

259

12.37  Internal management 3 McIlreath v Margetson (1785) 4 Doug KB 278. 4 See para 14.53 below. 5 ‘Gross negligence’ (Thomas v Atherton (1877) 10 Ch D 185); ‘culpable negligence’ (Bury v Allen (1845) 1 Coll 589, 604). 6 Jervis v Wolferstan (1874)  LR  18 Eq 18; Burden v Burden (1813) 1 Ves & B  170; Re Protestant Assurance Association, ex p Letts and Steer (1857) 26 LJ Ch 455; contrast Thomas v Atherton (1877) 10 Ch D 185, in which the managing partner was held liable by the Court of Appeal for running a mine under disputed neighbouring ground, and was not allowed an indemnity. 7 Gleadow v Hull Glass Co (1849) 13 Jur 1020. 8 (1842) 1 Y & C Ch Cas 280. See also Re Worcester Corn Exchange Co (1853) 3 De GM & G 180.

(e)  Limit or release agreed by the partner 12.37  If the partner has agreed a limit on his expenditure, he cannot call upon the firm to pay more when he unexpectedly incurs more: In Gillan v Morrison1 the venture was intended to buy land and found a colony. A fixed sum was voted for the expedition. Unfortunately those proceeding on the expedition were imprisoned on arrival and incurred considerable expense extricating themselves. Held they were not entitled to an indemnity from their partners for the excess expenditure they had incurred.

A partner may implicitly release the firm or some partners2 from liability to indemnify him3 either in a dissolution agreement or otherwise, but the facts will be unusual. In Matthews v Ruggles-Brice4 a partner had taken a lease as trustee for his firm in 1879. In 1886 the firm agreed to assign its business and assets to a company, which agreed to accept the liabilities of the firm and release the partners, and in 1887 the lease was duly assigned to the company. The company later failed and in 1909 the original lessee partner was obliged to pay the arrears to the landlord. Held he still had his right of indemnity: the estates of the former partners had not been released.

Similarly the question whether a partner who has paid off a partnership mortgage is entitled to retain it against the firm, where it is admitted that the loan itself should be allowed in the accounts, is one of intention5. 1 (1847) 1 De G & Sm 421. 2 See para 20.9ff below. 3 Holroyd v Griffiths (1856) 3 Drew 428; Re Langmead’s Trusts (1855) 20 Beav 20. The right of indemnity may be specifically preserved: Holderness v Shackels (1828) 8 B & C 612. 4 [1911] 1 Ch 194; see also Dale v Powell (1911) 105 LT 291; Geddes v Wallace (1820) 2 Bligh 270, HL. 5 Kamruz Zaman v Hamid Yusuf Zoha [2006] EWCA Civ 770.

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13 Discrimination Contents

para 1 Discrimination generally�������������������������������������������������������������������13.1 2 Equality Act 2010 A Generally������������������������������������������������������������������������������������13.2 B Protected characteristics�������������������������������������������������������������13.3 C Prohibited conduct���������������������������������������������������������������������13.8 3 Application to partnerships A Prospective partners�����������������������������������������������������������������13.15 B Existing partners����������������������������������������������������������������������13.16 C Limited partnerships����������������������������������������������������������������13.17 D Proposed firm���������������������������������������������������������������������������13.18 E Former partners�����������������������������������������������������������������������13.19 F LLPs and proposed LLPs����������������������������������������������������������13.20 G Employees of partnerships��������������������������������������������������������13.21 4 Procedure A Jurisdiction of the employment tribunal�����������������������������������13.22 B Time limits�������������������������������������������������������������������������������13.23 C Burden of proof������������������������������������������������������������������������13.24 D Remedies����������������������������������������������������������������������������������13.25 E Exclusion clauses and arbitration clauses���������������������������������13.26

1  DISCRIMINATION GENERALLY 13.1  Discrimination can be inflicted or suffered by a partner, and can be inflicted by a firm on a partner or an outsider. The paragraphs below are a brief summary of the various forms of discrimination (similar to one another, but not identical) which are actionable today. Claims for discrimination in a partnership context are within the jurisdiction of the employment tribunal. It may award financial compensation, which may be against the firm itself, or against a partner, or both. So a partner may personally be liable, or his 261

13.2  Discrimination

firm may be, or they may be jointly liable, and the tribunal may apportion the liability between them1. He may seek a contribution under statute2 or in equity3 from his partners for his liability on a contribution claim. This begs the question whether such compensation must be paid immediately and without deduction, or whether it is merely an item to be brought into partnership accounts as explained in para 14.18ff below. Discrimination is also a breach of the Solicitors’ Code of Conduct 20184. A claim for it will not be jeopardised by the illegality of the partnership unless the claimant participated in the illegality5. Way & Intro-cate Chemicals Ltd v Crouch [2005] ICR 1362. Civil Liability (Contribution) Act 1978, considered at para 14.58 below. See para 14.59 below. Principle 6: ‘You act in a way that encourages equality, diversity and inclusion’, and SRA Guidance on the SRA’s Approach to Equality Diversity and Inclusion issued 23 July 2019. 5 Hall v Woolston Hall Leisure [2001] 1 WLR 225, CA. 1 2 3 4

2  EQUALITY ACT 2010 A Generally  13.2 B Protected characteristics  13.3 C Prohibited conduct  13.8

A Generally 13.2  Much, though not all, of the statutory provisions relating to discrimination is to be found in the Equality Act 20101. This Act was enacted to consolidate, harmonise and in some respects to extend the previous law on discrimination2. Although not fully implemented, those parts of the Act which are likely to be of most relevance to partnerships are in force. These parts define the protected characteristics and prohibited conduct3 and those which apply these general principles to partnerships, limited partnerships and limited liability partnerships4. 1 But relevant protection may be found in some other statutes. For example the protection against discrimination for making protected disclosures (colloquially termed ‘whistleblowing’) can be found in the Employment Rights Act 1996. It was upon these provisions that the complainant in Bates van Winkelhof v Clyde & Co LLP [2014] UKSC 32 relied. 2 The previous law could be found in the following pieces of legislation: Sex Discrimination Act 1975; Race Relations Act 1976; Disability Discrimination Act 1995; Employment Equality (Religion or Belief) Regulations 2003 and Employment Equality Age Regulations 2006. 3 Namely the Equality Act 2010, Pt 2. However it should be noted that Equality Act 2010, s 14 (which would apply where a person is discriminated against because of a combination of two relevant protected characteristics) has not been brought into force. 4 Namely the Equality Act 2010, Pt 5, Ch 1 and in particular s 44 (partnerships and limited partnerships) and s 45 (limited liability partnerships).

262

Equality Act 2010 13.5

B  Protected characteristics 13.3  The Equality Act 2010 identifies nine protected characteristics1. They are: (1) age; (2) disability; (3) gender reassignment; (4) marriage and civil partnership; (5) pregnancy and maternity; (6) race; (7) religion or belief; (8) sex; and (9) sexual orientation. The way in which each characteristic is protected and the defences which may be available to a claim of discrimination are broadly similar but there are variations for particular characteristics which are discussed below. Each protected characteristic is further defined or explained in sections 5–12 of the Act. Perhaps most noteworthy are the following definitions. 1 Equality Act 2010, s 4.

(a) Disability 13.4  Section 6(1) of the Act provides that: A person (P) has a disability if: (a) P has a physical or mental impairment, and (b) the impairment has a substantial and long-term adverse effect on P’s ability to carry out normal day-to-day activities.

A person who has had a disability is treated for these purposes as if he has a disability1. Part 1 of Schedule 1 to the Act contains supplementary provisions relating to disability, including a definition of what is a long-term effect. Cancer, HIV infection and multiple sclerosis are each a disability2. Addiction to alcohol, nicotine or other substances is not treated as an impairment within the meaning of the Act3. 1 Equality Act 2010, s 6(4). 2 Equality Act 2010, Sch 1, para 6. 3 Equality Act 2010, s 6(6), Sch 1, para 1.

(b)  Marriage or civil partnership 13.5  This extends to giving protection to a person because he is married to another person1 but other states, such as that of being single, widowed, divorced or cohabiting, are not protected characteristics. 1 Dunn v Institute of Cemetery Management (2011) UK EAT/0531/10/DA.

263

13.6  Discrimination

(c) Race 13.6  Section 9(1) of the Act provides that: Race includes: (a) colour (b) nationality (c) ethnic or national origins.

A Minister of the Crown may by order amend section 9 of the Act so as to provide for caste to be an aspect of race1. 1 Equality Act 2010, s 9(5).

(d)  Religion or belief 13.7  Subsections 10(1) and (2) of the Act provide that: (1) Religion means any religion and a reference to religion includes a reference to a lack of religion. (2) Belief means any religious or philosophical belief and a reference to belief includes a reference to a lack of belief.

The previous legislation also protected the characteristic of ‘philosophical belief’. In applying that legislation the Employment Appeal Tribunal considered that such a belief must: (i) be genuinely held; (ii) be a belief rather than an opinion or a viewpoint based on the present state of information available; (iii) be as to a weighty and substantial aspect of human life and behaviour; (iv) attain a certain level of cogency, seriousness, cohesion and importance; and (v) be worthy of respect in a democratic society, not be incompatible with human dignity and not conflict with the fundamental rights of others. So a belief in man-made climate change and that moral imperatives result may be a relevant belief but support of a particular football team would not be1. 1 Grainger v Nicholson [2010] IRLR 5.

C  Prohibited conduct 13.8  There are five forms of prohibited conduct under the Equality Act 2010. They are: (i) direct discrimination; (ii) indirect discrimination; (iii) failure to make reasonable adjustments for a disabled person; (iv) harassment; and (v) victimisation. 264

Equality Act 2010 13.9

(a)  Direct discrimination 13.9  Section 13(1) of the Act provides: A person (A) discriminates against another (B) if, because of a protected characteristic, A treats B less favourably than A treats or would treat others.

In the case of the protected characteristic of pregnancy or maternity, discrimination takes place if A treats B unfavourably (as opposed to less favourably than others) because of that characteristic1. As far as disability is concerned there is discrimination if either A treats B less favourably than others without a disability2 or unfavourably because of something arising in consequence of B’s disability and A cannot justify the unfavourable treatment3. The only forms of direct discrimination which may ever be justified are direct discrimination on the grounds of age or disability4. In each case the burden is on A to show that discrimination is a proportionate means of achieving a legitimate ‘aim’5. In the case of age discrimination Seldon v Clarkson, Wright and Jakes6 the Supreme Court dismissed a claim in terms which evidence a relish for the obscurity of the legislation. It held that the ‘aims’ which might excuse a firm from what might otherwise be discrimination, must both be theoretically legitimate, and must also be actual aims of the firm as a matter of fact. They must be social policy objectives of public interest. They must be justified generally, and not in their application to the particular individual. Permissible aims in the case of employees or partners might be7: (i) promoting access to employment for younger people; (ii) the efficient planning of the departure and recruitment of staff; (iii) sharing out employment opportunities fairly between the generations; (iv) ensuring a mix of generations of staff so as to promote the exchange of experience and new ideas; (v) rewarding experience; (vi) cushioning the blow for long service employees who might find it hard to find new employment; (vii) facilitating the participation of older workers in the workforce; (viii) avoiding the need to dismiss employees on the ground that they are no longer capable of doing the job which may be humiliating; (ix) avoiding disputes about their fitness for work over a certain age. A similar approach was adopted in the case of a partner who was not offered a new partnership when the firm restructured, allegedly on the grounds of her age. The EAT ruled that the firm was entitled to decline to renew her equity partnership because the firm had made decisions on each of its partners on an individual basis8. On the other hand, mere flexibility for an employer or firm is not a legitimate aim, although a ‘certain degree of flexibility may be permitted … in the pursuit of legitimate social policy objectives … The gravity of the effect upon the employees discriminated against has to be weighed against the importance of the legitimate aims in assessing the necessity of the particular measure chosen.’ 265

13.10  Discrimination

On the facts of the case, the law firm could justify having a rule in its deed of partnership which required compulsory retirement at a certain age (there 65), as it would achieve the legitimate objectives of enabling the long-term planning of vacancies and ensuring that associates had the opportunity of partnership. However the firm would not have established that it had been justified in requiring retirement at 65 on the basis that performance would decline at around that age. The Employment Tribunal (to which the matter was remitted in order inter alia to decide whether a mandatory age of 65, as opposed to some other age, was a proportionate means of achieving the legitimate aims identified above) held that the firm had been entitled to fix the mandatory retirement age at 659. There may be unlawful discrimination by A against a person (B) who does not themselves have the protected characteristic, if A treats B less favourably because of a protected characteristic of someone with whom B is associated. In EAD Solicitors LLP v Abrams10 a company was held to be entitled to bring a claim for direct discrimination on the basis that the defendant LLP had declined to make that company a member of the LLP or to receive services from it on the grounds that it was controlled by a former member who was past the LLP’s specified retirement age. In the case of discrimination on the grounds of disability it is a defence for A to show that A did not know and could not reasonably have been expected to know that B had the disability11. The Equality Act 2010 specifically provides that a person cannot complain because A treats a disabled person or a woman in connection with pregnancy or childbirth more favourably than he treats or would treat a person who is not disabled (in the former case) or a man (in the latter)12. It would also seem to follow from the fact that only marriage and civil partnership, and no other status, are protected characteristics that it is permissible to treat married persons or persons in civil partnerships more favourably than those who are not.   1 See the Equality Act 2010, ss 17 and 18.   2 See the Equality Act 2010, s 13(1).   3 See the Equality Act 2010, s 15(1).   4 But in the case of disability, justification is only a defence if the treatment in question is unfavourable (within s 15(1)) rather than less favourable than the treatment of others who are not disabled (within s 13(1)).   5 See the Equality Act 2010, s 13(2) (in relation to age) and s 15(1) (in relation to disability).   6 [2012] UKSC 15; [2010] EWCA Civ 899.   7 At para 50 of the judgment.  8 Fennell v Foot Anstey LLP unreported 28 July 2016 (EAT).   9 The decision in Seldon was appealed again, unsuccessfully, to the EAT: see [2014] ICR 1275. 10 [2015]  BCC  882. The concept of associative discrimination was well established – see the EAT’s decision in EBR Attridge Law LLP v Coleman [2010] IRLR 10. 11 Equality Act 2010, s 15(2). 12 Equality Act 2010, s 15(3), (6)(b).

(b)  Indirect discrimination 13.10  Section 19 of the Act provides that: 266

Equality Act 2010 13.11 (1) A person (A) discriminates against another (B) if A applies to B a provision criterion or practice which is discriminatory in relation to a relevant protected characteristic of B’s. (2) For the purposes of subsection (1), a provision, criterion or practice is discriminatory in relation to a relevant protected characteristic of B’s if (a) A applies, or would apply, it to persons with whom B does not share the characteristic; (b) it puts, or would put, persons with whom B shares the characteristic at a particular disadvantage when compared with persons with whom B does not share it, (c) it puts, or would put B at that disadvantage, and (d) A cannot show it to be a proportionate means of achieving a legitimate aim. (3) The relevant protected characteristics are: age; disability; gender reassignment; marriage and civil partnership; race; religion or belief; sex; sexual orientation.

Indirect discrimination does not therefore apply to the protected characteristic of pregnancy or maternity. This is perhaps explained by the fact that to prove discrimination on that ground it is enough for a woman to show that she has been treated unfavourably (rather than less favourably than others) because of her pregnancy or maternity. It will be evident that there is no indirect discrimination if A can show that the provision, criterion or practice is a proportionate means of achieving a legitimate aim. To establish that there has been indirect discrimination there is no need to show that the protected characteristic is the reason for the allegedly discriminatory treatment. What must be demonstrated is that the provision, criterion or practice puts a group sharing the protected characteristic at a disadvantage compared with others who do not have that characteristic1. 1 Essop v Home Office (UK Border Agency) [2017] 1 WLR 1343.

(c) Failure to make reasonable adjustments for a disabled person 13.11  Sections  20–22 of the Equality Act 2010 apply when a person (A) is under a duty to make reasonable adjustments. As discussed below a firm, a proposed firm, an LLP and a proposed LLP are all under duties to make reasonable adjustments. Section 20 sets out three requirements of the duty to make reasonable adjustments which are, broadly, as follows: 267

13.12  Discrimination

(1) where a provision, criterion or practice of A’s puts a disabled person (B) at a substantial disadvantage, to take such steps as it is reasonable to have to take to avoid the disadvantage; (2) where a physical feature puts B at a substantial disadvantage, to take such steps as it is reasonable to have to take to avoid the disadvantage; (3) where B would, but for the provision of an auxiliary aid, be put at a substantial disadvantage, to take such steps as it is reasonable to have to take to provide the auxiliary aid. A is not entitled to require B to pay for or towards the cost of complying with A’s duty1. The failure to comply with the duty to make reasonable adjustments amounts to discrimination2. 1 Equality Act 2010, s 20(7). 2 Equality Act 2010, s 21(2).

(d) Harassment 13.12  Section 26 of the Act provides as follows: (1) A person (A) harasses another (B) if: (a) A engages in unwanted conduct related to a relevant protected characteristic and (b) the conduct has the purpose or effect of: (i) violating B’s dignity, or (ii) creating an intimidating, hostile, degrading, humiliating or offensive environment for B. (2) A also harasses B if: (a) A engages in unwanted conduct of a sexual nature, and (b) the conduct has the purpose or effect referred to in subsection (1)(b) (3) A also harasses B if: (a) A or another person engages in unwanted conduct of a sexual nature or that is related to gender reassignment or sex, (b) the conduct has the purpose or effect referred to in subsection (1)(b), and (c) because of B’s rejection of or submission to the conduct, A treats B less favourably than A would treat B if B had not rejected or submitted to the conduct. (4) In deciding whether conduct has the effect referred to in subsection (1)(b), each of the following must be taken into account: (a) the perception of B; (b) the other circumstances of the case; (c) whether it is reasonable for the conduct to have that effect. (5) The relevant protected characteristics are: age; disability; gender reassignment;

268

Equality Act 2010 13.14 race; religion or belief; sex; sexual orientation.

Section 26(1)(a) (unwanted conduct) does not apply therefore to harassment on the grounds of pregnancy or maternity (although in practice this may be a form of harassment on the grounds of sex) or to marriage or civil partnership. It should also be noted that the person complaining of the unwanted conduct in relation to a relevant protected characteristic in section 26(1)(a) need not be the person to whom the unwanted conduct is directed. For example, a white colleague (B) who sees a black colleague being subjected to racially abusive language could complain that this creates an offensive environment for B1. 1 See the explanatory notes to the legislation.

(e) Victimisation 13.13  Subsections 27(1) and (2) of the Act provides as follows: (1) A person (A) victimises another person (B) if A subjects B to a detriment because: (a) B does a protected act, or (b) A believes that B has done, or may do, a protected act. (2) Each of the following is a protected act: (a) bringing proceedings under this Act; (b) giving evidence or information in connection with proceedings under this Act; (c) doing any other thing for the purposes of or in connection with this Act; (d) making an allegation (whether or not express) that A or another person has contravened this Act.

The section goes on to provide that giving false evidence or information or making a false allegation in bad faith is not a protected act1. 1 Equality Act 2010, s 27(3).

(f)  Positive action 13.14  The Equality Act 2010 includes two provisions whereby a person (P) may take positive steps to enable a person whom he reasonably thinks (i) suffers a disadvantage, (ii) has different needs, or (iii) whose participation in an activity is disproportionately low by reason of a protected characteristic to overcome or minimise that disadvantage1. In particular in either the first or third case, P may treat the disadvantaged person (A) more favourably in connection with recruitment or promotion 269

13.15  Discrimination

than another (B)2. However this exception is very limited since it only applies where: (1) A is as qualified as B to be recruited or promoted; (2) P does not have a policy of treating persons who share the protected characteristic more favourably in connection with recruitment or promotion than persons who do not share it; and (3) taking the action in question is a proportionate means of achieving the aim of overcoming or minimising the disadvantage or participating in the activity3. Recruitment for these purposes includes offering a person a position as a partner in a firm, LLP or proposed firm or LLP4. 1 2 3 4

Equality Act 2010, ss 158 and 159. Equality Act 2010, s 159(2) and (3). Equality Act 2010, s 159(4). Equality Act 2010, s 159(5).

3  APPLICATION TO PARTNERSHIPS A Prospective partners  13.15 B Existing partners  13.16 C Limited partnerships  13.17 D Proposed firm  13.18 E Former partners  13.19 F LLPs and proposed LLPs   13.20 G Employees of partnerships   13.21

A  Prospective partners 13.15  It is unlawful for a firm or a proposed firm to discriminate against a person: (1) in the arrangements it makes for deciding to whom to offer a position as a partner; (2) as to the terms on which it offers the person a position as a partner; (3) by not offering the person a position as a partner1. In addition a firm or proposed firm must not ‘in relation to a position as a partner’ harass a person who has applied for the position or victimise a person in relation to any of the three matters set out above2. As noted above, a duty to make reasonable adjustments for disability falls on a firm and proposed firm and therefore applies to prospective partners as it does to existing partners3. 1 Equality Act 2010, s 44(1)(a). 2 Equality Act 2010, s 44(3), (4) and (5). 3 Equality Act 2010, s 44(7).

270

Application to partnerships 13.17

B  Existing partners 13.16  It is unlawful for a firm (A) to discriminate against a partner (B): (1) as to the terms on which B is a partner; (2) in the way A affords B access, or by not affording B access to opportunities for promotion, transfer or training or for receiving any other benefit, facility or service; (3) by expelling B; (4) by subjecting B to any other detriment1. Section 46(6) clarifies and expands the meaning of ‘expelling’ B so that it includes a reference to the termination of a person’s position as partner: (i) by the expiry of a period (including a period defined by reference to an event or circumstance); (ii) by an act of the person [ie B] (including giving notice) in circumstances such that the person is entitled because of the conduct of other partners to terminate the position without notice; (iii) as a result of the dissolution of the partnership. But the first and third categories do not include a situation where the partnership is renewed on the same terms immediately thereafter. The second category is not free from conceptual difficulty: how does A discriminate against B by B’s terminating the relationship with A without notice? The intention of the provision would appear to be to create a form of constructive dismissal of B, with the implication that the relevant ‘conduct’ of the other partners which gives B the right of termination is itself discriminatory. Whether this provision is useful in practice must be doubtful, since it contemplates that B has an independent right (that is one not arising out of the Equality Act 2010) to terminate the partnership without notice because of the other partners’ conduct. On its face therefore it would not apply to the exercise of an unfettered unilateral right to retire from the partnership, even assuming such a right was exercisable without notice. For the same reason it would not apply to the right to dissolve a partnership at will. This seems to run counter to the intention of the draftsman2. It is also unlawful for a firm to harass a partner or, in relation to any of the four matters set out above, to victimise a partner3. 1 Equality Act 2010, s 44(2). 2 See the example given in the explanatory notes to the legislation. Section  46(6)(c) would also not apply to this situation (unless that subsection applies even where the dissolution is brought about by B himself which seems unlikely having regard to the terms of s 44(6)). 3 Equality Act 2010, s 44(3) and (6).

C  Limited partnerships 13.17  Section 44(8) of the Equality Act 2010 provides that: 271

13.18  Discrimination In the application of this section to a limited partnership within the meaning of the Limited Partnerships Act 1907 ‘partner’ means a general partner within the meaning of that Act.

D  Proposed firm 13.18  It will be noted that the legislation applies to proposed firms as well as firms. A proposed firm is defined by section  46 as persons proposing to form themselves into a partnership. There is no requirement that they actually do so.

E  Former partners 13.19  Former partners may rely on the provisions of section  108 of the Equality Act 2010 to protect them in relation to their dealings with their former firm.

F  LLPs and proposed LLPs 13.20  Similar provisions apply mutatis mutandis to LLPs and proposed LLPs1. A corporate member of an LLP can suffer detriment because of the protected characteristic of an individual who happened to be its principal shareholder and member2. 1 Equality Act 2010, s 45. 2 EAD Solicitors LLP v Abrams [2015] BCC 882, [2015] IRLR 978, [2016] ICR 380.

G  Employees of partnerships 13.21  Employees (or prospective employees) of partnerships may rely on the provisions of the Equality Act 2010 against the partnership in the same way as they could against any other employer.

4 PROCEDURE A Jurisdiction of the employment tribunal   13.22 B Time limits  13.23 C Burden of proof   13.24 D Remedies  13.25 E Exclusion clauses and arbitration clauses   13.26 272

Procedure 13.25

A  Jurisdiction of the employment tribunal 13.22  As under the previous legislation the employment tribunal has jurisdiction in relation to claims arising under the Equality Act 2010 as they relate to partnerships or LLPs1, but this jurisdiction is not an exclusive one2. 1 Equality Act 2010, s 120. 2 Birmingham City Council v Huda Abdulla [2011] EWCA Civ 1412.

B  Time limits 13.23  A claim may be brought as of right within three months starting with the date of the act to which the complaint relates or within such longer time as the tribunal considers just and equitable1. 1 Equality Act 2010, s 123(1). As to extension of time see R Bahous v Pizza Express Restaurant (2011) UK EAT/0029/11/DA.

C  Burden of proof 13.24  Again the position under the previous legislation continues to apply. If there are facts from which the tribunal could decide, in the absence of any other explanation, that A contravened the provision concerned the court must hold that the contravention occurred1. Therefore if B can establish that in the absence of some other explanation of the facts, his case is prima facie made out the burden is then on A to prove that there was no breach, either because there was no discrimination, harassment or victimisation or because there is a valid defence. 1 Equality Act 2010, s 136(2).

D Remedies 13.25  There are three forms of remedy which the tribunal may award if it considers that a breach of the legislation has occurred: (1) declaration; (2) compensation; (3) an appropriate recommendation1. Compensation is, unsurprisingly, the remedy most frequently sought. Its purpose is to put the complainant, so far as possible, in the position which he or she would have been in if the breach had not been committed. In a case of indirect discrimination, where the tribunal is satisfied that the 273

13.26  Discrimination

discriminatory provision, criterion or practice was not applied with the intention of discrimination, the tribunal must first consider whether it can make an appropriate recommendation or declaration before deciding to award compensation2. 1 Equality Act 2010, s 124(2). 2 Equality Act 2010, s 124(4) and (5).

E  Exclusion clauses and arbitration clauses 13.26  A term of a contract is unenforceable by a person in whose favour it would operate in so far as it purports to exclude or limit a provision of or made under the Equality Act 20101, except within certain narrow limits2. So a provision in an agreement which requires the parties to use arbitration is unenforceable, and the court will not stay proceedings under the Act to enable arbitration to proceed3. 1 Equality Act 2010, s 144(1). 2 Equality Act 2010, s 144(4). 3 Clyde & Co LLP v Bates van Winkelhof [2011] EWHC 668 (QB).

274

14 Internal partnership dispute and its remedies Contents

para 1 Enforcement of agreements A Enforcement of agreements to enter into partnership�����������������14.1 B Rescission for misrepresentation������������������������������������������������14.7 2 Repudiation by breach of the partnership agreement A Repudiation applied to partnerships�����������������������������������������14.11 B What amounts to repudiation��������������������������������������������������14.14 C The effect of repudiation����������������������������������������������������������14.16 D Damages and repudiation���������������������������������������������������������14.17 3 The claim for an account A The right to an account������������������������������������������������������������14.18 B The meaning of ‘action for an account’������������������������������������14.20 C Taking the account�������������������������������������������������������������������14.25 D Defences to actions for an account�������������������������������������������14.31 E How settled accounts may be challenged����������������������������������14.42 4 Breach of contract, negligence and other claims between partners A Breach of contract��������������������������������������������������������������������14.50 B Breach of fiduciary duty�����������������������������������������������������������14.51 C Duty of care, negligence and gross negligence��������������������������14.53 D Fraud and other torts���������������������������������������������������������������14.54 E Setting transactions aside���������������������������������������������������������14.55 5 Contribution between partners A What claims are actionable between partners���������������������������14.56 B How claims for compensation or contribution between partners may be enforced���������������������������������������������������������14.57

1  ENFORCEMENT OF AGREEMENTS A Enforcement of agreements to enter into partnership   14.1 B Rescission for misrepresentation   14.7 275

14.1  Internal partnership dispute and its remedies

A Enforcement of agreements to enter into partnership 14.1  Whether an agreement for a partnership has been reached is discussed in Chapter 2. Its terms are discussed in Chapter 7.

(a)  Specific performance and rescission 14.2  Injunctions are sometimes granted to enforce the rights of the partners in an existing partnership but ‘specific performance of an agreement for a partnership which had never been acted on’ is ‘very different’1. The court will not grant specific performance of an agreement for a partnership at will where any partner can, by notice, then dissolve it2. ‘No-one ever heard of this court executing an agreement for a partnership, when the parties might dissolve it immediately afterwards’3. Even when the partnership is not a partnership at will4, specific performance will not be granted to compel a person to work in a business5. Consequently, specific performance will not be granted to a working partner to compel compliance by a sleeping partner, because of want of mutuality; it would be unfair to grant him what would not be granted against him6 and because of the reluctance of the court to make an order for performance of personal services7. In each case they are left to their remedy in damages. A partnership claim can be met by any ordinary defence to a claim for specific performance, in particular laches8 and non-disclosure or misrepresentation9 or rescission. An agreement for partnership may be rescinded for total failure of consideration, but a claimant who is successful on that point cannot claim dissolution; he must elect between the two remedies10.   1 Per Sir John Romilly MR in Sichel v Mosenthal (1862) 30 Beav 371 at 376, citing England v Curling (1844) 8 Beav 129; Scott v Rayment (1868) LR 7 Eq 112. The reason is the difficulty in ascertaining whether or not the order has been complied with: per Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] AC 691 at 724D, and Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, HL.   2 A partnership ‘at will’ is a partnership which is entered into for an undefined time and which may consequently be dissolved by any partner giving notice of dissolution to his partners under the Partnership Act 1890, s 32, as discussed at para 16.23ff below.   3 Per Lord Eldon in Hercy v Birch (1804) 9 Ves 357 at 360.   4 Ie because it is either for ‘a single adventure or undertaking’ or for a ‘fixed term’ or the parties have agreed how it may be terminated: Partnership Act 1890, s 32.  5 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] 2 WLR 898, HL, and see para 15.34 below.  6 Sichel v Mosenthal (1862) 30 Beav 371 and see para 15.33 below.  7 Byrne v Reid [1902] 2 Ch 735; C H Giles & Co v Morris [1972] 1 WLR 307.   8 Which is considered at para 15.61 below.  9 Redgrave v Hurd (1881) 20 Ch D 1; misrepresentation is considered later in this chapter. 10 See Raulfs v Fishy Bite Pty Ltd [2011] NSWSC 105 and cases there cited.

276

Enforcement of agreements 14.4

(b)  Part performance 14.3  If there is a partnership in existence, then specific performance by the execution of a formal instrument will be ordered to bind the parties to their agreed terms1. In Byrne v Reid2 Stirling LJ said: [The Plaintiff was] entitled to such relief as the Courts of Equity are in the habit of granting to persons who stand in the relationship of partners. That relief does not include as a general rule specific performance of an agreement to become partners – that is clearly settled; but … there is a head of relief which is granted by Courts of Equity, namely, the execution of any necessary and proper deeds which may be required for defining the interests of the parties or giving effect to them.

He ordered that the legal title to the partnership assets be vested in the claimant jointly with the other partner3. The court may order the execution of a partnership deed even after notice of dissolution has been given4. Of course the mere execution of the deeds ordered by the court may not have the effect of compelling the reluctant partner or partners to act together in the firm. If they refuse, the others will be left to their remedy in damages and dissolution. 1 Virdachala Nattan v Ramasavami Nayakan (1862) 1 Mad 341 (India); Buxton v Lister (1746) 3 Atk 383. 2 [1902] 2 Ch 735 at 743, following England v Curling (1844) 8 Beav 129. 3 At 745, following Page v Cox (1852) 10 Hare 163. 4 England v Curling (1844) 8 Beav 129.

(c)  Damages for breach 14.4  Breach of an agreement to enter into partnership entitles the victim of the breach to damages at law, for instance for the failure of the incomer to pay his purchase price or ‘premium’ for becoming a partner1. The other party may seek to have the agreement set aside or rescinded (as discussed later in this chapter) but that is another matter. Unless he succeeds he will be liable on the agreement, and any misbehaviour of the plaintiff will be irrelevant. Erle CJ said in Andrewes v Garstin2: ‘It is no justification for breaking a contract that the person with whom it was made is a disreputable character and had been guilty of fraudulent acts’. Wigram V-C held the estate of a dead partner liable when the partnership agreement had provided that the business should be carried on by his executors but they refused to do it3. 1 Walker v Harris (1793) 1 Anst 245. Damages for the wrongful exclusion of a partner during the course of a fixed-term partnership is a slightly different matter and is discussed in the next section: Greenham v Gray (1855) 4 ICLR 501. 2 (1861) 4 LT 580 perhaps obiter at 581. Contrast Conlon v Simms [2006] 2 All ER 1024; reversed on the facts [2006] EWCA Civ 1749. 3 Downs v Collins (1848) 6 Hare 418.

277

14.5  Internal partnership dispute and its remedies

(i)  Damages for rejection of an incomer 14.5  Damages for breach of an agreement to admit a partner are quantified as: (a) the amount that he might expect to receive as profit or other benefit (including increase in the value of his share) until such time as the partnership could properly be dissolved1 or he expelled2; less (b) any amount that he has earned in alternative employment or business3 or that he ought to have earned in mitigation of his loss, for instance by accepting employment from the partnership itself4; plus (c) consequential loss, such as the expense of moving home. 1 It must be borne in mind that dissolution may be ordered by the court where relations between the parties have broken down; see para 17.26 below. 2 More broadly, damages have been assessed at one year’s profit share: Lewin v Morrison (1867) 2 Agra 351 (India). 3 Collier v Sunday Referee Publishing Co Ltd [1940] 2 KB 647. 4 Brace v Calder [1895] 2 QB 253, CA.

(ii)  Damages for refusal of an incomer to work 14.6  The loss to the other partners if an incoming partner refuses to take up his contract of partnership is the cost of obtaining a substitute1. 1 National Coal Board v Galley [1958] 1 WLR 16, CA.

B  Rescission for misrepresentation (a) Generally 14.7  A partnership agreement may be rescinded for misrepresentation or fraud in the making of the agreement1 and therefore implicitly for the failure of a contracting party to make the disclosure discussed at para 11.44 above, but the word ‘rescission’ here has a restricted meaning. The contract between the partners can be rescinded, but this does not prejudice any rights of the creditors or other outsiders who have dealt with any of them in the meantime2. The Partnership Act 1890 provides for some of the consequences of rescission, which are intended to restore the partner who was the victim of the fraud or misrepresentation to the position that he would have been in had he not entered into the partnership, without the firm’s creditors being prejudiced. The rights that he acquires3 are discussed below. To be actionable the fraud or misrepresentation need not be of the whole firm or made by a managing partner, but it must have been made by or on behalf of a partner, called in section 41 ‘the person guilty of the fraud’. Here a distinction must be drawn between positive misrepresentation and actionable non-disclosure, because the latter may have been made by no-one4, which complicates the question of who is ‘guilty’ of it. A partner is not under 278

Enforcement of agreements 14.8

a duty of positive disclosure to tell something he does not know5 but may be liable under the Misrepresentation Act 1967 if he innocently makes a positive misrepresentation about what he does not know6. 1 Repudiation of the partnership by a partner’s breach when the partnership is up and running is discussed in the next section. 2 Adam v Newbigging (1888) 13 AC 308 per Lord Watson: see para 14.9 below. 3 Under the Partnership Act 1890, s 41, which is quoted below. 4 Or it may be made by someone, namely the person who alone has the vital knowledge, as in Conlon v Simms [2006] 2 All ER 1024. 5 Andrewes v Garstin (1861) 10 CBNS 444; contrast Conlon v Simms [2006] 2 All ER 1024. 6 Damages for misrepresentation are discussed at para 14.10 below.

(b) Rescission 14.8  If a person who invites another to join him in partnership is guilty of fraudulent or innocent1 misrepresentation as described above, the victim may seek to have his partnership agreement rescinded2. Or he may elect not to, by taking no action, in which case his claim to rescission is waived3. When he discovers the truth he must move quickly or he may be deemed to affirm the partnership4; the result of any delay is discussed at para 15.61ff below. He is not bound to inquire as to the truth of the representations5. It is no defence to his claim that he made only a cursory inquiry as to the facts6, or that he might have discovered them had he looked7; it must be shown against him either that he knew the truth, or that he did not rely upon the representations8. Difficulty arises because of the general rule that rescission will only be granted where restitutio in integrum (restoring any party to their original position or ‘counter-restitution’) is possible9, and this may be difficult within a partnership. But the statutory provisions discussed next below show that rescission is not impossible; the Act10 provides that liability of all parties to the firm’s creditors is not affected11.  1 Charlesworth v Jennings (1864) 34 Beav 96; Senanayake v Cheng [1966] AC 63, [1965] 3 All ER 296; Adam v Newbigging (1888) 13 App Cas 308.  2 Rawlins v Wickham (1858) 3 De G & J  304; Betjemann v Betjemann [1895] 2 Ch  474; Thompson v Geary (1842) 5 Beav 131.  3 Law v Law [1905] 1 Ch 140, CA.   4 A delay of two months was fatal in Riddel v Smith (1864) 10 LT 561, and in Senanayake v Cheng [1966] AC 63 it was argued that one month was too long where the claimant had become a partner in a stockbroking firm.  5 Rawlins v Wickham (1858) 3 De G & J 304; Redgrave v Hurd (1881) 20 Ch D 1.   6 On this see Jessel MR in Redgrave v Hurd (1881) 20 Ch D 1 at 17 commenting upon Attwood v Small (1838) 6 Cl & Fin 232.  7 Redgrave v Hurd (1881) 20 Ch  D  1; Rawlins v Wickham (1858) 1 Giff 355; for the circumstances in which an accountant’s certificate made upon erroneous principles will be set aside see Smith v Gale [1974] 1 All ER 401 at 413.  8 Redgrave v Hurd (1881) 20 Ch D 1.   9 The law on this is helpfully set out (albeit obiter) by Nigel Teare QC in his judgment in Halpern v Halpern (No 2) [2006] 3 WLR 946, reversed CA [2007] 3 WLR 849. 10 See the Partnership Act 1890, s 41; quoted below. 11 Senanayake v Cheng [1966] AC 63, [1965] 3 All ER 296, PC following Lord Watson in Adam v Newbigging (1888) 13 App Cas 308 at 322.

279

14.9  Internal partnership dispute and its remedies

(c)  The consequences of rescission 14.9  If a partner’s claim to rescind the partnership agreement succeeds, he is entitled on ordinary principles to be put in a position (as nearly as possible) as if he had never become a partner1. Section  41 of the Partnership Act 1890, and its explanatory side-note, explain some of the consequences: 41 Rights where the partnership is dissolved for fraud or misrepresentation Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled: (a) to a lien on, or right of retention of the surplus of the partnership assets, after satisfying the partnership liabilities, for any sum of money paid by him for the purchase of a share in the partnership and for any capital contributed by him, and is (b) to stand in the place of the creditors of the firm for any payment made by him in respect of the partnership liabilities, and (c) to be indemnified by the person guilty of the fraud or making the representation against all the debts and liabilities of the firm.

The effect of partnership rescission is to rescind the partnership agreement as regards the partner in question; but restitutio in integrum may be impossible because third parties (and probably other partners who were innocent of the misrepresentation or fraud2) will have acquired rights in the meantime. Dissolution will commonly, but not necessarily, flow from such rescission3. The rules are expressed by section 41 to relate to rescission for ‘fraud or misrepresentation’4 which presumably extends to non-disclosure (but not to rescission for mistake or under a provision in the agreement itself). The rules are these5: (a) he remains personally liable to the firm’s creditors, but has a right of indemnity for all the firm’s debts against such of his partners as were responsible for the fraud or misrepresentation6, and he is not liable to contribute to those partners’ capital or advances to the firm7; (b) as regards any payment he may have personally made towards partnership obligations, he is entitled to be repaid with interest by the firm and for this to rank as a creditor, ahead of any claim by any partner to any partnership funds8; (c) for his capital account, interest on it9, costs and for repayment of what he may have paid for his partnership share, he has a lien over all partnership assets after payment of the creditors10; (d) he must give credit for any benefit that he has received, with interest11; (e) he remains under duty of good faith to his partners until the conclusion of the winding up, and they may be allowed remuneration by the court12. There can be no objection to a partner seeking rescission or dissolution in the alternative13.   1 See the Partnership Act 1890, s 41.  2 The position as regards neutral third-party partners is uncertain: see para  14.12 below (repudiation); Senanayake v Cheng [1966] AC 13, where no partner was joined as a defendant

280

Enforcement of agreements 14.10 save the one who made the misrepresentation; and Adam v Newbigging (1888) 13 AC 308. Usually the partnership continues between all save the partner who is rescinding.  3 Senanayake v Cheng [1966] AC 63 at para 73, but see Neuberger LJ in Mullins v Laughton (2003) Ch 250 (a case of purported repudiation), and Adam v Newbigging (1888) 13 AC 308.   4 But its headnote says, ‘Where a partnership is dissolved …’   5 They are set out more precisely in the Partnership Act 1890, s 41, which is quoted above.   6 The partners liable will be any partner who (however innocently) makes the representation or fails to make the proper disclosure, and any other partner who allows a statement to be made which he knows to be false even though he does not make the statement himself.  7 Adam v Newbigging (1888) 13 App Cas 308 at 331.  8 Mycock v Beatson (1879) 13 Ch D 384. This is the exception to the general rule (discussed in Chapter  23) that a partner may not prove for his claim against partnership assets in competition with the claims of creditors.  9 Newbigging v Adam (1886) 34 Ch D 582. 10 Mycock v Beatson (1879) 13 Ch D 384; Jauncey v Knowles (1859) 29 LJ Ch 95; Bury v Allen (1845) 1 Coll 589; Re Hooper, ex p Broome (1811) 1 Rose 69. A partner’s lien is discussed at para 10.6 above. 11 Rawlins v Wickham (1858) 1 Giff 355; Greenwood v Bennett [1973] QB 195; Alati v Kruger (1955) 94 CLR 216. 12 Yasuda Fire and Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd [1995]  QB  174; Balfour v Hollandia Ravensthorpe (1978) 18  SASR  240; O’Sullivan v Management Agency and Music Ltd [1985] QB 428. The continuance of the duty of good faith after dissolution is discussed at para 11.12 above. 13 Bagot v Easton (1877) 7 Ch D 1.

(d)  Damages for misrepresentation 14.10  When he has purchased his share on the strength of a misrepresentation, and whether or not he either seeks or obtains rescission of his partnership agreement, a partner can obtain damages for misrepresentation or fraud as well as damages for negligence1. Before the Misrepresentation Act 1967 damages were only paid in the case of fraudulent rather than innocent misrepresentation2. Now damages are still recoverable for any fraudulent misrepresentation inducing the partnership contract, and also for an innocent misrepresentation subject to this proviso3: the person making the representation is not liable if he proves that he had reasonable ground to believe and did believe up to the time that the contract was made that the facts represented were true. But in such a case the court can award damages in lieu of rescission4. If the misrepresentation is made without the authority of the other partners, the liability for damages is that of the partner who actually made the representation5, and not on the innocent partners, as there is no provision in the 1890 Act to impose vicarious liability upon them6. The measure of damage is the tortious and not the contractual one7; so there is no compensation for loss of the promised bargain8. If a person enters into a partnership to run a racehorse on a mistaken representation as to its pedigree, and later learns the truth and sells his partnership share, the measure of his loss is the fall in value of his share, not the difference between what he paid for it and its then value9. 1 Conlon v Simms [2006] 2 All ER 1024; reversed on other grounds [2006] EWCA Civ 1749. Negligence and fraud and other claims between partners are discussed at para 14.50ff below, and misrepresentation generally at para 12.41 above.

281

14.11  Internal partnership dispute and its remedies 2 Redgrave v Hurd (1881) 20 Ch D 1. 3 See the Misrepresentation Act 1967, s 2(1). 4 See the Misrepresentation Act 1967, s 2(2). The measure of damage in a claim for damages in lieu of rescission is uncertain. 5 Partnership Act 1890, s 41(c). 6 Partnership Act 1890, s 15 only imposes upon the firm liability for a representation made by a partner ‘in the ordinary course of its business’, which such a repudiation as this can hardly be. 7 Royscott Trust Ltd v Rogerson [1991] 2  QB  297, CA; Dempster v Mallina Holdings Ltd (1994) 15 ACSR 1. 8 Stoneyford Supplies Ltd v Edge [1986] Ch 128; revsd [1987] Ch 305, CA. 9 Naughton v O’Callaghan [1990] 3 All ER 191, followed in Downs v Chappell [1996] 3 All ER 344, CA.

2 REPUDIATION BY BREACH OF THE PARTNERSHIP AGREEMENT A B C D

Repudiation applied to partnerships   14.11 What amounts to repudiation   14.14 The effect of repudiation   14.16 Damages and repudiation   14.17

A  Repudiation applied to partnerships (a)  Does the doctrine of repudiation apply to partnerships? 14.11  The Partnership Act 1890 envisages that a partnership agreement has the normal characteristics of a contract and can (for instance) be the subject of rescission for fraud, without dissolution as such1. Under ordinary principles of contract law, if one party to a contract absolutely refuses to perform his side of the contract, another party is entitled to elect to accept that repudiation and to treat himself as discharged from continuing liability under the contract. Difficulties arise with applying these principles to partnership law: (a) Partnership is a ‘relationship’2 based upon contract, but a distinction must sometimes be drawn between the partnership and the agreement that created it or governs it. (b) The partnership law code of dissolution, dealing comprehensively with the determination of the partnership relationship, seems to put the rougher doctrine of repudiation out of place; this might be why the draftsman of the Partnership Act 1890 does not expressly mention it. If a partner finds his partners are guilty of serious breach he may seek dissolution from the court under section 35 of the Partnership Act 18903 which includes the following as a ground of dissolution: (d) When a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business with him.

282

Repudiation by breach of the partnership agreement 14.12

(c) The rights of third parties (creditors and those others who are dealing with the firm) cannot be jeopardised merely because of a breakdown in relations within the firm. So a complainant partner, however greatly he may have been wronged, cannot simply cut off his relationship with the firm; he may have partnership capital; he is liable for the firm’s debts; there will inevitably be accounting between him and his former partners. Repudiation of the partnership agreement leaves these ends untied. (d) In a multi-member partnership, why should the consequence of the behaviour of some partners towards another result in the whole firm being dissolved, even as regards partners who are not party to the wrong? 1 Section 41 envisages that a ‘partnership contract’ may be rescinded for fraud, and provides for the consequences. 2 See the Partnership Act 1890, s 1(1). 3 See para 17.16ff below.

(b) Decisions on whether repudiation does apply to partnership agreements 14.12  It was decided that the doctrine of repudiation can apply to a partnership in Greenham v Gray1 and by Harman J in Hitchman v Crouch Butler Savage Associates2, and by Nourse J in Fulwell v Bragg3, but this law has now been doubted. In the House of Lords in the case of a multi-partner partnership in Hurst v Bryk4 Lord Millett (with whom the four other Law Lords agreed) made the point that the doctrine of repudiation can only ever apply if the dispute is a bilateral one, as where the partners are two only or have split into only two sides. This is because if there is to be an accepted repudiation, every partner must either be amongst those doing the repudiating or amongst those accepting the repudiation. He then raised (obiter) the question whether any partnership relationship could be repudiated, even though the agreement which created the partnership might have been. He then went further and said5: By entering into the relationship of partnership, the parties submit themselves to the jurisdiction of the court of equity, and the general principles developed by that court in the exercise of its equitable jurisdiction in relation to partnerships. There is much to be said for the view that they thereby renounce their right by unilateral action to bring about the automatic dissolution of their relationship by acceptance of a repudiatory breach of the partnership contract, and instead submit the question to the discretion of the Court.

But in relation to a bilateral rather than a multilateral partnership dispute this is poor reasoning. A partnership relationship is defined by the contractual terms. The partners may vary these so as (for instance) to dissolve the firm. Why should the common law doctrine of repudiation be excluded in the case of partnerships, merely because statute provides for other ways in which partnerships can be dissolved? Lord Millett’s view was correctly adopted by Neuberger J in the multipartner case of Mullins v Laughton6, where he held in the case of a 17-member partnership that dissolution by an accepted repudiation was not possible, 283

14.13  Internal partnership dispute and its remedies

and so neither was the repudiation of a partnership agreement whilst the partnership was continuing, as ‘a partnership cannot be detached from the partnership agreement’7. But Christopher Nugee QC and the Court of Appeal were surely wrong to take the principle that repudiation was impossible into a case of a two-partner dissolution in Golstein v Bishop8, and Henderson J was correct to leave open that question in the LLP case of Flanagan v Liontrust Investment Partners LLP9 describing the suggestion of the present authors in the fifth edition of this work as ‘the more cautious approach’. 1 (1855) 4 ICLR 501. See also Dale v Hamilton (1847) 2 Ph 266 and M’Lure v Ripley (1850) 2 Mac & G 274. 2 (1983) 127 Sol Jo 441, 80 LS Gaz R 554. See also Johnson v Snaddon (unreported, Victoria SC, 769 of 1997), CA. 3 (1982) 127 Sol Jo 171. 4 [1999] Ch 1, CA; [2000] 2 WLR 740, HL; followed in Doyle v Irish National Insurance Co plc [1998] 1 ILRM 502 (Eire). 5 [2000] 2 WLR 740 at 749H. 6 [2003] Ch 250. 7 Ibid at 272D E. 8 Golstein v Bishop [2013]  EWHC  881 (Ch), approved CA as Bishop v Golstein [2014] EWCA Civ 10. 9 [2015] EWHC 2171 (Ch).

(c)  Repudiation in relation to partnership may yet survive 14.13  The obiter speech of Lord Millett and the judgment of Neuberger J mentioned in the last paragraph may overstate the case1. There seems to be no reason why the doctrine of repudiation should not apply to the partnership relationship, in every case where all the partners are either on the giving or the receiving end of the repudiatory behaviour. To require every such case to go to court for the dissolution to be determined as a matter of discretion would be inconvenient and illogical. Indeed Lord Millett himself may have accepted this when he said2: The contractual doctrine of repudiatory breach is essentially bilateral. It could work if you had two partners, or if the partners fell into two rival camps. But it could not possibly work with (say) 25 partners …

Our conclusion is that Lord Millett and Neuberger J were right to hold that repudiation could not apply in the multi-partnership cases with which they were concerned, but it is wrong to extend the principle to a two-partner partnership .The doctrine of repudiation may apply to the partnership (as rescission undoubtedly may3) where, but only where, there is a two-partner firm or where every partner can be classed as either a partner who is committing (expressly or vicariously) the repudiation or suffering the repudiation. Only where there are neutral partners does the doctrine become inoperable. A partner who might be entitle to treat the partnership as repudiated for breach, may elect not to adopt this course, by affirming the contract4. 1 Ryder v Frohlich [2004] NSWCA 472 (which evidences that the courts of New South Wales have no difficulty with the idea that a partnership may be repudiated), followed in Bonzalie v Cullu [2013] NSWSC 1576, Robb J, a reference given me by my friend David K L Raphael.

284

Repudiation by breach of the partnership agreement 14.15 2 Address to the AGM of the Association of Partnership Practitioners 9 March 2005. 3 By the Partnership Act 1890, s 41, quoted and discussed at para 14.9 above; Lie v Mohile [2015] EWHC 200 (Ch). 4 Lie v Mohile [2015] EWHC 200 (Ch).

B  What amounts to repudiation 14.14  Repudiation occurs (if it can occur at all in a partnership context, as discussed above) when the partners concerned evince an intention no longer to be bound by the partnership contract in accordance with its terms1 or at all2. It is ‘a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations’3. It is different from the misfeasance which may give to the court a discretion to dissolve the partnership under s 35(d) above4. No act less than actual expulsion has sufficed in a reported partnership case save in Hurst v Bryk5 in which all partners save the plaintiff signed a dissolution agreement, and this was treated by the Court of Appeal as repudiatory. Where the partnership agreement gives the partners no arguable claim to expel a partner but they do expel him, their behaviour amounts to repudiation, as in Greenham v Gray6: Gray owned a cotton-spinning mill and agreed that Greenham should manage it for him for five years at £150 pa plus one-fifth of the profits. Within a few months Greenham was proclaiming that he was a partner with Gray (as indeed in law he was) which so irked Gray that he declared it to be a breach of the master-servant relationship, and evicted Greenham. Greenham’s claim against Gray for ‘hindrance to the fulfilling of his contract’ and for ‘repudiation’ was upheld; the partnership was treated as at an end and he was awarded substantial damages. 1 Oliehandel Jongkind BV  v Coastal International Ltd [1983] 2 Lloyd’s Rep 463; Cantor Fitzgerald International v Callaghan [1999] 2 All ER 411, CA (an employment case). 2 Freeth v Burr (1874) LR 9 CP 208, 218. 3 Per Lord Wilberforce in Woodar Investment Development Ltd v Wimpey Construction (UK) Ltd [1980] 1 WLR 277 at 283E. 4 Bishop v Golstein [2014] EWCA Civ 10 at para 15. 5 [1999] Ch 1, CA; upheld [2000] 2 WLR 740, HL; as discussed at para 14.12 above. 6 (1855) 4 ICLR 501.

(a)  Mistaken expulsion notices 14.15  Where the partners have a right of expulsion but fail to exercise it properly1, as in the cases of Hitchman v Crouch Butler Savage Associates (a firm)2 and Fulwell v Bragg3 considered above, the notice will not be a repudiatory one if those who served it honestly believed that they had the right to do so under the partnership agreement, for in those circumstances they were asserting rather than denying the partnership agreement4. ‘Mere honest misapprehension, especially if open to correction, will not justify a charge of repudiation’5. 285

14.16  Internal partnership dispute and its remedies

Where an honest (but mistaken) notice is served, and the recipient proceeds to act as if he is discharged from the partnership by repudiation, the court may treat the partnership as having been dissolved by mutual consent, as all parties to the agreement are treating it as having ended; this may be the rationale behind Harman J’s conclusion in Hitchman v Crouch Butler Savage Associates6 that the partners’ defective notice amounted to a repudiation and ‘the Plaintiff, by continuing to practise from different premises, had accepted repudiation.’ 1 2 3 4

Expulsion is dealt with generally at para 16.38 below. (1983) 127 Sol Jo 441, 80 LS Gaz R 554, CA. (1982) 127 Sol Jo 171. Per Lord Scarman in Woodar Investment Development Ltd v Wimpey Construction (UK) Ltd [1980] 1 WLR 277 at 299, following Shaffer James Ltd v Findlay Durham and Brodie [1953] 1 WLR 106, CA; and Sweet and Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699, CA. 5 Per Lord Wright in Ross T Smyth Co Ltd v T D Bailey, Son & Co (1940) 164 LT 102 at 107. Lie v Mohile [2015] EWHC 200 (Ch). 6 (1983) 127 Sol Jo 441, 80 LS Gaz 554, CA.

C  The effect of repudiation 14.16  The effect of a breach of the partnership agreement such as the wrongful exclusion of a partner, if repudiatory, would be to give the wronged partner the right to accept the repudiation if he so wishes. If he accepts it the result is apparently immediate dissolution of the partnership, as in Greenham v Gray1, Hitchman v Crouch Butler Savage Associates2, Fulwell v Bragg3 and Hurst v Bryk4 above. But whether there is a general dissolution or only a dissolution as between the complainant partner and the others has not been seriously argued in England5. The wrongdoing partners can of course form their own new partnership together if they wish. By repudiation being accepted, the partner and the firm would thus both apparently be discharged from further performance of the partnership contract, but rights which arise from the partial execution of the contract would continue unaffected6 as does the duty of confidentiality7 on the outgoing partner. He remains liable for obligations to outsiders, such as the accruing rent under the partnership lease, but not liable on restrictive covenants to his partners8. The winding up and distribution provisions of section  44 of the Partnership Act 1890 apply as they do to every dissolution9. His position is not the same as if the partnership had been dissolved by the court10.   1 (1855) 4 ICLR 501.   2 (1983) 127 Sol Jo 441, 80 LS Gaz 554, CA.   3 (1982) 127 Sol Jo 171.   4 [2000] 2 WLR 740; see Peter Gibson LJ in the Court of Appeal [1999] Ch 1 at 13A B.   5 Cf Doyle v Irish National Insurance Co plc [1998] 1 ILRM 502.  6 Bank of Boston Connecticut v European Grain and Shipping Ltd, The Dominique [1989] AC 1056 at 1099A; Johnson v Agnew [1980] AC 367 at 396 per Lord Wilberforce; General Billposting Co Ltd v Atkinson [1909] AC 118, HL.  7 Campbell v Frisbee [2002] EWHC 328 (Ch), Lightman J.

286

The claim for an account 14.17  8 Hurst v Bryk [1999] Ch 1, CA; Rock Refrigeration Ltd v Jones [1997] 1 All ER 1, CA.   9 Per Lord Millett in Hurst v Bryk [2000] 2 WLR 740 at 751D. 10 Lie v Mohile [2015] EWHC 200 (Ch).

D  Damages and repudiation 14.17  Whether or not a partner has suffered a repudiatory breach of the partnership agreement and has elected to accept the repudiation, he may be entitled to damages for loss of reputation and career disruption1 and he is entitled to compensation for his partners’ failure to comply with their original obligation not to exclude him2, or to pay him an agreed salary for a certain term3. His action will not lie against the firm as such but against the other partners. He will often have difficulty in recovering more than nominal damages since he is being repaid his whole share in the partnership under its dissolution. He will have to show that after he has taken any reasonable steps to mitigate his loss, he has suffered in that his anticipated profits from the partnership exceed what he could expect to earn in an alternative business4 for the period ending with the date when his partners could legitimately dissolve the firm or expel him5. So his damages may be nil if the partnership was a partnership at will determinable by any partner at any time6, and may be reduced if his dismissal was wrong only in the machinery employed7. 1 Mullins v Laughton [2003] Ch  2502. In the USA he has been awarded punitive damages: Beasley v Cadwalader, Wickerham & Toft [1996] WL 438777 (Fla Cir Ct 1996). 2 Bishop v Golstein [2014] EWCA Civ 10. For damages for repudiation generally, see Photo Production Ltd v Securicor Transport Ltd [1980]  AC  827, explaining Suisse Atlantique Societe d’Armament SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 391–392; Moschi v Lep Air Services [1973] AC 331 at 345. 3 Golstein v Bishop [2013]  EWHC  881 (Ch), approved CA as Bishop v Golstein [2014] EWCA Civ 10. 4 Yetton v Eastwoods Froy Ltd [1967] 1 WLR 104. 5 Gunton v Richmond-upon-Thames London Borough Council [1980] ICR 755, CA. In the Canadian case of Byrne v Napier (1975) 62  DLR (3d) 589 the plaintiff moved house on the basis of his oral partnership agreement with the defendant, which the defendant then repudiated. The plaintiff was held entitled to damages to place him in the same position as he would have been if the contract had been performed. 6 Connell v Slack (1909) 28 NZLR 560, a reference given to us by our friend Michael King. 7 T Gover & Sons v Property Care [2005] UKEAT 0458_05_2211.

3  THE CLAIM FOR AN ACCOUNT A B C D E

The right to an account   14.18 The meaning of ‘action for an account’   14.20 Taking the account   14.25 Defences to actions for an account   14.31 How settled accounts may be challenged   14.42 287

14.18  Internal partnership dispute and its remedies

A  The right to an account 14.18  Strictly speaking, no partner has a claim against his firm for ‘damages’ at common law1. Claims between them ‘are settled only by the taking of an account’2. The right to an order for accounts is a legal right3, not to be barred by the claimant partner’s bad faith or even false book-keeping4. But where detailed financial accounts have been produced, a partner cannot insist that the court orders the taking of accounts, at least if he has failed to provide details of his points of concern, or these have not amounted to much5. Assignees and executors of partners are entitled to certain rights of account6. Conversely members, ex-members7 and those liable by holding out8 are accountable. But for simplicity this chapter refers to them all simply as ‘partners’. When a partnership is dissolved, the account must be taken up to the conclusion of the winding up9. 1 This is so even though the partner may be entitled to a compensatory payment on the taking of the accounts, as discussed at para 14.50ff below. 2 Per Lord Millett in Hurst v Bryk [2002] 1 AC 185 at 194 and Leggatt LJ (with whom Simon Brown and Millett LJJ agreed) in Robert Render v Grech (24 January 1996, unreported), CA following Green v Hertzog [1954] 1 WLR 1309 and Miller v Miller (1869) LR 8 Eq 499. To the same effect are Manning v English [2010] EWHC 153 (Ch) following Marshall v Bullock [1998] EWCA Civ 561, and Rosenberg v Nazarov [2008] EWHC 812 (Ch). When an account may be refused is discussed at para 14.39 below. 3 Taylor v Taylor (1873) 28 LT 189 (discussed at para 15.52 below) Paragon Finance v D B Thakerar [1999] 1  All ER  400 at 415 (an agency case); How v Earl Winterton (1896) 2 Ch 626 at 639; following Knox v Gye (1872) 5 LR AC 456, and see further under ‘laches’ at para 15.61 below. 4 Ram Singh v Ram Chand (1923) LR 51 Ind App 154; Taylor v Taylor (1873) 28 LT 189; Park v Park 1970 SLT (Notes) 59. 5 Per Peter Gibson LJ in Marshall v Bullock [1998] EWCA Civ 561 and Hurst v Bryk [1999] Ch 1 at 15G. 6 See para 10.10ff above. An employee entitled to a share of profits will also be entitled to an account even though he is no partner. 7 See para 20.17ff below. 8 See Chapter 5. 9 Lam Tai Kwan v Lo Wai Kit [2007] HKLRD 367.

(a) Procedure 14.19  In the High Court all causes and matters relating to the dissolution of partnership or the taking of partnership or other accounts are assigned to the Chancery Division1. The county court jurisdiction is discussed at para 15.1 below. The court may order accounts to be taken at an interlocutory stage in an action2. 1 See the Senior Courts Act 1981, s 61 and Sch 1. 2 See CPR, Pt 25.1(1)(n) or the Practice Direction that supplements Pt 24.

288

The claim for an account 14.21

B  The meaning of ‘action for an account’ 14.20  The old action for an account was explained by Lindley LJ1: Before the Judicature Acts a suit for an account could be maintained in equity in the following cases: (1) Where the Plaintiff had a legal right to have money payable to him ascertained and paid, but which right, owing to defective legal machinery, he could not practically enforce at law. Suits for an account between principal and agent, and between partners, are familiar instances of this class of case. (2) Where the Plaintiff would have had a legal right to have money ascertained and paid to him by the Defendant, if the defendant had not wrongfully prevented such right from accruing to the plaintiff … (3) Where the plaintiff had no legal but only equitable rights against the defendant, and where an account was necessary to give effect to those rights. Ordinary rights by cestuis que trust against their trustees and suits for equitable waste fell within this class. (4) Combination of the above cases.

For historical reasons2 such phrases as ‘An accounting claim’ or ‘An action of account’3 are used today in four different ways, discussed in the following four paragraphs. 1 London, Chatham and Dover Railway Co v South Eastern Railway Co (1892) 1 Ch  120 at 140. 2 An action for account could be brought both at law and in equity with different procedures; the former had largely been superseded by the time of the Judicature Acts. See Snell on Equity (29th edn), p 637, citing SJ Stoljar (1964) 80 LQR 203 for the history of the common law action of account. 3 Per the Statute of Limitations 1623, s 8.

(a)  An obligation to account for a particular liability 14.21  A partner may breach a duty to his partners, with the consequence that he must pay over what he has obtained for himself1 or wrongly failed to obtain for the benefit of his partners2. He is ‘accountable’, so where he has wrongly kept a benefit for himself, his liability is not quantified as their loss but as his gain3. This will not prevent their claiming against him, in the alternative (for instance in fraud), for their own actual loss4 if they have sustained any5. They need only elect between these two alternative remedies after trial6, but elect they must7. The claimant is usually entitled only to net profits, and the costs to be deducted from gross profits may be all those business costs which had nothing to do with the infringed right, including centrally incurred costs for business support, costs of distribution and sale, staff salaries, office rental, computer and other support8. The ambit of the account must depend upon the nature of the claim, to quote Lewison J9 the fundamental rule is that the fiduciary should not make an unauthorised profit, but the account: should not be allowed to operate as the unjust enrichment of the Claimant …

289

14.21  Internal partnership dispute and its remedies … the fashioning of the account depends upon the facts. In some cases it will be appropriate to order an account limited in time; or limited to profits derived from particular assets or particular customers; or to order an account of all the profits of a business subject to all just allowances for the fiduciary’s skill, labour and assumption of business risk. In some cases it may be appropriate to order the making of a payment representing the capital value of the advantage in question, either in place of or in addition to an account of profits.

The liability was considered by the Privy Council in Akita Holdings Ltd v A-G of Turks and Caicos Islands10: 15. The liability of a knowing participant to account for profits was discussed in Novoship (UK) Ltd v Mikhaylyuk11 … when Longmore J illustrated the principle by reference to Cook v Deeks [1916] 1 AC 554 … The defendants were directors of a construction company who had negotiated a lucrative construction contract but then decided to take it over for themselves. To do so they set up a second company which carried out the contract and received the profit. It was held by the privy council that the directors, being in breach of their fiduciary duty to the first company, held the benefit of the contract on its behalf; and further that the second company, having acquired their rights with full knowledge of all the facts, were equally liable with them to account.

The claim is discussed further at para  14.51ff below where questions of foreseeability of loss are also mentioned.   1 Or what he stood to make but had not yet realised: Potton Ltd v Yorkclose Ltd [1990] FSR 11. If he appropriates money after the firm has authorised him to pay its cheques into his own bank account, the bank is not liable for conversion of the cheques: Souhrada v Bank of New South Wales [1976] 2 Lloyd’s Rep 444 (New South Wales Supreme Court), following Australia and New Zealand Bank Ltd v Ateliers de Construction [1967] 1 AC 86, [1966] 1 Lloyd’s Rep 463 and Union Bank of Australia v McClintock & Co [1922] 1 AC 240.  2 Rama v Miller [1996] 1 NZLR 257, PC. His duties to them, which are described as duties of good faith, are discussed in Chapter 11.  3 Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391 at 473; Kao Lee Lip v Koo (2003)  WTLR  1283, where the gain to the partner in default might have continued indefinitely, but the Hong Kong court limited accountability to one year’s duration. In Uphoff v International Energy Trading Ltd (1989) Times, 4 February, CA, the Court of Appeal held that the only remedies available for breach of any fiduciary duty of disclosure between co-venturers were rescission and an account of secret profits, and the breach would not sound in damages.  4 Mahesan v Malaysia Government Officers’ Co-operative Housing Society Ltd [1979] AC 374, PC.  5 Uphoff v International Energy Trading Ltd (1989) Times, 4 February, CA.  6 Island Records Ltd v Tring International Ltd [1996] 1 WLR 1256, where Lightman J reviewed the authorities and held that a declaration might be made that the plaintiff was entitled at his election to damages or to an account of profits, with directions as to the time in which he was to elect. See also Douglas v Hello! Ltd [2006] QB 125, CA at para 244.  7 Mahesan v Malaysia Government Officers’ Co-operative Housing Society Ltd [1979] AC 374 at 383, citing United Australia Ltd v Barclays Bank Ltd [1941] AC 1.  8 Hollister Inc v Medik Ostomy Supplies Ltd 20/12/2011.  9 Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) paras 46 and 1588(v), quoted with approval by the Privy Council in Akita Holdings Ltd v A-G of Turks and Caicos Islands [2017] AC 590 at 595D; Abbott v Design & Display Ltd [2017] EWHC 932 (IPEC). 10 [2017] AC 590. 11 [2015] QB 499.

290

The claim for an account 14.24

(b)  A claim by a partner against the firm 14.22  If he is ‘owed’ money because of his ‘loan’ to the firm he must sue for an account rather than in debt because no partner can be a creditor of his own firm, or purport to rank with outside creditors of the firm1. This and the converse claim by the firm against him will require some arithmetic as to the mutual rights of the parties2. As Goddard LJ said in Green v Hertzog3 dismissing a claim in debt by a single ex-partner against her two former partners and the estate of a third: It is a misconceived action. There is no common law claim here for money lent; it is a loan by one partner to a partnership; it is money lent to the partnership, and section 44(2) of the Partnership Act 1890 shows how that money is to be reclaimed and dealt with. There must be a taking of the accounts, and, if it be shown that there is enough money in the partnership accounts to repay the Plaintiff the money that she has advanced, or some of it, after the creditors of the partnership have been paid, she will get that money in priority to the others. 1 Green v Hertzog [1954] 1  WLR  1309, CA; Manning v English [2010]  EWHC  153 (Ch) following Marshall v Bullock [1998] EWCA Civ 561; Weston v Abrahams (1869) 20 LT 586; Carr v Smith (1843) 5 QB 128; but usually such an action could be treated as an action for a declaration that upon the accounts being taken the sum in question should be allowed as an advance by the partner to the firm. 2 Meyer & Co v Faber (No 2) [1923] 2 Ch 421, further discussed at para 15.5 below. 3 [1954] 1 WLR 1309 at 1312.

(c)  An account stated 14.23  An action may be brought on an ‘account stated’. This means an action to enforce the rights that are apparent from agreed financial statements1, which does not strictly speaking require the defendant to ‘account’ by producing new information at all. But, if after winding up and settlement of accounts between the partners, an unexpected sum falls into possession it must be distributed amongst the partners in accordance with their partnership entitlement2. As to settled accounts and deemed settled accounts see para 14.34 below. 1 Camillo Tank Steamship Co v Alexandria Engineering (1921) 38 TL 134 at 143, HL. 2 Chetty Gopala v Vijayaraghavachariar [1922] 1 AC 488, PC.

(d)  An action for production of financial statements 14.24  Every partner has a right to insist that accurate financial records are kept by the partnership and that he has access to them1 and that his partners comply in all financial matters with their duties of good faith2. The obligation is a mutual one, so he is as obliged to account as they are3. Section 28 of the Partnership Act 1890 provides: 291

14.24  Internal partnership dispute and its remedies Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.

The accounts should be produced in the form that the firm has adopted as its practice4. Lord Eldon observed5: In the absence of a special agreement, accounts must be taken in the usual way; but where a special agreement has been made, it must be abided by, provided that the parties have acted on it; if not, I always understood that the articles are read in this court as not containing the clauses on which the parties have not acted.

Each partner is under an obligation to produce and explain the financial or other matters in question, in the usual form of the firm’s accounts6. He is liable to do this even if he has already agreed them with all the other partners and the business is a foreign one7. It is not for the other partners, who have been kept in the dark by him, to prove a case against him8. Subject to questions of delay or laches9 he may be required to account for every year back to the commencement of the partnership10 or to the last settled account11. An accounting party can be compelled to comply with the directions of the court by the threat of sequestration or committal12 or being debarred from adducing evidence where the giving of such evidence might be of value to him13.   1 See the Partnership Act 1890, s 28. The obligation to account is discussed at para 11.16ff above and the form of accounts at paras 9.4 and 12.19ff above.   2 Discussed in Chapter 11.   3 ‘The English partner is entitled to an order directing his co-partners to account, and if they fail to comply with such an order and thus fulfil the obligation to which I have referred, the English partner would be absolved from his correlative obligation’ (per Warrington LJ in Public Trustee v Elder [1926] 1 Ch 776 at 788).  4 Re Barber (1870) 5 Ch App 687; Garwood v Garwood (1911) 105 LT 231, CA; Watney v Wells (1862) 1 New Rep 82. It is otherwise if this system of accounts is misleading: Noble v Noble 1965 SLT 415.   5 In Jackson v Sedgwick (1818) 1 Swan 460 at 469 cited by Sir George Turner M-R in Blisset v Daniel (1853) 10 Hare 493 at 520.  6 Re Barber (1870) 5 Ch App 687; Binney v Mutrie (1886) 12 App Cas 160, PC; Garwood v Garwood (1911) 105 LT 231, CA; Watney v Wells (1862) 1 New Rep 82. It is otherwise if this system of accounts is misleading: Noble v Noble 1965  SLT  415. The obligation to produce accounts is discussed at para 11.16ff above, and the form of such accounts at paras 9.4 and 12.19 above.  7 Maunder v Lloyd (1862) 2 John & H 718.   8 The common law action for account fell into disuse and was replaced by that of the Court of Chancery: Snell’s Equity (34th edn), para 20-003.   9 Discussed at para 15.50ff below. 10 Or to pre-partnership dealings when these are relevant: Cruickshank v M’Vicar (1844) 8 Beav 106. 11 In Betjemann v Betjemann [1895] 2 Ch 474, CA (discussed in Chapter 15) the account ran back 40 years. 12 See CPR, Part 81. But money received by a partner on account of the firm is not held by him ‘acting in a fiduciary capacity’ so as to take him outside the relief from arrest or imprisonment contained in the Debtors Act 1869, s 4: Piddocke v Burt [1894] 1 Ch 343; Gordon v Holland (1913) 82 LJPC 81, PC. 13 Dowson & Mason Ltd v Potter [1986] 1 WLR 1419 at 1421.

292

The claim for an account 14.26

C  Taking the account (a)  Summary order to produce accounts 14.25  If accounts are sought on the dissolution of an admitted partnership, or in some other way the liability to produce accounts cannot be denied, then the court may make a summary order for an account with an order for payment of the amount found due. The court will, if appropriate, make a summary order under para 6 of the PD supplementing Part 24 of the CPR for the taking of an account. This will be taken before the Master1. An unliquidated claim2, and in theory even a fraud claim, can thus be disposed of3. The expense of taking an account in court is usually wholly disproportionate to the amount at stake. Parties are strongly encouraged to refer disputes on accounts to an accountant for determination or mediation. The Master can (whether before or after the reference to the accountant) decide any matters of principle arising on the accounts (eg whether a partner has made a particular drawing or not)4.

It will be convenient for the accounts ordered to be in the form of the usual accounts of the firm, to its usual accounting date, and separately for the periods up to and after dissolution. If the accounts are in any way disputed, then the matter proceeds as mentioned in the next paragraph. 1 Qharavi-Nakhjavani v Pelagias [2014] EWCA Civ 1699; see the Chancery Guide, para 22.1 and para 9 of Practice Direction to Part 40. An interim order for an account may be made also under CPR, Pt 25.1(1)(n). 2 Bury v Allen (1845) 1 Coll 589. 3 Newton Chemical Ltd v Arsenis [1989] 1 WLR 1297, CA. 4 See the Chancery Guide, para 22.4.

(b)  Procedure on taking accounts: the rules 14.26  Often financial statements, whether or not they were originally produced without recourse to the litigation, are challenged. It is then usual for an order to be made for the taking of accounts summarily under CPR, Part 23 or 241. The Practice Direction supplementing Part 40 lays down the procedure. 1.1 Where the court orders any account to be taken or any inquiry to be made, it may, by the same or a subsequent order, give directions as to the manner in which the account is to be taken and verified or the inquiry is to be conducted. 1.2 In particular, the court may direct that in taking an account, the relevant books of account shall be evidence of their contents but that any party may take such objections to the contents as he may think fit. 1.3 Any party may apply to the court in accordance with CPR  Part 23 for directions as to the taking of an account or the conduct of an inquiry or for the variation of directions already made.

293

14.27  Internal partnership dispute and its remedies 1.4 Every direction for the taking of an account or the making of an inquiry shall be numbered in the order so that, as far as possible, each distinct account and inquiry is given its own separate number. 2 Subject to any order to the contrary: (1) the accounting party must make out his account and verify it by an affidavit or witness statement to which the account is exhibited, (2) the accounting party must file the account with the court and at the same time notify the other parties that he has done so and of the filing of any affidavit or witness statement verifying or supporting the account. 3.1 Any party who wishes to contend: (a) that an accounting party has received more than the amount shown by the account to have been received, or (b) that the accounting party should be treated as having received more than he has actually received, or (c) that any item in the account is erroneous in respect of amount, or (d) that in any other respect the account is inaccurate, must, unless the court directs otherwise, give written notice to the accounting party of his objections. 3.2 The written notice referred to in paragraph 3.1 must, so far as the objecting party is able to do so: (a) state the amount by which it is contended that the account understates the amount received by the accounting party, (b) state the amount which it is contended that the accounting party should be treated as having received in addition to the amount he actually received, (c) specify the respects in which it is contended that the account is inaccurate, and (d) in each case, give the grounds on which the contention is made. 3.3 The contents of the written notice must, unless the notice contains a statement of truth, be verified by either an affidavit or a witness statement to which the notice is an exhibit. (Part 22 and the Practice Direction that supplements it contain provisions about statements of truth.) 1 This may even be directed to be proceeded with at a future date (Kupfer v Kupfer (1915) 60 Sol Jo 221, three months after the end of the war).

(c)  Procedure on taking accounts in practice 14.27  The modern Chancery Division often ignores paragraphs 1.2, 3.2 and 3.3 above, and adopts a simpler procedure: (a) the accounting party will be required to serve and file a witness statement exhibiting the accounts, within a certain time; (b) the party challenging them will be required to serve a witness statement identifying his objections, with particulars; (c) the first party will then be required to file evidence in reply; 294

The claim for an account 14.28

(d) further evidence will then in practice be admitted; (e) the issues thus identified will then be tried by the assigned Chancery Master1; if any issue is of substance or complexity then directions may be given for points of claim and reply on that particular issue2 or for further witness statements or disclosure or cross-examination as the case merits. If there are many small items in dispute, the Master may order a Scott schedule to be prepared. The issues may be referred to the judge if complicated questions of fact or any questions of law arise. The payments in issue will be proved by ‘vouching’, which means production of a receipt or other documentary evidence of payment. 1 Paragraph  9 of Practice Direction to Part 40. Examples of this happening in practice are illustrated by the judgments of Chief Master Marsh in Kotecha v Kotecha [2018] EWHC 247 (Ch) and Falk J in Hameed v Packe [2018] EWHC 3061 (Ch). 2 Paragraph 5 of Practice Direction to Part 40.

(d) Allowances 14.28  On the ‘taking’ of the account, ‘Just allowances shall be made without any direction to that effect’1. This once meant that the accountable party was entitled to allowances which may then be raised on his evidence although not pleaded or mentioned in the order for the account2. But under CPR, Part 40A a ‘just allowance’ must be pleaded or otherwise particularised3. An example is the expense of a partner in managing and carrying on a partnership business after dissolution on the occasions that this is allowed4. Where a partner is accountable because he has made a profit in breach of his duty of good faith to the firm, the court may grant him an allowance, but not so as to be the full value of his service rendered, or so as to encourage him to put himself in a position where his personal interest might conflict with his duty5. What amount he may deduct from his gross profit to arrive at the net profit for which he is liable is discussed above6. A partner who is found to have been liable to make payments to the partnership will be charged interest as if he had originally complied with his duty to pay; and the rate of interest may be higher than the rate he can charge on his capital under section 24(3) of the Partnership Act 18907. 1 Paragraph  4 of Practice Direction to Part 40. The wording is at least as old as Cons Ord XXIII, r 16 (22 August 1859). 2 Wilkes v Saunion (1877) 7 Ch D 188; see para 14.25 above. 3 Dickinson v Rushmer [2000] EWCA Civ 42; Re Sherman [1954] Ch 653. 4 Per Younger LJ in Meyer & Co v Faber (No 2) [1923] 2 Ch 421 at 451; Cook v Collingridge (1823) Jac 607, 621, noted by Jessel MR in Wilkes v Saunion (1877) 7 Ch D 188 at 191. See para 18.9 below. 5 Boardman v Phipps [1967] 2  AC  46, HL; Guinness v Saunders plc [1990] 2  AC  663; Warman International Ltd v Dwyer (1995) 128 ALR 201; Nottingham University v Fishel [2000] ICR 1462; Re Sherman [1954] Ch 653; Docker v Soames (1834) 2 My & K 655 at 668 cited by Arden LJ in Woodfull v Lindsley [2004] EWCA Civ 165 at para 29. 6 See para 11.42 above and Abbott v Design and Display Ltd [2017] EWHC 2975 (IPEC). 7 Mark Lawler Architects Pty Ltd v Rod Seymour Pty Ltd (No 2) [2014] NSWSC 1418.

295

14.29  Internal partnership dispute and its remedies

(e)  Presumptions against the accountable partner 14.29  The obligation is upon the chargeable partner to show what the state of account may be, not upon the others to disprove it. So if the former cannot produce the books, inferences will be drawn against him1. If he produces accounts showing debit items and alleges that they are true, their contents will be admissions which will be binding against him even though the credit items are not accepted2. 1 Walmsley v Walmsley (1846) 3 Jo & Lat 556. 2 Gething v Keighley (1878) 9 Ch D 547; Morehouse v Newton (1849) 3 De G & Sm 307.

(f)  Payment into court 14.30  Even before judgment, a partner may be ordered to pay what is admittedly1 partnership money (or money for which he is otherwise accountable2) into court to preserve it pending trial3. Under CPR rule 25.1(1) (l) the court may do so where there is a fund in existence and ‘(1) the person against whom the order is to be made has legal title to it or is in possession or control of it …; (2) there is a dispute as to a party’s proprietary entitlement to or interest in the fund; (3) the circumstances are such that the fund should be secured…’4. The rule empowers the court to grant: (l) an order for a specified fund to be paid into court or otherwise secured, where there is a dispute over a party’s right to the fund.

Under CPR, Part 3(1) the court has wide additional case management powers which can also extend to ordering payment into court5. 1 2 3 4 5

Nutter v Holland [1894] 3 Ch 408, CA. Re Benson [1899] 1 Ch 39. London Syndicate v Lord (1878) 8 Ch D 84 at 87. See CPR, Pt 37.1. Lightman J in Myers v Design Inc (International) Ltd [2003] EWHC 103 (Ch) at para 10. See CPR 3.1(3)(a).

D  Defences to actions for an account 14.31  The account claims that are described above are met by the following principal defences.

(a)  Partnership non-existent or illegal 14.32  Whether the partnership exists will have to be resolved before an account will be ordered1. A settled partnership account was not enforced if the partnership upon which it was based was illegal under the Gaming Acts2. The consequences of illegality are discussed generally in Chapter 4. 296

The claim for an account 14.34 1 For the question of the balance of proof see Wong v Hou [1928] 1 WWR 480 (Canada). In Hart v Clarke (1854) 6 De GM & G 232 the partnership share had been forfeited under a provision in the partnership deed; such a provision is unusual today, and may be void against creditors if taking effect on bankruptcy. 2 Law v Dearnley [1950] 1 KB 400.

(b)  Compromise or arbitration 14.33  The question of a partner’s liability may have been compromised1 or resolved by concluded and binding arbitration2 which will then be binding (or not3) on ordinary principles of contract law. A compromise is good consideration for the implied promise to pay the balance agreed to be payable4, and a single partner may have been given authority to settle accounts for others5. An action for an account will be stayed if it is covered by the arbitration clause in the partnership agreement6. 1 Lomas v Bradshaw (1850) 9  CB  620. ‘There may be special bargains by which particular transactions are insulated and separated from the winding up of the concern and are taken out of the general law of partnership’ (per Bayley B in Jackson v Stopherd (1834) 2 Cr & M 361 at 366). 2 Arbitration and mediation are discussed below at para 15.21ff. 3 In Spencer v Spencer (1828) 2 Y & J 249 the arbitration award was not enforced against a partner because it omitted some sums owed to the firm which were later paid. 4 Rackstraw v Imber (1816) Holt NP 368. 5 Luckie v Forsyth (1846) 3 Jo & Lat 388. 6 As to such a stay see para 15.27ff below.

(c)  Settled account, and deeming provisions 14.34  Often the partner called to account says that he has already done so. It may suffice that he has answered what he can, and otherwise refers the claimant partner to the partnership books1. If he can consequently rely upon agreement by the partners suing, his defence is called that of a ‘settled account’. The effect of this and how it may be answered is dealt with in para 14.41 below. A partner may be required to accept that he is deemed to have agreed the accounts. In Hammonds (a firm) v David Jones2 the deed provided that partnership accounts were to be delivered to each partner after they had been audited, and all objections had to be stated in writing to the senior partner within ten days, or the accounts would be binding; any such objections as were made might be resolved by a partners’ meeting. The Court of Appeal held that these provisions were binding even upon a partner who had retired before the end of the accounting period in question. 1 Lockett v Lockett (1869) 4 Ch App 336. 2 [2009] EWCA Civ 1400.

297

14.35  Internal partnership dispute and its remedies

(d) Releases 14.35  Where the state of account between partners and ex-partners has been concluded not merely by settled accounts but by an express release, the accounts of the person entitled to the release may not be challenged unless the release is first set aside on the grounds (for instance) of misrepresentation1 or fraud2. The whole purpose of the release is that it amounts to an agreement that the accounts will not be challenged3. Once a deed was thought to be needed4 but there is no necessity for it because there is good mutual consideration for the agreement. 1 2 3 4

Hirschfield v London Brighton and South Coast Rly Co (1876) 2 QBD 1. Fowler v Wyatt (1857) 24 Beav 232; Brooks v Sutton (1868) LR 5 Eq 361. Urquhart v Macpherson (1878) 3 App Cas 831, PC. Millar v Craig (1843) 6 Beav 433; Brooks v Sutton (1868) LR 5 Eq 361.

(e) The partnership agreement limiting the right to query accounts 14.36  Because of the difficulties of defending an attack upon the accounts, a well-drawn partnership agreement may specify that a challenge to the accounts may only be made by a partner within a certain time after the accounts have been signed, or only in certain circumstances, or only if the error is ‘manifest’, which means an arithmetical or clerical error rather than an error of judgment. Such a provision will only be set aside in the same circumstances as a release will be.

(f)  Liability for the firm’s loss only 14.37  Where the partner is liable for breach of covenant but not for breach of fiduciary duty as a partner, he is not liable to account for his profits but only liable for the loss that he causes the firm1. 1 Dean v MacDowell (1878) 8 Ch D 345, discussed at paras 11.31 and 11.38 above.

(g)  Delay, limitation and laches 14.38  The courts are unsympathetic to any delay by any partner claiming an account1. The matter is discussed at para 15.50 below. 1 Cuthbert v Edinborough (1872) 21 WR 98: fraud claim disallowed after 14 years. Compare the successful claim for account after a similar period in Park v Park 1970 SLT (Notes) 59.

298

The claim for an account 14.42

(h)  The court’s discretion 14.39  The court may in its discretion refuse to order the taking of partnership accounts in ‘very special circumstances’ such as where detailed financial statements have been produced, the applicant has failed to come up with any detailed or substantial points of concern, and there is no evidence that he has been deprived of any assets not offset by corresponding liabilities1, or where for any reason an account would serve no useful purpose2. It may order a stay on taking of accounts to enable outsiders to formulate their claim in relation to the partnership, within certain time limits3. 1 Per Peter Gibson LJ in Hurst v Bryk [1999] Ch  1 at 15–16 and Marshall v Bullock [1998] EWCA Civ 561; and Lord Millett at [2000] 2 WLR 740 at 745H. 2 Per Peter Gibson LJ in Marshall v Bullock [1998] EWCA Civ 561, followed by Thomas Ivory QC in Rosenberg v Nazarov [2008] EWHC 812 (Ch). 3 Phillips v Symes [2006] EWHC 1721 (Ch).

(i)  Non-joinder of all partners 14.40  This is discussed in para 15.7 below.

(j)  Debarred defendants 14.41  An accounting party who has been debarred from defending the account may not call evidence or cross-examine or make submissions, but the claimant must still make out a case against him1. 1 Times Travel (UK) v Pakistan International Airlines [2019] EWHC 3732 (Ch).

E  How settled accounts may be challenged (a) A settled account is binding on the parties to the settlement 14.42  A ‘settled account’ or ‘account stated’ is an agreed statement of partnership financial matters1. In the words of Lindley LJ: We must not treat settled accounts as waste paper2.

A settled account stands binding even if some of the constituent items were statute-barred by the time that it was made, and it will amount to an acknowledgement for Limitation Act purposes3. It will be a defence to a claim for account only if the account was agreed for the purpose of the matter in issue; so the contents of annual profit and loss accounts, though settled, may not be binding on a matter that only becomes relevant upon a dissolution4. 299

14.43  Internal partnership dispute and its remedies

Usually accounts of a partnership run on from year to year, so if one is settled, then all earlier accounts are implicitly settled also5. In practice a settled account will almost always be in writing, and signed by the partners, although neither is essential if in fact there is agreement6. Acquiescence may be evidence of agreement7, but the mere rendering of an account is not sufficient8 unless it is received and kept by the recipient without question9. Agreement will not be invalidated by the omission of a few items which are not unambiguously relevant to the account10. But an account has been held not ‘settled’ where it was inconsistent with the partnership agreement11, or reached by an accountant on an erroneous interpretation of that agreement12. A truly settled account is binding on the partners who agreed it13 (and other partners if the partnership agreement says so)14 even if error can be shown15 except in the circumstances mentioned below.   1 Paras 14.42–14.49 of this work are cited with approval by Peter Smith J in Mukerjee v Sen [2013] EWHC 1997 (Ch).  2 Holgate v Shutt 27 Ch D 111 at 115.  3 Ashby v James (1843) 11 M&W 542; Siquerira v Noronha [1934] AC 332.  4 Re White [2001] Ch 393 (but Chadwick LJ’s use of the phrase ‘the deceased partner’s share in the capital of the partnership’ was described as a ‘solecism’ by Lewison LJ in Ham v Ham [2013] EWCA Civ 1301); Drake v Harvey [2011] EWCA Civ 838. Dissolution agreements are discussed at para 18.34ff below.   5 In the very unusual circumstances of Brierly v Cripps (1836) 7 C & P 709 the accounts were agreed monthly and not carried forward from month to month, so the settling of one month’s accounts did not create a bar to a claim on the earlier accounts.  6 Moir v Moir (NZ  High Ct, CHCH, CIV  2004-409-2510 Fogarty J); Carr v Smith (1843) 5 QB 128; Willis v Jernegan (1741) 2 Atk 251.  7 Coventry v Barclay (1864) 3 De GJ & Sm 320; Hunter v Belcher (1864) 2 De GJ & Sm 194.  8 Hunter v Belcher (1863) 9 LT 501; Clements v Bowes (1853) 1 Drew 684 at 692; Baxter v Hozier (1839) 5 Bing NC 288; Irvine v Young (1823) 1 Sim & St 333.  9 Moir v Moir (NZ High Ct, CHCH, CIV 2004-409-2510 Fogarty J). 10 Sim v Sim (1861) 11 I Ch R 310 (Ireland). 11 Barrow v Barrow (1872) 27 LT 431; but usually the case will be treated instead as one in which the partnership agreement was varied: see Coventry v Barclay (1864) 3 De GJ & Sm 320; Lawes v Lawes (1878) 9 Ch D 98 and Chapter 7. 12 Barton v Morris (1985) 1 WLR 1257; Smith v Gale [1974] 1 WLR 9. 13 Re Webb [1894] 1 Ch 73, CA; Holgate v Shutt (1884) 28 Ch D 111; Parkinson v Hanbury (1867) LR 2 HL 1; Evans v Holmes (1922) 2 WWR 696 (Canada); Dixon v Wing (1843) 1 LTOS 647. 14 Hammonds v David Jones [2009] EWCA 1400. 15 Laing v Campbell (1865) 36 Beav 3; one error proved – claim against settled accounts failed: McKellar v Wallace (1853) 8 Moo PCC 378.

(b) Manifest errors and other grounds for reopening accounts or giving leave to surcharge and falsify 14.43  Partnership agreements will usually provide that ‘manifest errors’ may be corrected within a certain period. A ‘manifest error’ is one that is obvious or easily demonstrable without extensive investigation1. The court will order that the account be reopened, or that the complainant be at liberty to surcharge and falsify the account (each of these terms being 300

The claim for an account 14.45

explained below), in spite of the settled accounts, where there has been an error of fact or law2 if justice requires it3. The account will not stand if the partner relying upon it is guilty of unfair dealing4, for instance if he knew of the mistake but did not draw the attention of the other to it5. But it will stand if there has been delay by the complaining partner6 or (except in cases of extreme hardship7) where the mistake would have been corrected but for his own carelessness8. 1 The law in relation to ‘manifest errors’ is usefully set out in the judgment of Peter Smith J in Walton Homes Ltd v Staffordshire County Council [2013] EWHC 2554. 2 Earl of Beauchamp v Winn (1873) LR 6 HL 223 at 234. 3 Barrow v Scammell (1881) 19 Ch D 175 at 182 per Bacon V-C. 4 Solle v Butcher [1950] 1 KB 671 at 692, a case not followed on its substantive reasoning in Great Peace Shipping Ltd v Tsavliris Salvage Ltd [2003] QB 679. 5 Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505. 6 As to the effect of delay see para 15.50ff below. 7 Van Praagh v Everidge [1903] 1 Ch 434. 8 Tamplin v James (1880) 15 Ch D 215.

(i) Fraud 14.44  Fraud, misrepresentation1 or undue influence2 in the absence of laches3 requires that the whole account be set aside4. A single fraudulent entry suffices5 and will cause the account to be set aside even in the face of agreement against reopening6. ‘Misrepresentation’ has a slightly extended meaning because of the duty upon a partner to make positive disclosure as discussed in Chapter 11; so accounts will be reopened if signed by a partner under a material misapprehension induced by another7. Allfrey v Allfrey (1849) 1 Mac & G 87. Watson v Rodwell (1879) 11 Ch D 150, CA. See para 15.61ff below. Walsham v Stainton (1863) 1 De GJ & Sm 678; Stainton v Carron Co (1857) 24 Beav 346; Brownell v Brownell (1786) 2 Bro CC 62. 5 Per Jessel MR in Williamson v Barbour (1877) 9 Ch D 529 at 533, citing Allfrey v Allfrey (1849) 1 Mac & G 87; Clarke v Tipping (1846) 9 Beav 284; Vernon v Vawdry (1740) 2 Atk 119. 6 Sim v Sim (1861) 11 I Ch R 310 at 321; Re Webb (1894) 1 Ch 73, CA. 7 In Blisset v Daniel (1853) 10 Hare 493 the partner was not bound by accounts that he signed not knowing that he was to be expelled. 1 2 3 4

(ii)  Serious errors 14.45  If ‘errors of sufficient number and sufficient magnitude’ are shown1, or ‘sufficiently grave errors to justify the reopening of the accounts …’2 then the account will be reopened even in the absence of fraud or misrepresentation. A single error may suffice if huge3, such as an error of £2,000 in the early 19th century4. 1 Per Jessel MR in Williamson v Barbour (1877) 9 Ch D 529 at 532.

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14.46  Internal partnership dispute and its remedies 2 The Pongola (1895) 73 LT 512. The main issue was a limitation point which is discussed at para 15.50ff below. See also York v Powell (1909) 10 WLR 407 (Canada); West v Benjamin (1898) 29 SCR 282 (Canada). 3 Per Jessel MR in Gething v Keighley (1878) 9 Ch D 547 at 550. 4 Pritt v Clay (1843) 6 Beav 503.

(iii)  Lesser errors 14.46  If the plaintiff proves even one error in the accounts, ‘something wrong in the settled account by which injustice has been done’1, the court will give the plaintiff leave to surcharge and falsify the account2, and to correct the error or errors proved3, but not to reopen the whole account. If no error either of fact or law4 is proved, the settled account must stand5. 1 Per Davey LJ in Re Webb [1894] 1 Ch 73 following Lord Cottenham in Coleman v Mellersh (1850) 2 Mac & G  309 at 314 who had drawn a distinction according to whether the accounting party was a fiduciary, a question which is not applicable in the case of partnerships. 2 Per Jessel MR in Gething v Keighley (1878) 9 Ch  D  547 at 551; Cheese v Keen [1908] 1 Ch 245; Davis v Spurling (1829) Taml 199; Easum v Easum (1847) 9 LTOS 429, LC; Lawless v Mansfield (1841) 1 Dr & War 557. 3 Hordern v Hordern [1910] AC 465. 4 Daniell v Sinclair (1881) 6 App Cas 181. 5 Re Webb [1894] 1 Ch 73.

(c)  Two alternative orders the court may make 14.47  The court may allow settled accounts to be challenged in the circumstances mentioned above, and will then take one of two courses, discussed in paras 14.48 and 14.49 below. (i)  Reopening accounts 14.48  This means that the whole account is once more investigated, with the burden still being on the accounting party1. But there is no analogy with trustees being held liable on the footing of ‘wilful default’2 because the duty of partners is different from that of trustees3. When accounts are reopened any estimated items in the original accounts shall be replaced by the correct amount if this has been established in the meantime4. 1 In Stainton v Carron Co (1857) 24 Beav 346 Romilly MR reopened an account of 25 years. 2 Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515. 3 Davidson v Thirkell (1850) 1 Gr 284; see paras 11.2 and 11.3 above. 4 Simpson v Jones [1968] 1 WLR 1066.

(ii)  Giving leave to surcharge and falsify 14.49  This means that the partner attacking the settled account has leave to challenge individual items in it that he may identify1, but the burden is upon him to prove each error2. As Jessel MR stated in Gething v Keighley3: 302

Breach of contract, negligence and other claims between partners 14.50 Where there is a question of surcharging and falsifying accounts, the case alleged must be clearly proved by the person impeaching them, and if there is any doubt it will be determined against him.

‘Surcharging’ means alleging that accounts do not show all that they should; ‘falsifying’ means deleting wrongful payments which have been shown as proper outgoings4. 1 The claimant must specify the errors: Millar v Craig (1843) 6 Beav 433. 2 Parkinson v Hanbury (1867) LR 2 HL 1; Pit v Cholmondeley (1754) 2 Ves Sen 565. 3 (1878) 9 Ch D 547 at 552. See Hordern v Hordern [1910] AC 465, where it was held that an error in a valuation for the purpose of the purchase of a partnership share did not invalidate the purchase but (at 476) ‘where its particulars are assailed the proof of error therein must be of a clear and conclusive character’. 4 Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at [1513].

4 BREACH OF CONTRACT, NEGLIGENCE AND OTHER CLAIMS BETWEEN PARTNERS A B C D E

Breach of contract   14.50 Breach of fiduciary duty   14.51 Duty of care, negligence and gross negligence   14.53 Fraud and other torts   14.54 Setting transactions aside   14.55

A  Breach of contract 14.50  The relationship between partners is a ‘continuing personal as well as commercial relationship’1 and it is questionable whether the doctrine of repudiation2 applies to it as discussed in para  14.11 above. Breach of an agreement to enter into a partnership is discussed at para 14.1ff above. Breach of the express or implied terms of the partnership agreement3, whilst the partnership is in existence, will often lead to dissolution4, but may also lead to a claim for financial compensation5 with or without dissolution, either by the firm or by its liquidator. As Briggs LJ stated in Bishop v Golstein6: If one partner, in breach of his duty to his fellow partner, seeks to squeeze him out or otherwise to conduct himself in a manner which makes it intolerable or impracticable for the other partner to continue to carry on the business with him in partnership, and this causes the innocent partner to dissolve or to agree to the dissolution of the firm earlier than would otherwise have occurred, then it is plainly necessary for the law to recognise some means whereby the innocent partner can be compensated for consequential loss.

So ‘damages’ (or ‘equitable compensation’) have been awarded for breach of an express or implied contractual term comprising wrongful exclusion of the plaintiff partner from participation in the firm7, or the failure of the 303

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defendant partner to provide his capital8, or to do the work in the business that he agreed to do9, or for his wrongful withdrawal of his capital10, or retirement without proper notice11 or breach of another express term in the partnership agreement12. It is irrelevant whether the breach is wilful or caused by a matter outside his control such as illness. But in New Zealand at least13, damages will not be granted if the partnership is a partnership at will and so the defendant offending partner could have achieved his object by dissolving the partnership had he chosen: ‘the Plaintiff could not have complained if it had been determined by the defendant at any moment’14. If it is now established that a partner who is ‘accountable’ may also be liable in ‘damages’ (or ‘equitable compensation’) for breach of contract15, the point is not beyond argument16. Under sections 29 and 30 of the 1890 Act a partner who wrongly makes a private profit, or competes with the firm, is said in those sections to be accountable for his benefit or profit as discussed in the next paragraph, not that he is liable in ‘damages’. On the other hand the innocent partner mentioned by Briggs LJ in the quotation from Bishop v Golstein above is plainly being compensated in damages rather than any account of profits. ‘Damages’ for breach may be agreed in advance and specified in the partnership agreement, and they are not void as a penalty if they are true liquidated damages17. The consequence of any financial order will not strictly be ‘damages’ but that an account be ordered between the parties to ascertain the defendant’s net liability after his capital and share of profits have been taken into account18. Liability for breach of the partnership relationship must be contrasted with the case where the partnership agreement contains a contractual provision which restricts a partner’s activities outside the partnership relationship. Although the partner who competes with the firm will not merely be liable in ‘damages’19 but will be accountable under section  30 for the profit that he makes in breach of his duty, his liability for breaches of his partnership agreement may be simple breach of contract which will sound in ‘damages’ only. Thus he is liable in damages and not ‘accountable’ if he is in breach of a provision in the partnership agreement that he may not engage in certain other (or any other) business which is by definition outside the ambit of the partnership20. He may be restrained from this by injunction21.  1 Per Lord Millett in Hurst v Bryk [2000] 2  WLR  740 at 748, in a speech in which he questions whether the doctrine of repudiation is applicable to the partnership relationship, and emphasises that any sum owing to a partner is recoverable only in equity after taking an account.   2 Discussed at para 14.11ff above.   3 There is a discussion as to the meaning of ‘material breach of the partnership agreement’ in DB Rare Books Ltd v Antiqbooks (a limited partnership) [1995] 2 BCLC 306, CA.   4 See Chapter 17.   5 The nature of which is discussed at paras 14.17 above and 14.56 below.   6 [2014] EWCA Civ 10 at para 13.  7 Mullins v Laughton [2003] Ch 250; Greenham v Gray (1855) 4 ICLR 501; Grant v Creelman (1856) (Canada); Ernst & Young v Stuart (1997) 144  DLR (4th) 328. Repudiation of the partnership by one partner and the consequential claim to damages by the other is discussed at para 14.17ff above.

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Breach of contract, negligence and other claims between partners 14.51  8 Kemble v Mills (1840) 9 Dowl 446.  9 Airey v Borham (1861) 29 Beav 620, discussed at para 12.24 above. 10 Teacher v Calder [1899] AC 451 at 467 per Lord Davey. 11 Ernst and Young v Stuart (1997) 144 DLR (4th) 328 (Br Columbia CA). 12 Dean v MacDowell (1878) 8 Ch D 345, CA. 13 Connell v Slack (1909) 28 NZLR 560. 14 Ibid at p 561. 15 See discussion of Mullins v Laughton [2003] Ch 250 in next para below. 16 The difficulty of this question was noted by the Court of Appeal in Bishop v Golstein [2014] EWCA Civ 10 at para 11 by Briggs LJ with whom the other two LJs agreed. 17 Reynolds v Bridge (1896) 6 E & B 528. 18 See para 14.18ff above. 19 Trimble v Goldberg [1906] AC 494 at 500; for the measure of damages see W J Christie & Co v Greer [1981] 4 WWR 34 and A-G v Blake [2001] 1 AC 268 at 284–285 considered in Lister v Hesley Hall [2002] 1 AC 215, in turn approved in Mohamud v WM Morrison Supermarkets plc [2016] AC 677. 20 Dean v MacDowell (1878) 8 Ch 345; Trimble v Goldberg [1906] AC 494 at 500; Ferguson v Mackay 1985 SLT 94n; Harrods Ltd v Harrods (Buenos Aires) Ltd [1997] FSR 420. 21 For injunctions between partners see para  15.31ff below; for covenants in restraint of competition by ex-partners see para 18.63ff below.

B  Breach of fiduciary duty (a)

The wrongdoing partner’s gain and the firm’s loss

14.51  Where a partner is in breach of his ‘fiduciary’ duty or duty of good faith (discussed in Chapter  11) to the firm he may be ordered to make equitable compensation1 to put the firm in as good a position as if the breach had not occurred2 and the question of a common law remedy need not be considered3, save that a breach of the duty can be called a breach of an implied contractual term in the partnership agreement as in Mullins v Laughton4. Or the firm or its liquidator may claim an account of his profit5 ‘to strip the defaulting fiduciary of the profit whether or not the principal has suffered a loss commensurate with the profit made by the fiduciary, or any loss’6 as explained at para 14.21 above. The remedies between partners, whose relations are partly contractual, are different from the remedies against those fiduciaries, notably trustees, whose obligations are not contractual. In Target Holdings v Redferns7 Lord BrowneWilkinson said of trustees that the compensation was not what the defaulting trustee had taken but ‘is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach’. In United Pan-Europe v Deutsche Bank AG8 Morritt V-C said that a claim under a constructive trust was ‘to ensure that the defaulting fiduciary does not retain the profit; it is not to compensate the beneficiary for any loss. Accordingly comparison with the remedy in damages is unhelpful’. But in Mullins v Laughton9 Neuberger J allowed a claim by a partner whose firm had breached an implied contractual obligation not to damage the relationship of trust and confidence between them. He held them liable for damage that he could establish that ‘he has suffered as a result of the breach of good faith on the part of his co-partners’, thereby blurring the distinction 305

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between accountability, equitable compensation and ‘damages’. Perhaps we have seen the end of the former principle that breach of a contractual term renders a partner liable in ‘damages’ but breach of a fiduciary duty merely renders him liable to account for his profit10. There remains the question whether the claimant can choose between the two remedies, or whether the court will ‘make the remedy fit the tort’11. In Kao Lee Lip v Koo12 the gain to the partner in default might have continued indefinitely, but the Hong Kong court limited accountability to one year’s duration, and in Warman International Ltd v Dwyer13 on similar facts the High Court of Australia limited it to two years. The court may give the wrongdoing partner an equitable allowance, for instance for the cost that he has incurred in making the profit for which he is accountable, but is less likely to allow him financial credit for his work and skill14. If the firm claims its own loss rather than his gain, its claim can extend to its loss of revenue15, but other questions of foreseeability of loss will arise. If the partner has caused the loss wrongfully and wilfully, then he will not be able to limit the claim by relying on the doctrine of foreseeability, as he will be able to do if the loss was merely one of inadvertence16. Where the partner is in breach of his ‘fiduciary’ duty to an individual member rather than to the firm as a whole, for instance if he is fraudulently in breach of his duty of disclosure to an incoming partner, he may be liable in damages to him17. If his liability is for breach of intellectual property rights then he may be liable for damages ‘appropriate to the actual prejudice’ suffered by the claimant firm, but in awarding damages there shall be taken into account ‘any lost profits which the claimant has suffered, and any unfair profits made by the defendant’18, which further blurs the distinction between the claimant’s loss and the defendant’s gain. For such misuse of the firm’s confidential database he may be liable for the firm’s consequential loss of profit19 including the loss caused by customers leaving the firm as a consequence of a wrongful mailshot, loss consequential upon prices being lowered by the firm in an attempt to keep customers, and management time, subject to any deduction or allowance for early payment20.  1 Mullins v Laughton [2003] Ch 250 at paras 130–131.  2 Longstaff v Birtles [2001]  EWCA  Civ 1219. If he is taking away the firm’s business he may be ordered to give an indemnity: QBE  Management Services (UK) Ltd v Dymoke [2012] EWHC 80 (QB).  3 Swindle v Harrison [1997] 4 All ER 705, CA; contrast Gorne v Scales [2006] EWCA Civ 311, a claim for damages for misappropriation of confidential information rather than for breach of fiduciary duty, in which Arden LJ, the only Chancery LJ, dissented.   4 See note 1 above and Island Records Ltd v Tring International [1996] 1 WLR 1256, followed in Deacons v White & Case (2003) 3 HKLRD 670.  5 LC Services Ltd v Brown [2003] EWHC 3024 (QB).  6 Meagher, Gummor & Lehane Equity, cited by Enstein J in McKersey v Hewitt (1997) NSW Lexis 1367, NSW SC.   7 [1996] AC 421 at 437, cited with approval in Auden McKenzie (Pharma Division) v Patel [2019] EWCA Civ 2291.   8 [2000] 2 BCLC 461 at para 47, with whom Ward LJ and Charles J agreed; the passage is adopted by Arden LJ in Murad v Al-Saraj [2005] EWCA Civ 959 at para 113. Similarly in Douglas v Hello! Magazine [2006] QB 125, CA at para 125 the Court of Appeal discussed a

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Breach of contract, negligence and other claims between partners 14.52 number of different ways in which damages from it might be assessed, and commented on the normal categories in analogous patent cases ‘They are the profit, or the royalty, which was or would have been achieved … and the licence fee which would reasonably have been achieved (eg where it is not possible to assess the level of profit)’.   9 [2003] Ch 250 at paras 130–131. 10 On this principle see Lord Macnaghten delivering the speech of the Privy Council in Trimble v Goldberg [1906] AC 494 at 500; for the proposition that the firm can simply elect between damages and accountability see Island Records Ltd v Tring International Ltd [1996] 1 WLR 1256, and the authorities cited there. 11 See Rimer LJ in Walsh v Shanahan [2013] EWCA Civ 411, a case of breach of confidence at [54]. 12 (2003) WTLR 1283. 13 (1994–1995) 182 CLR 546, quoted by Parker LJ in Murad v Al-Saraj [2005] EWCA Civ 959 at para 113. 14 Cobbetts LLP v Hodge [2009] EWHC 786 (Ch) distinguishing Boardman v Phipps [1964] 1 WLR 993, Ch D. 15 Admiral Management Services v Para-Protect Europe [2002] EWHC 233 (Ch). 16 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 77 ALJR (High Court of Australia) and Bank of New Zealand v New Zealand Guardian Trust Co Ltd (1999) 1  NZLR  664 distinguishing on its facts the dictum of Lord Browne-Wilkinson in Target Holdings v Redferns [1996] 2 AC 421 at 437 as explained by Lord Millett (1998) 14 LQR 214 at 227 and Christopher Bevan (32003) TQR Issue 3 Vol 1 p 21. AIB Group (UK) plc v Mark Redler & Co (A Firm) [2014] UKSC 58. 17 Conlon v Simms [2006] 2 All ER 1024 and see para 14.62 below. 18 Intellectual Property (Enforcement etc) Regulations 2006, SI 2006/1028. 19 Force India Formula One Team v 1 Malaysia Racing Team [2013] EWCA Civ 780. 20 Flogas Britain Ltd v Calor Gas Ltd [2013] EWHC 3060 (Ch).

(b)  Forfeiture of a wrongdoing partner’s profit share 14.52  Difficulties ensue when the default of a partner is equated by the courts with the default of some other sort or fiduciary, as if the duty owed by a partner is somehow the same as (for instance) the duty owed by a commercial agent or a trustee or an estate agent to his client1. Where an estate agent or other commission agent acts in breach of his duties to his own client by taking a secret profit of his own, then his right to commission may be forfeit2. By contrast, the Partnership Act 1890 renders a partner who takes a secret profit accountable to the firm for the wrongful gain he has made, and the twentieth century cases3 go further and make him (in the alternative) liable in damages or equitable compensation for the harm he has done the firm. It is questionable therefore why it should be thought necessary for him to be liable, as a further alternative remedy, to forfeit all or some of his profit share, as if such share was some sort of commission. Indeed to do so would be to effect double-recovery against him. So we feel that Newey J was wrong in Hosking v Marathon Asset Management LLP4 to follow some estate agency cases5, including his own judgment in Avrahami v Biran6, to hold that a partner in a property development LLP might ‘forfeit’ part of his profit share. The result was startling: a partner in a firm who wrongly negotiated with some employees to employ them after he left the firm, evidently made no profit for himself, for which he would be accountable to the firm, but was compelled to pay not only the damages suffered by the firm, but also to lose his profit share from the firm amounting to over £10m. 307

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The same approach had been rejected by Voss J on rather similar facts in Bank of Ireland v Jaffery7, where he stated, no doubt correctly: It would be unfair in my judgement, even taking into account the nature of Mr Jaffer’s breaches, to require him to repay his salary and bonuses, or indeed any part of them … in addition to disgorging his profits or paying equitable compensation8.

The application of a forfeiture option as a further alternative remedy against a defaulting partner not only risks double recovery, but also complicates the claim, and makes harder the task of the parties to calculate before action what remedy is likely to emerge at trial. 1 2 3 4

See the discussion at the beginning of Chapter 11 of the over-use of the word ‘fiduciary’. Andrews v Ramsay & Co [1903] 2 KB 635. See para 14.50 above. [2017] Ch 157. Sympathy must be felt for our friend John Machell QC who is named in the law report as being on the unsuccessful appellant’s team at the hearing, which he was not. If he had been then no doubt the result would have been different. 5 Keppel v Wheeler [1927] 1 KB 577, Imageview Management Ltd v Jack [2009] EWCA Civ 63, [2009] Bus LR 1034 and Stevens v Premium Real Estate Ltd [2009] NZSC 15, which follow the secret profit case of Andrews v Ramsay & Co [1903] 2  KB  635, surely a very different matter. 6 [2013] EWHC 1776 (Ch). 7 [2012] EWHC 1377 (Ch). 8 Ibid at para 373.

C  Duty of care, negligence and gross negligence 14.53  It is not the practice in England for a professional firm to charge a partner for the cost of the firm’s loss where that partner has been negligent to a client; for instance, the cost of the excess on the firm’s insurance. But a partner owes a duty of care to the other partners because as their agent he has assumed responsibility for their affairs to the extent of the partnership business. Each has a duty of care to the others, for the aspects of the partnership business for which he is responsible1. So a partner is liable to his partners whenever his own ‘gross’ or ‘culpable’ negligence caused loss to the firm. In Re Webb2 a firm of carriers was held not to be liable to the owners after it lost a consignment of goods in a warehouse fire. One partner had mistakenly paid the owners for the value of the goods. Held he had paid them ‘in his own wrong’ and could not recover from his partners. In Thomas v Atherton3 the managing partner of a colliery had negligently run the mines too far, and the adjoining owner was held to be entitled to £6,000 damages for trespass, and the managing partner sued his partners for a contribution. The Court of Appeal held that he had acted with culpable negligence in causing the trespass, so he was alone liable. In Bury v Allen4 Knight Bruce V-C ordered the return of a partnership premium and commented: Suppose the case of an act of fraud, or culpable negligence or wilful default, by a partner during the partnership, to the damage of its property or interests

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Breach of contract, negligence and other claims between partners 14.53 … he is certainly in equity compellable to compensate or indemnify the partnership in this respect.

By contrast in Re Protestant Assurance5 a partner arranged for his firm to take shares in a company which he had been told had limited liability which it proved not to have. The other partner refused to accept liability on the shares, saying that the whole liability should be that of the first partner. Kindersley V-C rejected this, ‘both being equally misled’. Although the words are common in commercial contracts6 the meaning of ‘gross’ or ‘culpable’ negligence in a partnership context is uncertain. Possibly it means no more than ‘negligence’7, or that the partner should not act ‘below the standards of a reasonable businessman’8. But the better view is that it means something more. Trustees’ ‘gross negligence’ is recognised as something qualitatively different from the default of trustees ‘who have bona fide abstained from closely superintending the administration of a trust, or who have committed mere errors of judgement …’9. In partnership law the distinction may be one of degree and not of kind10, but this was not the view of Sales J in F&C Alternative Investments (Holdings) Limited v Barthelemy11 where he said, ‘The obligations of good faith of fiduciaries operate by reference to the conscience of the fiduciary and his subjective good faith rather than an objectives standard of competence.’ In Lister v Romford Ice & Cold Storage12 the House of Lords held that an employer can sue an employee for negligence where his conduct leads to a claim against the employer by a third party. Millett LJ said in Armitage v Nurse13 that the duty of trustees is not one of skill and care, and Downsview Nominees Ltd v First City Corporation Ltd14 shows that a mortgagee’s duty is not a general duty of care but only a duty to exercise his duty in good faith. It could be said that the duties of partners to one another are duties of honesty rather than care and so do not impose liability for simple negligence within the firm unless the partnership agreement says so. The words ‘gross misconduct’ and ‘gross negligence’ have been considered in the context of an LLP agreement15 where Sales J stated16: I think that it would be relevant to answering in the affirmative the question whether a breach of the Agreement had occurred in a manner amounting to ‘gross misconduct’ if it were established at trial that a particular breach had been committed in deliberate way, with the party in breach knowing that it was so acting or being reckless as to that fact.

Carnwath J at first instance in Hurst v Bryk17 considered a claim by a partner against the firm’s management committee and said: I have serious doubts as to the nature of the duty of care … There is no doubt, of course, that partners owe each other duties of good faith … In addition, no doubt, a partner may put himself in a position where he owes a higher duty of care … However … a partnership is a co-operative venture, whose success depends on a pooling of effort and responsibility. The mere fact that individual partners undertake particular tasks in the interest of the firm does not mean that they accept legal responsibility going beyond that which is expressed or implicit in the deed.

309

14.53  Internal partnership dispute and its remedies

In the Scottish striking-out case of Ross Harper & Murphy v Banks18 Lord Hamilton expressed the view that a partner might be liable to the other partners for the excess on the professional insurance policy which was suffered as a result of his negligence, the issue being described as one of ‘reasonable care in all circumstances’. But his view was not warmly received at the hearing of the appeal and the case was settled. Nor was the same view taken on similar facts in Lane v Bushby19 decided in the New South Wales Supreme Court the same year, nor by the Supreme Court of New Zealand in Macalister Todd Phillips Bodkins v AMP General Assurance Ltd20 where the court remarked that: partner negligence leading to a claim by a client is regarded as an unfortunate but accepted fact of life.

Two cases have given detailed analysis to the question whether or not a partner must pick up the whole cost of his own error. In Gallagher v Schulz21 Williamson J analysed the authorities and some Roman law and observed: If the partner who causes loss has done so merely because of the lack of skill and experience, he is not answerable to the co-partner by reason of that lack alone … [but] … the duties of good faith and honesty … may be sufficient in themselves to impose upon a partner the duty to use his or her own skill in a reasonable manner.

He held that the standard to be applied should be no more than the standard that the particular partner at fault might employ in the conduct of his own affairs, unless he had been taken into partnership because of some special trust or particular confidence in him, in which case the level of duty would be set by that. In Tann v Herrington22 Bernard Livesey QC (sitting as a judge of the Chancery Division) considered a two-partner firm in which the insurance claims were dealt with by the defendant partner. A claim against the firm was made by a client which the defendant did not refer to the insurers, and consequently when the claim matured the insurers declined to meet it and the partner had to meet it personally. He sought a contribution against the claimant. The Judge followed much of the reasoning in Macalister Todd (supra) but refused the claim saying: ‘where the default is by a partner entrusted with the responsibility of protecting the firm by complying with the insuring provisions … the firm entrusts such a partner with a responsibility … and expects him to perform the duty with all reasonable care and skill’.

This set an objective test which seems to be similar to that in an ordinary case of negligence. But the judge accepted the possibility of alternative analysis, that the firm would expect each partner to do his best … or to act to the standard he would apply in looking after his affairs.

That would be a subjective test. The judge held that the defendant failed in the circumstances to meet either test. There are two strands of thought in the authorities. One is that the partner in default does not have a duty of care as such but only a duty of good faith which involves his obligation to do his best, like ‘a servant who loyally does his 310

Breach of contract, negligence and other claims between partners 14.53

incompetent best for his master’23. The other is that he is liable in negligence under objective principles but only at the level where it can be said that his default is ‘gross’, the difference being not qualitative but one of degree24. Probably both are right, and the partner owes two duty to his partners, a duty of good faith and a duty not to be badly negligent. Lord Clarke said in Spread Trustee v Hutcheson25: The suggestion that the standard of the duty of care is somehow elevated by reference to concomitant fiduciary duties elides the fundamental distinction between the fiduciary duties owed by the trustee on the one hand and the duty to exercise care and skill by the trustee on the other.

A firm can waive its right to require a partner to bear the final liability for any loss that his negligence has caused or to bear the relevant excess on the firm’s professional indemnity policy. It may waive that right generally, either implicitly by its own practice or expressly by a provision in the partnership agreement. In large professional firms such waiver is usual. Where there is no general waiver, a particular claim against a partner can be waived by the whole firm unanimously or by a majority decision of the firm if it is an ‘ordinary matter connected with the partnership business’ within the power of a majority26 which will usually be implied in a large professional firm where such claims are common, but not in a small trading one where they are not.  1 Campbell v Campbell [2017] EWHC 182 (Ch) following Tann v Herrington [2009] EWHC 445 (Ch) discussed below.   2 (1818) 8 Taunt 443; Chapman v Great Western Railway Co (1880) 5 QBD 278.   3 (1877) 10 Ch D 185, CA.   4 (1845) Coll 589.   5 (1857) 26 LJ 455.  6 See the consideration given to the meaning of ‘gross negligence’ by Andrew Smith J in Camerata Property Inc v Credit Suisse Securities (Europe) Ltd [2011] EWHC 479 (Comm).   7 Rolfe B said in Wilson v Brett (1843) 11 M & W 113 (not a partnership case) that he ‘could see no difference between negligence and gross negligence – that it was the same thing, with the addition of a vituperative epithet’. Romer J in Re City Equitable Fire Insurance Ltd [1925] Ch 407 said at 427 that he found difficulty in understanding the difference (see the passage from Knight Bruce V-C in Bury v Allen quoted at para 14.62 below) and Millett LJ in Armitage v Nurse [1998] Ch 241, CA expressed a ‘healthy disrespect’ for the distinction. Moore-Bick in Tradiguin SA v Interstek Testing [2007] EWCA Civ 154 said at para 23 that the term ‘has never been accepted by English Civil law as a concept different from simple negligence’. The English and Scottish authorities are discussed in Blackwood v Robertson 1984 SLT (Sh Ct) 68 and the Commonwealth ones in Lane v Bushby (2000) 50 NSWLR 404, NSW SC and the Jersey position in Midland Bank Trustee (Jersey) Ltd v Federated Pension Services (1996) PLR 179 (Jersey CA),   8 Per Woolf J (without the benefit of the citation of authority) in Winsor v Schroeder (1979) 129 NLJ 1266; Gallagher v Schul (1988) NZBLC 103; Mirco Bros Pty v Palermo Nominees (2005) WASC 190.   9 Per Lord Watson in Knox v Mackinnon (1888) 13 App Cas 753, followed in Robertson v Howden (1892) 10 NZLR 609, as discussed in Midland Bank Trustee (Jersey) Ltd v Federated Pension Services (1996)  PLR  179 (Jersey CA), itself approved by Millett LJ in Armitage v Nurse [1998] Ch 241. 10 See Millett LJ in Armitage v Nurse [1998] Ch 241 at 254; Sucden Financial Ltd v Fluxo-Cane Overseas [2010] EWHC 2133 (Comm). 11 [2011]  EWHC  1731 (Ch) at para  253, following RE  Smith & Fawcett Ltd [1942] Ch  30 304, 306. 12 [1957] AC 555; and in Safeway Stores v Twigger [2010] All ER (D) 90 (Jan) Flaux J held that it was at least arguable that an employee may be secondarily liable for his employer’s statutory penalty.

311

14.54  Internal partnership dispute and its remedies 13 [1998] Ch 241 at 253–4. 14 [1993] AC 295. 15 F&C Alternative Investments (Holdings) Ltd v Barthelemy [2011] EWHC 1731 (Ch). 16 At para 733. 17 (11  April 1995, unreported), citing Caparo plc v Dickman [1990] 2  AC  605 and White v Jones [1995] 2 AC 207. See also Lane v Bushby (2000) 50 NSWLR 404; Wiscum & Cash v Cash 837 P 2d 692 (1992); Johnson v Weber 803 P 2d 939 (1990); Northern v Tatum 51 So 17 (1909); Snell v De Lane 27 NE 183 (1891); Thomas v Milfelt 222 SW 2d 359 (1949). On this the law of Scotland differs from that of England: see note 24 below. 18 2000 SLT 699, followed in Mirco Bros Pty v Palermo Nominees (2005) WASC 190. 19 (2000) 50 NSWLR 404, NSW SC, followed in the Supreme Court of New Zealand: Macalister Todd Phillip Bodkins v AMP General Insurance Ltd [2007] 1 NZLR 485, where the firm’s practice on this was evidenced by its arrangements with its insurers. 20 (2006) NZSC105. 21 (1988) 2 NZBLC 103 at 208–9. 22 [2009] EWHC 445 (Ch). 23 Per Millett LJ in Bristol & West Building Society v Mothew [1998] 1 Ch 1 at 18. 24 This is the law in Scotland: see Hildyard J in his illuminating talk to the Chancery Bar Association, published in Vol 10 Issue 2, Trust Quarterly Review 2012. 25 [2011] UKPC 13, a Jersey trust case. 26 See the Partnership Act 1890, s 24(8); printed in Appendix A below.

D  Fraud and other torts 14.54  The existence of the partnership is no bar to a claim in tort by one partner against another1. He may be liable for fraudulent non-disclosure2. His fraud will not be imputed to the other partners when they were the objects of the fraud3. Where a partner joins with an outsider to defraud the firm, it may repudiate his acts4. 1 Geisel v Geisel (1990) 72 DLR (4th) 245 following Huston v Burns [1955] Tas SR 3 and not following Mair v Wood 1948 SC 83 (Scotland); Baker v Barclays Bank Ltd [1955] 1 WLR 822 at 827 per Devlin J. The vicarious liability of the partners for the fraud or negligence of one of their number to an outsider is discussed in Chapter 19. 2 Conlon v Simms [2006] 2 All ER 1024. 3 Stone Rolls Ltd (in liquidation) v Moore Stephens (a firm) [2009] 1 AC 1391. 4 Vigers v Pike (1842) 8 Cl & Fin 562, applied in Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218.

E  Setting transactions aside 14.55  Where a partner has acted in breach of his ‘fiduciary’ duties to his firm1 by entering into a transaction improperly, for instance by purchasing property from the firm without the consent of his partners2, the court may order the transaction to be set aside, but more usually it will order him simply to be accountable for the profit3. 1 Those duties are discussed at para 11.2ff above. 2 See para 11.17 above. 3 Gordon v Holland (1913) 108  LT  385, PC. Actions for an account are discussed at para 14.18 above.

312

Contribution between partners 14.58

5  CONTRIBUTION BETWEEN PARTNERS A What claims are actionable between partners   14.56 B How claims for compensation or contribution between partners may be enforced   14.57

A  What claims are actionable between partners 14.56  The last section was concerned with claims between partners for breach of contract and negligence. Actions for an account, rescission, repudiation, dissolution, the grant of an injunction and the appointment of a receiver are discussed respectively at paras 14.18ff, 14.7ff, 14.11ff, Chapter 17 and paras 15.31 and 15.38ff. A partner’s right to indemnity from the firm is discussed at para 12.33 above. This section is concerned with claims between partners for contribution, which must take the form of actions for an account1 as explained in para 14.18 above, and will therefore be defeated if brought more than six (or twelve) years after the dissolution date2. 1 Keegan v Fitzgerald (Dep Master Mathews) Ch D 3/11//2011. 2 Marshall v Bullock [1998] EWCA Civ 561 and see para 15.52 below.

B How claims for compensation or contribution between partners may be enforced (a) Indemnity 14.57  A partner who discharges a liability of the firm is usually entitled to an indemnity from the firm which may be lost by his negligence1. Conversely the firm or its liquidator may claim an indemnity from him if he causes it loss. 1 See para 12.33ff above.

(b)  Return of premiums 14.58  A ‘premium’ is a sum paid by one partner to another as the price for entering into partnership. Where a fixed-term partnership is dissolved prematurely the court may order repayment of the whole or part of the premium unless it considers that the dissolution was wholly or chiefly due to the misconduct of the partner who paid the premium1. This narrow jurisdiction was quite commonly exercised in the 19th century to obtain financial compensation for one partner from another when the tort of negligence was not as developed as today. 1 See the Partnership Act 1890, s 40, discussed at para 18.62ff below.

313

14.59  Internal partnership dispute and its remedies

(c) Contribution 14.59  The partner’s right to a contribution from his partners which is described below is similar to his right to the indemnity from the firm mentioned in para 12.33 above, and either in equity or under statute it is similarly liable to be lost if his claim is based upon his own default, as is exemplified by Thomas v Atherton1 and Re Webb2 mentioned at para  14.53 above. If the claim is covered by the firm’s professional indemnity insurance policy, the policy may restrict a partner’s right to contribution, or render it nugatory by discharging his loss3. 1 (1877) 10 Ch D 185, CA. 2 (1818) 8 Taunt 443; see also Chapman v Great Western Rly Co (1880) 5 QBD 278. 3 Stratti v Stratti (2000) 50 NSWR 324.

(i)  Contribution under statute 14.60  Partners have a statutory right to contribution when they are liable to an outsider for the same1 damage (as opposed to debt2) under the Civil Liability (Contribution) Act 19783 whether the damage is from tort, breach of contract, breach of trust or otherwise4, including constructive trusteeship5, knowing receipt6, discrimination7, interest8, costs9, and a contractual right to indemnity10 but perhaps not restitutionary claims11. The amount of the contribution is such as may be found by the court to be just and equitable having regard to that person’s responsibility for the damage; it may amount to nil, or to a complete indemnity, for instance if one partner is wholly innocent of the wrong and has not benefited by it12. Difficulties arise when the outsider’s claim has been settled. Section 1(4) of the 1978 Act provides: (4)  A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him should be established.

In other words the pleaded case against him holds good. But where the defendant has raised a limitation defence to the outsider’s claim, the court’s finding that the assumed facts of the substantive claim disclose a reasonable cause of action will not be enough to get the defendant home on section 1(4)13. Claims by partners under the Act are rare because usually the financial balance between the partners is struck on taking accounts as mentioned at para 14.18ff above. A claim by a bank on a guarantee is a claim in debt and not damages, so a claim for a contribution between guarantors is not subject to the Act14. A claim for contribution under statute must15 be brought by the claimant partner within two years of the date when: 314

Contribution between partners 14.61

(a) any judgment is given or arbitration award made against the claimant16; or (b) the claimant agrees to make payment to the creditor17. It must also be brought within six (or twelve) years of the dissolution date18. This is not by virtue of express statutory provision (cf Limitation Act 1980, s 10) but because the contribution can only be sought through a claim for an account which is itself subject to its own limitation period.   1 The requirement that the damage is ‘the same’ was emphasised by the House of Lords in Royal Brompton Hospital NHS Trust v Hammond [2002] UKHL 14.  2 Hawkins v Tyler (2001) Lloyds Rep PNI.   3 See s 1. In an action a contribution notice is served under CPR, Pt 20.6.   4 See the Civil Liability (Contribution) Act 1978, s 6.  5 Dubai Aluminium v Salaam [2003] 2  AC  366 followed in Cherney v Neuman [2011] EWHC 2156 (Ch); Charter plc v City Index [2008] 2 WLR 950, CA.  6 Charter plc v City Index [2008] 2 WLR 950, CA.  7 Way & Intro-cate Chemicals v Crouch [2005] ICR 1362, EAT.  8 J Sainsbury v Broadway (1999) PNLR 286.  9 Parkman v Cumbrian Industrials (2001) 79 Con LR 112. 10 Bovis v Saillard Fuller (2001) 77 Con LR 134. 11 Royal Brompton Hospital NHS  Trust v Hammond [2002] 1  WLR  1397, disapproving Friends’ Provident Life Office v Hillier Parker May & Rowden [1997] QB 85, CA, but itself distinguished in Charter plc v City Index [2008] 2 WLR 950, CA. 12 See the Civil Liability (Contribution) Act 1978, s 2, and Dubai Aluminium v Salaam [2003] 2 AC 366. Even illegality is perhaps no defence to a claim under the Act: K v P [1993] Ch 140. 13 WH Newson Holding Limited v IMI plc [2016] EWCA Civ 773. 14 Hampton v Minns [2002] 1 WLR 1. 15 By the Limitation Act 1980, s 10(1). The period runs from the date of judgment for damages rather than the earlier date of a judgment on liability: Aer Lingus v Gildacroft [2006] 1 WLR 1173. 16 By the Limitation Act 1980, s 10(3). 17 By the Limitation Act 1980, s  10(4); Chief Constable of Hampshire v Southampton City Council (2014) 1/12/2014 CA. 18 Marshall v Bullock [1998] EWCA Civ 561 and see para 15.52 below.

(ii)  Contribution in equity 14.61  Partners have a mutual liability in equity to contribute towards a firm debt; if they bear losses equally then they must contribute equally1; if in unequal amounts, each must contribute up to the amount of his liability2, and if any is insolvent or has disappeared, the others bear the loss proportionately3, in the absence of contrary agreement. A firm debt may include a debt not yet formally due4. The alert reader will point out that the right to recover contribution for damages under the 1978 Act is expressed5 to supersede any other right to recover contribution ‘other than an express contractual right’, and enquire where this leaves the partner’s equitable right to contribution. An answer may be that the equitable right is not strictly a right to contribution at all as explained at para 14.63 below, but is a mere right to allowances on the taking of the account between the partners, so it might survive the Act6. 1 Re Albion Life Assurance Society (1880) 16 Ch  D  83 per Jessel MR at 87, considered at para 12.31 above.

315

14.62  Internal partnership dispute and its remedies 2 3 4 5 6

Ellesmere Brewery Co v Cooper [1896] 1 QB 75. Lowe v Dixon (1885) 16 QBD 455. Stimpson v Smith [1999] Ch 340, CA. By the Civil Liability (Contribution) Act 1978, s 7(3). See the very wide ambit of the Act discussed in the Court of Appeal in Friends’ Provident Life Office v Hillier Parker May & Rowden [1997] QB 85, CA, followed in Charter plc v City Index [2008] 2 WLR 950, CA.

(d)  So-called damages or compensation 14.62 In Mullins v Laughton1 Neuberger J held that where a partner had been wrongfully excluded by a majority, in breach of duty of good faith, the accounts should be taken, ‘taking into account the loss of reputation and other damage if any which Mr Mullin can establish that he has suffered as a result of the breach of good faith on the part of his co-partners.’ The courts similarly ordered financial compensation under one name or another in Thomas v Atherton2 and Re Webb3 whose facts are given at para 14.53 above. To analyse the nature of such compensation is unnecessary. As Knight Bruce V-C observed when ordering the return of a partnership premium in Bury v Allen4: Suppose the case of an act of fraud, or culpable negligence, or wilful default, by a partner during the partnership, to the damage of its property or interests, in breach of his duty to the partnership; whether at law compellable, or not compellable, he is certainly in equity compellable to compensate or indemnify the partnership in this respect.

This is considered further in Tann v Herrington5 and para 14.53 above. 1 [2003] Ch  250 paras 128–131, following the employment case Mahmud BCCI [1998] AC 20, HL. 2 (1877) 10 Ch D 185, CA. 3 (1818) 8 Taunt 443; see also Chapman v Great Western Rly Co (1880) 5 QBD 278. 4 (1845) 1 Coll 589. 5 [2009] EWHC 445 (Ch), Bernard Livesy QC.

v

(e) Distinctions between indemnity, contribution and compensation 14.63  The distinction between the remedies that we have described loosely as indemnity, contribution and compensation is procedural. If a partner has paid a firm debt or has another claim against the firm or any of its partners and the firm is fully solvent, he will seek an indemnity from it. If its solvency is doubtful or it is in dissolution, he will seek a contribution from his partners or (more properly) a declaration that on the taking of the accounts, the sum in question should be allowed to him or debited to the defendant partners. Judgment for damages or compensation as such is not granted in a claim by one partner against another relating to partnership matters, but a partnership account should be ordered in which such compensation is allowed: 316

Contribution between partners 14.64 In an action by one or more partners … against a co-partner alleging that money is due from the defendant to the plaintiffs in connection with the affairs of the firm … the only relief which the plaintiff could obtain would be an account of the dealings and transactions of the parties1.

Although the net liability of a single partner can only be finalised on the taking of partnership accounts, his fraud, negligence or other wrong can be resolved in an action by writ for a declaration that he reimburse the firm or the plaintiff partner2. Contribution between partners who are parties to an existing action can be determined on contribution notices between them served under CPR, Part 20.6. Once the item in dispute has thus been resolved the accounts may be settled between the partners without their being taken formally in court proceedings. 1 Per Warrington LJ in Meyer & Co v Faber (No 2) [1923] 2 Ch 421 at 439. 2 Hawkins v Rogers [1951] IR 48, Mullins v Laughton [2003] Ch 250. Such proceedings will be considered part of the taking of an account for limitation purposes which are discussed at para 15.50 below.

(f) Set-off 14.64  Between solvent partners different1 rules of set-off apply to those which apply in insolvency, which are discussed at para  23.10ff below. The rules prevailing in the taking of accounts between solvent partners are discussed at para 21.10 below. In either case there is no objection in principle to the partners agreeing that no set-off will be allowed2. A claim by an ex-partner to set off sums that he claimed under dissolution accounts against what he owed by way of indemnity to trustees for the firm will fail for want of mutuality3 as discussed at para 23.10ff below. 1 Hanak v Green [1958] 2 QB 9 at 23. 2 Coca-Cola Fin Corpn v Finsat International Ltd [1998] QB 43, CA. 3 Re a Debtor (No 303 of 1997) (2000) Times, 3 October, Ferris J, approved sub nom Hurst v Bennett [2001] EWCA Civ 182, [2001] 2 BCLC 290.

317

15 The enforcement of remedies between partners Contents

para 1 Jurisdiction and procedure A Jurisdiction���������������������������������������������������������������������������������15.1 B Limits on claims for debt or damages where no account is sought����������������������������������������������������������������������������������������15.5 C Necessary parties to a partnership action�����������������������������������15.7 D Disclosure and privilege�����������������������������������������������������������15.11 E Judgments and enforcement�����������������������������������������������������15.14 F Interest�������������������������������������������������������������������������������������15.16 G Costs of a partnership action����������������������������������������������������15.19 H Compromise between partners�������������������������������������������������15.20 2 Arbitration and mediation A Arbitration and mediation agreements�������������������������������������15.21 B Mediation or ‘ADR’�����������������������������������������������������������������15.24 C Arbitration applications to the court����������������������������������������15.25 D County court����������������������������������������������������������������������������15.26 E Stay of parallel court proceedings���������������������������������������������15.27 F Powers of the arbitrator�����������������������������������������������������������15.28 G Costs of arbitration������������������������������������������������������������������15.29 H Arbitration appeals to the court�����������������������������������������������15.30 3 Injunctions between partners A Specific performance and dissolution����������������������������������������15.31 B Injunctions restraining misbehaviour by a partner or the firm��15.32 C Mutuality���������������������������������������������������������������������������������15.33 D Mandatory injunctions to enforce the personal obligations of a partner����������������������������������������������������������������������������������15.34 E Injunctions where dissolution is an alternative remedy�������������15.35 F Interim injunctions and undertakings���������������������������������������15.36 4 A partner’s application for a receiver A Receivers generally�������������������������������������������������������������������15.38 319

15.1  The enforcement of remedies between partners

B Partnership receivers appointed by agreement��������������������������15.39 C Who may apply to the court for the appointment of a partnership receiver������������������������������������������������������������������15.40 D Who may be appointed������������������������������������������������������������15.41 E The grounds for appointment before dissolution����������������������15.42 F The grounds for appointment in a dissolution��������������������������15.43 G Procedure on appointment�������������������������������������������������������15.44 H Remuneration��������������������������������������������������������������������������15.46 I Receiver and manager��������������������������������������������������������������15.47 J Status and powers of receiver or receiver and manager������������15.48 K Restrictions on creditors�����������������������������������������������������������15.49 5 Limitation and delay as regards claims between partners A Limitation generally�����������������������������������������������������������������15.50 B Limitation in claims between continuing partners: no time period���������������������������������������������������������������������������������������15.51 C Limitation in claims between the firm and an outgoing partner or his estate: ordinary time period�������������������������������15.52 D Extension of ordinary time limits���������������������������������������������15.56 E Laches, waiver, acquiescence and abandonment�����������������������15.61

1  JURISDICTION AND PROCEDURE A Jurisdiction  15.1 B Limits on claims for debt or damages where no account is sought   15.5 C Necessary parties to a partnership action   15.7 D Disclosure and privilege   15.11 E Judgments and enforcement   15.14 F Interest  15.16 G Costs of a partnership action   15.19 H Compromise between partners   15.20

A Jurisdiction (a)  High Court and county court 15.1  In the High Court all causes and matters relating to the dissolution of partnerships or the taking of partnership or other accounts are assigned to the Chancery Division1. A Chancery Master may exercise the court’s jurisdiction in partnership cases save where it exceeds his general jurisdiction specified in para 5.1 of Practice Direction B supplemental to Part 2 of the CPR. The limits on his jurisdiction that are met with in practice in partnership cases are as follows: … a Master or a District Judge may not deal with the following without the consent of the Chancellor:

320

Jurisdiction and procedure 15.2 (a) approving compromises … (i) on behalf of a person under a disability where that person’s interest in a fund, or if there is no fund, the maximum amount of the claim, exceeds £100,000 and (ii) on behalf of absent, unborn and unascertained persons; (b) making declarations, except in plain cases; … (d) where the proceedings are brought by Part 8 claim form, seeking determination of any question of law or as to the construction of a document which is raised by the claim form; … (g) making an order for rectification …

The Chancellor will usually consent to enlarge the Master’s jurisdiction when asked. The Chancery Masters are experienced in the conduct of partnership disputes and most issues in such a dispute are best dealt with by them. The county court has the jurisdiction of the High Court to hear and determine proceedings for the dissolution or winding up of any partnership (whether or not the existence of the partnership is in dispute) where the whole assets of the partnership do not exceed in amount or value the County Court Limit2, now £350,0003. ‘Assets’ means gross assets rather than net assets4. The jurisdiction can be enlarged by agreement signed by the parties or their legal representatives or agents5, and jurisdiction is also conferred on the county court in a case above the County Court Limit when the case is transferred to it by the High Court6. Implicitly the county court has powers to hear partnership disputes beyond mere ‘dissolution or winding up’ within its financial limit. On the other hand a claim for money in which the county courts have jurisdiction may only be commenced in the High Court if the financial value of the claim is more than £100,0007, and if the claim is for an unspecified sum, it must state that the claimant expects to recover more than 100,0008. 1 See the Senior Courts Act 1981, s 61 and Sch 1. 2 See the County Courts Act 1984, s 23(f), and the County Courts Jurisdiction Order 2014, SI 2014/503, Art 3. 3 See the County Courts Jurisdiction Order 2014, 2014/503, and R  v Judge Lailey [1932] 1 KB 568. The jurisdiction of the county court in an arbitration application is dealt with below. 4 Angel v Jay [1911] 1 KB 666. 5 See the County Courts Act 1984, s 24. 6 National Westminster Bank plc v King [2008] EWHC 280 (Ch). 7 See Art 4A of the High Court and County Courts Jurisdiction Order 1991, SI 1991/724, as amended by the High Court and County Court Jurisdiction (Amendment) Order 2014. 8 CPR Practice Direction 7A para 3.6.

(b)  Community Legal Service 15.2  Under the Legal Aid, Sentencing and Punishment of Offenders Act 20121, no legal aid is available for help in relation to matters of partnership law. 1 Legal Aid, Sentencing and Punishment of Offenders Act 2012, Sch 1, Part 2 para 13.

321

15.3  The enforcement of remedies between partners

(c) Proportionality 15.3  Under CPR, Part 1.2 the court is required to give effect to the ‘overriding objective’ which requires that cases are dealt with in a way proportionate to (inter alia) the amount of money involved and the financial resources of each party and at proportionate cost. Unfortunately most partnership cases involve a high degree of emotion, a considerable amount of financial detail and parties whose own financial resources are limited. The courts today are therefore ready to discourage partnership actions, for instance by refusing to order accounts1 or refusing permission to appeal2: The expense of taking an account in court is usually wholly disproportionate to the amount at stake3. 1 Hurst v Bryk [1999] Ch 1 at 15G, per Peter Gibson LJ. 2 Flynn v Robin Thompson & Partners (2000) 144 Sol Jo LB  102, CA; Naish v Bhardwaj [2001] All ER (D) 421 (Mar). 3 See para 22.4 of the Chancery Guide under the heading ‘Partnership Claims’.

(d)  Foreign firms and partners and claims from abroad 15.4  Article  24(2) of the Brussels Regulation Recast1 (which, with effect from 10  January 2015, is the consolidated and amended form of the 1968 convention and Brussels 1 Regulation2) gives exclusive jurisdiction to the courts of a member state in proceedings relating to companies, persons or associations having their ‘seat’ in that member state3 where the proceedings have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or the decisions of their organs. Such proceedings may sometimes include proceedings by outsiders, for instance where the question arose as to the authority of an entity’s officers4, which might apply to a partnership. Thus a question as to the existence of a state of partnership in England is (provided that the claimants are bound by the Regulation) a question exclusively for the English court5. Before the Judicature Acts the court had jurisdiction in partnership cases only if one of these three factors was present6: (a) the defendants were domiciled within the jurisdiction7; (b) the subject-matter of the suit was within the jurisdiction; or (c) the partnership contract was either entered into or was to be performed within the jurisdiction8. Today a firm must sue or be sued in its firm name under the CPR when the partners are ‘carrying on business within the jurisdiction’9 unless it is ‘inappropriate to do so’10. That order does not prohibit (if ‘appropriate’) any partners in their individual names from suing or being sued outside the ambit of the order, where the defendant partner is either served within the jurisdiction or he is a person domiciled within the jurisdiction and leave is 322

Jurisdiction and procedure 15.5

obtained to serve him outside the jurisdiction11. Other partners may then be served outside the jurisdiction as necessary parties to the action12. In an internal partnership dispute it will hardly be ‘appropriate’ for partners to sue (or be sued) in the name of the firm, which will be the normal course where there is a claim by or against an outsider, as is discussed in Chapter 21. Partners may agree the proper law of their partnership agreement, or the exclusive jurisdiction of the courts of a certain state in relation to it, but the burden of proof that an exclusive jurisdiction clause binds a party is on the party claiming it13. An agreement by one ‘for the benefit of’ the other that the English courts would have non-exclusive jurisdiction to settle any dispute arising in connection with their agreement is an exclusive jurisdiction clause for the purposes of Articles 25 and 31 of Regulation (EU) 1215/201214.   1 Council Regulation (EU) No 1215/2012 (Brussels Regulation Recast).   2 The Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters signed at Brussels on 27 September 1968 and Council Regulation (EC) No 44/2001 (‘the Brussels 1 Regulation’): see the Civil Jurisdiction and Judgments Act 1982, s  1 and the Civil Jurisdiction and Judgments Order 2001, SI  2001/3929 (amended by the Civil Jurisdiction and Judgments Regulations 2009, SI 2009/3131).  3 See the Civil Jurisdiction and Judgments Act 1982, ss  42–43 and Sch  1, para  16(2), as amended by the Civil Jurisdiction and Judgments Act 1991, s 3 and Sch 2, para 17.   4 But an overall review of the nature of the proceedings is required to ascertain with what they are principally concerned: JP  Morgan Chase Bank NA  v Berliner Verkehrsbetriebe BVG [2010] 2 WLR 690.  5 Phillips v Symes [2002] 1 WLR 853, following the commentary of Schlosser (para 162). A trader whose intended partnership has not yet commenced cannot claim that he is thereby a ‘consumer’ entitled to sue in his own state of domicile under Arts 13 and 14: Benincossa v Dentalkit Srl: C-269/95 [1998] All ER (EC) 135, ECJ.  6 Cookney v Anderson (1862) 32 LJ Ch 305; on appeal (1863) 32 LJ Ch 427. The principles governing the jurisdiction of the court in partnership cases were analogous to the rules of the civil law.  7 Maunder v Lloyd (1862) 11 WR 141.  8 Baille v Blanchet (1864) 4 New Rep 48.   9 Under CPR, Pt 7 PD 5A.3, discussed at para 21.20ff below. 10 CPR, Pt 7 PD 5A.3. ‘Appropriate’ must mean ‘practical’. The practice was previously more permissive, and allowed the firm to sue or be sued in its members’ names whether this course could be deemed ‘appropriate’ or not. 11 Under CPR, Pt 6.13ff provision is made for service where relief is sought against a person outside the jurisdiction. 12 With permission, under CPR, Pt 6.20(3A). 13 Choil Trading SA v Addax Energy SA [2009] All ER (D) 45 (Oct), Field J. 14 Perella Weinberg Partners UK LLP v Codere SA [2016] EWHC 1182 (Comm).

B Limits on claims for debt or damages where no account is sought (a)  Claims for debt or damages 15.5  Claims between partners are claims for an account rather than for damages1. A partner cannot obtain a judgment on a claim against his firm for debt2, damages3 or any other sum, because such a judgment would amount 323

15.6  The enforcement of remedies between partners

(at least in part) to a judgment against himself, which is a nonsense. He may obtain an order for the taking of accounts4, and after the accounts have been fully settled and the creditors paid he can obtain an order for payment to himself of what is found due from his partners5. As Warrington LJ observed6: In an action by one or more partners, whether using the name of the firm under Order XLVIII A r 107 or not, against a co-partner alleging that money is due from the defendant to the plaintiffs in connection with the affairs of the firm, whether the claim arises in respect of transactions during the continuance of the partnership, or in the course of the winding up of its affairs after dissolution, the only relief which the plaintiff could obtain would be an account of the dealings and transactions of the partnership.

The reason why the taking of accounts is necessary before the sum due is ascertainable is that in any partnership there are sums arising daily between the partners for advances and shares of profits and losses8, and the final entitlement of a partner is to a share in what is left over after the creditors have been paid and his rights against his partners adjusted. Mutual set-offs are sorted out then9. If a partner claims a debt or compensation from his partners he can obtain a declaration by ordinary action to the effect that the sum in question should be allowed to him on the taking of the partnership accounts. The accounts can then be agreed in the usual way or can be the subject-matter of a separate application or action for an account. Where accountancy items are in issue, leave to appeal is unlikely to be granted if the sums in issue are disproportionate to the costs involved10.   1 See para 14.18 above, and Hurst v Bryk [2002] 1 AC 185 at 194 and Uphoff v International Energy Trading Ltd (1989) Times, 4 February, CA.  2 Hagarty v Goetz [1921] 3 WWR 517 (Canada); Green v Hertzog [1954] 1 WLR 1309, part of the judgment of Goddard LJ in that case is quoted at para 14.22 above.  3 Bigelow v Powers (1911) 25 OLR 28 (Canada).   4 The action for an account is considered at para 14.18ff above.   5 So he cannot have an interim payment unless it is clear that there would be a balance due to him even if there were no account taken: Leung Wing Yiu v Siu King Yuen (2003) 2 HKLRD.  6 Meyer & Co v Faber (No 2) [1923] 2 Ch 421 at 439.   7 Later RSC Ord 81, now remodelled in CPR, Pt 7 PD 5A etc.  8 Green v Hertzog [1954] 1 WLR 1309; Robert Render v Grech (24 January 1996, unreported), CA. How the net assets are distributed between the members is dealt with by the Partnership Act 1890, s 44 which is discussed at para 18.54 below.   9 Between non-partners the mutual accounting position is settled according to the principles of set-off which were categorised by Morris LJ in Hanak v Green [1958] 2 QB 9 at 23. Different principles apply in insolvency (Stein v Blake [1994] Ch 16); and the insolvency set-off rules relating to partners are discussed in Chapter 23. 10 See CPR, Pt 1.1; Naish v Bhardwaj [2001] All ER (D) 421 (Mar), Blackburne J (permission to appeal refused [2001] EWCA Civ 1234).

(b) Claims where dissolution is not sought, and interim payments 15.6  The old rule1 that the court will not order an account of partnership dealings unless the plaintiff also claims dissolution is not mentioned in the Partnership Act 1890, and did not survive far into the 20th century2. 324

Jurisdiction and procedure 15.8

An interim payment may be ordered under CPR Part 25.7 before dissolution3. 1 Forman v Homfray (1813) 2 Ves & B 329. The rule had been ‘considerably relaxed’ when Sir Nathaniel Lindley wrote his last edition of The Law of Partnership (5th edn, 1888), see pp 497–8. 2 It was said to be a matter for the court’s discretion in Sandham v Sandham Bros [1933] 3 DLR 292 (Canada). Lord Millett in Hurst v Bryk [2002] 1 AC 185 at 194 seems have said that the rule was still alive, as was noticed by Rimer LJ in Cowan v Wakeling [2008] EWCA Civ 229 at para 25, but was obiter: Mukerjee v Sen & Ors [2012] EWCA Civ 1895. 3 Mukerjee v Sen & Ors [2012]  EWCA  Civ 1895, distinguishing Hathurani v Jussat [2010] EWHC 2077.

C  Necessary parties to a partnership action (a) Partners 15.7  Every internal partnership dispute will affect the partners’ mutual state of account and consequently all partners must be joined in the action1, even if one undertakes to accept liability for the others2. All must be parties in order that all are bound: In order to avoid multiplicity of action, the account must be taken once for all in the presence of all the persons interested3.

It will not be necessary for all partners to be joined where the dispute is not strictly a partnership dispute but a dispute between two partners relating to a private arrangement between them4, or a dispute between a partner and a sub-partner5. 1 Simpson v Chapman (1853) 4 De GM & G 154. 2 Hills v Nash (1845) 1 Ph 594, approved CA in Public Trustee v Elder [1926] Ch 776 at 784. 3 Per Fry J in Bergmann v Macmillan (1881) 17 Ch D 423 at 427 cited with approval by Lord Hanworth MR at p 784 in Public Trustee v Elder [1926] Ch 776. An exception was once made where a partner was in Australia: Duxbury v Isherwood (1864) 10 LT 712. 4 Simpson v Rackham (1831) 5 Moo & P 612; Sempff v Neubauer [1903] TH 202 (South Africa). 5 Brown v De Tastet (1821) Jac 284.

(b)  Other interested parties 15.8  Those who are not strictly partners need only be joined in a partnership action if they have an actual interest in the outcome of the proceedings. So a person who has a right to become a partner but has not actually become one will not usually be a necessary party1. But the personal representatives of a dead partner (even if allegedly insolvent2) or the assignor of a share, are usually necessary, depending upon the nature of the relief being sought. Where it was held that accounts could not be taken without the involvement of the assignors of a partnership share, the action failed for their non-joinder3. The position of an assignee of a partnership share is anomalous because he is 325

15.9  The enforcement of remedies between partners

entitled to an account after, but not during, the continuance of the partnership4. Consequently he will be a necessary party to a partnership action after5, but not before, dissolution. 1 2 3 4 5

Ehrmann v Ehrmann (1894) 72 LT 17. Cox v Stephens (1863) 11 WR 929. Meyer & Co v Faber (No 2) [1923] 2 Ch 421; Public Trustee v Elder [1926] Ch 776. See the Partnership Act 1890, s 31, discussed in Chapter 10. He will be a necessary party because of his interest in ensuring that his share is correctly computed. It will be otherwise if he only holds it as a satisfied mortgagee: Williams v Poole (1873) 21 WR 252.

(c)  Suing in the firm name 15.9  CPR, 7A PD 5A1 provides that partners or alleged partners may sue or be sued in the firm name, but does not alter the rule of law that the firm is not a legal person2, so its name is just a label to describe the individual partners. The former RSC Ord 81, r 6 indicated that the Order applied to actions in the firm name against a member, or by him against the other members in the firm name. In such an action ‘the firm’ meant ‘the partners other than the defendant’3. But such a procedure is not permissible under the CPR. Similarly an action concerning the mutual rights of the individual partners, such as an action for account, should never be brought in the firm name4. More generally, the position should never be reached where a partner is on both sides of the record at once. Only in narrow circumstances will a substitution be allowed where the wrong defendant is named and a limitation period is expiring5. 1 Discussed in relation to claims by and against the firm (with which it is principally concerned) in Chapter 21. 2 The Connaught Income Fund v Capita Financial Managers [2014]  EWHC  3619 (Comm) para 19ff. 3 Per Warrington LJ in Meyer & Co v Faber (No 2) [1923] 2 Ch 421. 4 Sandham v Sandham Bros [1933] 3  DLR  292; United Properties v 784698 Ontario Ltd (1990) 73 DLR (4th) 761. 5 CPR 19.5(3)(a); The Insight Group Ltd v Kingston Smith [2012] EWHC 3644 (QB), discussed and followed in American Leisure Group v Olswang [2015] EWHC 629 (Ch).

(d) Representative claimants and defendants and derivative actions 15.10  Where ‘more than one person has the same interest in a claim’, the proceedings may be brought ‘by or against any one or more of the persons who have the same interest as representatives of any other persons who have that interest’1. The latter must be clearly defined. The court will not allow2 the action to continue as a representative action unless it is satisfied that the issues are common to every member of the class, and that the effect of the action will be to decide the issues affecting the person represented after full discovery and in the light of all the evidence capable of being adduced in favour of him3. 326

Jurisdiction and procedure 15.11

A ‘derivative action’ may be brought (with permission) ‘in representative form’4 by a group of partners who do not control the firm but who wish to pursue a claim against an outsider which the firm declines to do. The only reported decisions relate to limited partnerships and so the matter is discussed in that context under para 24.16 below. At the end of a representative action each person represented is bound by the judgment, but no order in the action may be enforced against him without leave of the court5. Against an application for such leave he may not seek to argue the matters decided against his represented group, but only such matters as are unique to his own case6. An action by or on behalf of the firm against a member will not be a representative action if it is brought in the firm name (with similar but not identical effect) under CPR, Part 7 PD 5A as described above. An action for dissolution or for a partnership account will not be suitable as a representative action7, because the interests of the individual partners are unlikely to be identical. On the other hand an action between groups of partners (say the incoming partners and the continuing partners) for a declaration as to their respective rights may well be constituted with representative plaintiffs and defendants respectively8. A partner can be joined as a representative defendant without his consent9 but only where it is clear that he can actually be expected to represent the others10.   1 See CPR, Pt 19.6. Carnie v Esanda Finance Corp Ltd (1995) 182 CLR 398.   2 CPR, Pt 19.6(1). The claim may be commenced with a party being in a representative capacity, without the permission of the court, but may only continue with such permission.   3 Per Vinelott J in Prudential Assurance Co Ltd v Newman Industries Ltd [1981] Ch 229 at 255, cited by Staughton LJ in Irish Shipping Ltd v Commercial Union Assurance Co plc, The Irish Rowan [1991] 2 QB 206 at 225.   4 Ie under Part 19.6  CPR, not 19.9 (Certain Partners in Henderson PFI  Secondary Fund II LLP v Henderson PFI Secondary Fund II LP (a firm) [2012] EWHC 3259, para 19 (iv)).   5 CPR, Pt 19.6(4)(b).  6 London Sewers Comrs v Gellatly (1876) 3 Ch D 610.  7 Sandham v Sandham Bros [1933] 3 DLR 292 (Canada).  8 Ideal Films Ltd v Richards [1927] 1 KB 374, CA.  9 Bank of America National Trust and Savings Association v Taylor [1992] 1 Lloyd’s Rep 484. 10 London Association for Protection of Trade v Greenlands Ltd [1916] 2 AC 15, HL.

D  Disclosure and privilege (a)  Partnership books and records 15.11  Irrespective of any litigation, every partner has a right to inspect the partnership books and records at all reasonable times1. In litigation between them, each side is entitled to inspect the books whether they are relevant to the issues in the action or not2. Privilege cannot be asserted between partners, or even between limited partners and a general partner in a limited partnership, in relation to any document concerning the partnership affairs3. A partner who has muddled his own business documents with those of the partnership will therefore have to disclose them all4. In an action between partners or between 327

15.12  The enforcement of remedies between partners

a partner and a dead partner’s estate, neither side can claim the ordinary right of a litigant to seal up such parts of the books of account as he might swear in general terms to be irrelevant to the issues in the action5. He must specifically identify every matter that he alleges is irrelevant, and will not be entitled to claim a general privilege even for letters to his solicitor. It is misconceived for a solicitor to claim legal professional privilege in his own partnership dispute for documents relating to advice that he has given to a client; those documents attract no privilege as between the partners6. Privilege is discussed further at para 15.13 below. Where the relevant documents are not partnership documents, for instance where they relate to a partner’s dealings with an outsider, ordinary rules of disclosure apply, and if there is suspicion that he may have breached a covenant with the firm then pre-action disclosure may be ordered under CPR rr 31.6 and 31.167. 1 See the Partnership Act 1890, s  24(9); considered at para  11.23 above. A partner may be ordered to deliver up the books and records if he cannot be trusted with them: Mertens v Haigh (1860) John 735; affd (1863) 3 De GJ & Sm 528. 2 Gourard v Edison Gower Bell Telephone Co of Europe (1888) 59 LT 813. 3 BBGP  Managing General Partner Ltd v Babcock & Brown Global Partners [2011] 2 WLR 496. 4 Re Pickering, Pickering v Pickering (1883) 25 Ch D 247, CA. 5 Re Pickering, Pickering v Pickering (1883) 25 Ch D 247, CA. 6 Lewthwaite v Stimson (1966) 110 Sol Jo 188. 7 Hays Specialist Recruitment (Holdings) Ltd v Specialist Recruitment Ltd [2008] EWHC 745 (Ch).

(b) Disclosure where the existence of the partnership is disputed 15.12  Unless otherwise agreed, the parties to a partnership dispute are under the usual obligation of litigants to give standard disclosure of their documents relating to matters in question in the action1. Disclosure of partnership books and records which are irrelevant to the action itself (and similar interrogatories)2 will not be ordered whilst the existence of the partnership is in issue3. The irrelevant parts of documents may be ordered to be sealed up4. 1 2 3 4

CPR, Pt 31. No attempt is made here to summarise the detailed requirements of this Part. Kennedy v Dodson [1895] 1 Ch 334. Turney v Bayley (1864) 4 De GJ & Sm 332; Harris v Harris (1844) 3 Hare 450. Mansell v Feeney (1861) 2 John & H  313; GE  Capital Corporate Finance Group Ltd v Bankers Trust Co [1995] 1 WLR 172.

(c)  Communication with legal advisers 15.13  Where one or more partners directly or indirectly instruct a solicitor on a partnership matter, every other partner is entitled to know of all communications with him, and so no privilege arises in relation to those communications1. In Perry v Smith2 Alderson B stated: 328

Jurisdiction and procedure 15.15 where one attorney only is employed, a communication made to him in his character of attorney for both parties may be used against one of them.

The firm’s right of confidentiality and privilege for its communication with its solicitors is a joint right of all partners and no one partner can waive it3. Where a partner has settled a claim against him by an outsider and seeks a contribution from another partner, he cannot claim privilege in relation to the terms of his settlement4. Where the firm as an entity contemplates expelling a partner, its communications with its legal advisers attract no privilege until the parties are ‘sundered by litigation’5 or the dispute is known to both sides6 or the partners ‘have fallen out between themselves’7. But partners can claim privilege for advice that they pay for themselves and the privilege is theirs rather than that of the firm. They lose the privilege if there is a strong prima facie case that they are acting in breach of their duty of good faith (‘the Iniquity principle’)8. 1 Re Konigsberg, ex p Trustee v Konigsberg [1989] 3  All ER  289 at 296g; Shore v Bedford (1843) 5 Man & G 271. 2 (1842) 9 M & W 681 at 883. 3 BBGP  Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch) at para 58. Privilege as a partnership asset is discussed further at para 8.71 above. 4 Gnitrow Ltd v Cape plc [2000] 1 WLR 2327. 5 Dockrill v Coopers & Lybrand (1994) 111  DLR (4th) 62, CA, Nova Scotia, where the judgment of the court delivered by Chipman J stated: ‘As documents created by means of moneys belonging to the party applying for this production, they were not privileged … until the partnership was rent asunder or an open conflict was known to each party’. 6 Woodhouse & Co Ltd v Woodhouse (1914) 30 TLR 559, followed in CAS (Nominees) Ltd v Nottingham Forest plc [2001] 1 All ER 954. 7 BBGP  Managing General Partner Ltd v Babcock & Brown Global Partners [2011] 2 WLR 496 at para 52, citing Re Pickering (1883) 25 Ch D 247, citing Re Konigsberg [1989] 3 All ER 289 and Ross v Noble (1869) LR 8 Eq 522. 8 BBGP Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch) paras 61–2, citing Walsh Automation v Bridgeman [2002] EWHC 1344 (QB).

E  Judgments and enforcement (a)  Actions by one partner against another 15.14  There is no procedural difficulty in one partner enforcing in the usual way any judgment or order that he may have obtained against another, but he is not likely to find himself with the benefit of a money judgment against another partner unless an account has first been taken, as explained in para 14.18 above.

(b)  Actions in the firm name 15.15  An action by or against a member can no longer be brought or defended in the firm name1 and this changes the former practice. RSC Ord 81, 329

15.16  The enforcement of remedies between partners

r 62 had provided that leave was required for the issue of execution to enforce a judgment or order made in an action between a firm suing in the name of the firm and either a member or another such firm where the firms have a member in common. The reason was that a claim for a money sum created a need for the mutual set-offs to be computed before it can be said that any particular sum is owed to a particular partner, so the court would not allow a money judgment to be enforced until an account had been taken3. The present practice is set out in para 6A of the Practice Direction to Part 70. It permits the enforcement of judgments and orders against the firm’s property but only by an outsider, and also deals with the enforcement of such claims against another member of the partnership, more fully discussed at paras 21.42 and 21.43 below. 1 See para 15.9 above. 2 And CCR Ord 25, r 10. 3 See para  14.18 above. RSC  Ord 81, r 6(2) gave the court power to ‘give such directions, including directions as to the taking of accounts and the making of inquiries, as may be just’.

F Interest (a)  Interest under section 35A of the Senior Courts Act 1981 15.16  Where judgment is given for ‘the recovery of a debt or damages’ in the High Court, simple interest may be awarded under section 35A of the Senior Courts Act 19811 at a rate which is discretionary but which might be the judgment rate (currently 8%) or 1% above LIBOR or base rate2. Warren J analysed how this discretion may be exercised depending upon the nature of the claim that the partner has against his firm3. A distinction must be drawn between commercial cases, where it is assumed that the claimant would have borrowed money to replace that which was lost or detained, and cases where the court was trying to identify a minimum return to put the claimant in the position he would have been in if the money had been placed on deposit for him. Where the claim is for money owed to a partner for his expenses, the investment rate would be too low and unfair to the claimant; the unsecured borrowing rate would be too high and unfair to the defendant, so the award was in between (3% over base rate)4. Section  43 of the Partnership Act 1890 provides that the sum due from the firm to an outgoing partner or his estate is ‘a debt accruing at the date of the dissolution or death’, and so an interest order under section 35A might be based upon this sum notwithstanding that the sum was not capable of ascertainment when the cause of action arose. But interest under section 35A may not be awarded in the special case where the claimant has a right to interest under section 42 of the Partnership Act 18905 nor may it be ordered in a claim for a sum which is neither a debt nor damages but an agreed compensatory sum of a different nature6. 1 In the county court, under the County Courts Act 1984, s 69. 2 Re Duckwari plc (No 3) [1999] Ch 268.

330

Jurisdiction and procedure 15.18 3 Reinhard v Ondra LLP (No 3) [2015] EWHC 2943 (Ch). 4 Reinhard v Ondra LLP (No 3) [2015] EWHC 2943 (Ch) following Challinor v Juliet Bellis & Co [2013] EWHC 620 (Ch). 5 Per Judge Maddocks in Williams v Williams [1999] CLY 4095; see next paragraph. 6 Darby v Meehan (1998) Times, 25 November.

(b)  Under s 42 of the Partnership Act 1890 15.17  Under this section1 an outgoing partner is entitled at his option to a share in the continuing profits or 5% on ‘the amount of his share of the partnership assets’. This means from dissolution (see above). The earlier practice was that the interest was payable from the date of the Master’s certificate2. Even if he or those representing his estate issue proceedings, he or they cannot be entitled to interest under section 35A above at a rate which may be more generous than 5%, because section 35A is only applicable where interest on the debt is not already running3. 1 Discussed in detail at para 18.11 below. 2 Bonville v Bonville (1865) 35 Beav 129. 3 See s 35A(4) and Williams v Williams [1999] CLY 4095.

(c)  In equity 15.18  As an alternative where neither of the above is applicable, interest will be awarded in equity1 on the sums found due from an accountable person, and compound interest will be ordered if he employed the money commercially2. The principle is that it is the profit for which the partner is accountable, not the loss to the others, and neither is the interest intended to be punitive. But for compound interest to be ordered there must be impropriety3. Lord Browne-Wilkinson said in Westdeutsche Landesbank Girozentrale v Islington London Borough Council4: in the absence of fraud equity only awards compound (as opposed to simple) interest against a defendant who is a trustee or otherwise in a fiduciary position by way of recouping from such a defendant an improper profit made by him. It is unnecessary to decide whether in such a case compound interest can only be paid where the defendant has used trust moneys in his own trade or (as I tend to think) extends to all cases where a fiduciary has improperly profited from his trust.

There was no English authority for a partner being liable for compound interest save where he has made money for himself or engaged in business (such as banking5) with the sum for which he is accountable, as opposed to merely retaining it in his professional capacity6. Where compound interest was not being ordered but the partner was held liable for money that ought to have been received by the firm, the court would usually order interest at base rate plus 1%7, but that may no longer the case. In Watson v Kea Investments8 McCombe LJ considered the question of interest in equity on misapplied 331

15.19  The enforcement of remedies between partners

money. It depended upon what the claimants would actually have been doing with the money if they had not been deprived of it. He concluded: It is unrealistic to assume that the trust fund, duly replaced, would have been placed … on deposit with no regard to capital accretion; it would not have been so placed … The material before the judge illustrated precisely what a deprived fund of this type would have done with the misappropriated money … 1 2 3 4 5 6 7 8

Rama v Millar [1996] 1 NZLR 257, PC. Wallersteiner v Moir (No 2) [1975] QB 373 at 508n. Herbert Black v Davies (6 May 2005, unreported), CA. [1996]  AC  669 at 702D, following India, President of v La Pintada Cia Navigacion SA [1985] AC 104 at 116; Burdick v Garrick (1870) 5 Ch App 233 at 241; A-G v Alford (1855) 4 De GM & G 843 at 851. Guardian Ocean Cargoes Ltd v Banco de Brasil SA (No 3) [1992] 2 Lloyd’s Rep 193. Burdick v Garrick (1870) 5 Ch App 233. Compound interest was ordered in Roxburgh Dinardo & Partners’ Judicial Factor v Dinardo 1993 SLT 16 (Scotland). Re Duckwari (No 3) [1999] Ch 268, following Belmont Finance Corpn v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 at 419. [2019] EWCA Civ 1759. Hamblen LJ and Sir Bernard Rix agreed.

G  Costs of a partnership action 15.19  The modern practice is to allow the successful party his costs against the unsuccessful1 and where he has been partially successful and partially unsuccessful, then he should be awarded his costs issue by issue2. In Sahota v Sahota3 Park J ordered: (a) that each party should pay 40% of its costs because they were essentially non-contentious dissolution costs4; (b) that on the issues seriously in dispute, the claimant had been successful as to 40%; (c) that the defendant’s offers to settle had been too complicated for it to be said that they ought to have been accepted; (d) that the claimant’s entitlement to costs should be reduced by 50% to reflect his reluctance to negotiate; (e) that the consequence was that the defendant should pay 12% of the claimant’s costs, but on reviewing the overall position this should be 15%. The old rule was that ordinarily the costs of an action between partners should be borne by the partnership assets5, but rank after the partners’ own advances and capital had been repaid to them6 and anything that they owed to the firm had been paid7. The effect was that the partners were liable for the costs in the proportions in which they were entitled to share in profits or losses8. But costs would be ordered to be payable by the partner whose negligence or misconduct had caused those costs to be incurred9, or who had set up charges of fraud and failed to prove them10. On a difficult point of law there might be no order as to costs11 and there may be no order as to the costs of dissolution accounts where there is no fault on either side12. 332

Arbitration and mediation 15.20

Where in a dissolution action a declaration is made as to the partners’ rights but a Part 36 offer or other money offer has been made by the unsuccessful party, the value of which cannot yet be measured because the money value of the successful party’s rights has not yet been ascertained, the judge may adjourn the question of costs until the position is clear13.   1 CPR, Pt 44.2(2)(a). Price v Saundry [2019] EWCA Civ 2261.  2 Winter v Winter (10  November 2000, unreported), CA; Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340, CA (appealed to the House of Lords on another point).   3 [2006] EWHC 344 (Ch).   4 Following Hamer v Giles (1879) 11 Ch D 942.  5 Butcher v Pooler (1883) 24 Ch D 273, CA. This principle was called ‘a valuable guide’ by Rimer J in Stocking v Montilla [2007] EWHC 56 (Ch), but he did not go so far as to adopt it and he made no order for costs.  6 Potter v Jackson (1880) 13 Ch  D  845; Ross v White [1894] 3 Ch  326; Rosher v Crannis (1890) 63 LT 272; Clark v Wilson (1913) 23 WLR 258 (Canada).  7 Ross v White [1894] 3 Ch 326; Rosher v Crannis (1890) 63 LT 272; Butcher v Pooler (1883) 24 Ch D 273; but the costs of a partner as receiver have priority: Davy v Scarth [1906] 1 Ch 55.  8 Ross v White [1894] 3 Ch 326.  9 Gay v Perry (1905) 25 NZLR 285; Norton v Russell (1875) LR 19 Eq 343. 10 Dean v MacDowell (1878) 8 Ch D 345, CA; Warrin v Thomas (1854) 23 LTOS 185. 11 Re Barber (1870) 5 Ch App 687 at 694. 12 Ma’Har v O’Keeffe (CA 26/11/2014) following Hamer v Giles (1879) 11 Ch D 942. 13 O’Leary v Standen (18 June 2010, unreported), ChD, Briggs J, following HSS Hire Services Group v BNB Builders’ Merchants Ltd [2005] 1 WLR 3158, 3166.

H  Compromise between partners 15.20  Disputes between partners can be compromised. The partners can even agree retrospective dissolution, provided that this does not affect the rights of outsiders. The compromise must be agreed between all current partners, save in the unlikely event that authority to make such an agreement has been delegated, for instance to a managing partner or management committee.

2  ARBITRATION AND MEDIATION A Arbitration and mediation agreements   15.21 B Mediation or ‘ADR’   15.24 C Arbitration applications to the court   15.25 D County court  15.26 E Stay of parallel court proceedings   15.27 F Powers of the arbitrator   15.28 G Costs of arbitration   15.29 H Arbitration appeals to the court   15.30 333

15.21  The enforcement of remedies between partners

A  Arbitration and mediation agreements 15.21  A written partnership agreement will usually contain a clause referring matters in dispute between partners1 (including ex-partners) to arbitration or (sometimes) to mediation, or this may be implied2. The advantage of arbitration or mediation is that any dispute will then be resolved more quickly, less formally, and in private rather than in open court, and confidentially3. An arbitration clause in a partnership agreement cannot be invoked by an outsider even where he has an unassailable contractual right to become a partner4. 1 Or the partner’s mortgagees or other assignees (for the benefit of an arbitration clause is assignable: Shayler v Woolf [1946] Ch  320, CA), but only if the arbitration clause can be construed as extending to mortgagees or assignees: Bonnin v Neame [1910] 1 Ch 732. 2 Habas Sinai Ve Tibbi Gazlar Isthisal Endustri As v Sometal SAL [2010] EWHC 29 (Comm). 3 A term imposing an obligation of confidence is to be implied into an arbitration or mediation agreement: Ali Shipping Corpn v Shipyard Trogir [1999] 1 WLR 314, CA. 4 Re Franklin and Swathling’s Arbitration [1929] 1 Ch 238.

(a)  Arbitration: advantages and disadvantages 15.22  The advantage of arbitration is that it is generally cheaper, quicker and less formal than litigation. As litigation has become more expensive, arbitration has become more attractive. The disadvantages of arbitration are: (a) if the arbitrator is not a partnership expert he may not have the qualities of a judge or the detailed knowledge of partnership law. But the Association of Partnership Practitioners now keeps a list of arbitrators; (b) the arbitrator needs to be paid by the partners; (c) the alternative of taking the matter to court is excluded unless all parties agree (see para 15.27 below); and (d) the scope for an appeal from an arbitrator if he is wrong is severely restricted by s 69 of the Arbitration Act 1996; the mere fact that he is (for instance) wrong as a matter of law, is no grounds for appeal (see para 15.30 below).

(b)  Arbitration clauses 15.23  The clause itself should be plain as to whether it is to continue in effect after dissolution1 and whether it should be concerned with the spirit or the letter of the partnership agreement2. But it will be presumed to cover any dispute concerning the relationship between the parties to it, unless the contrary is clear from its wording3. Where an agreement stated that it was subject to the exclusive jurisdiction of the English courts but also that the parties agreed to be subject to arbitration should there be a disagreement, the parties’ likely intention was that the

334

Arbitration and mediation 15.23 English courts should have jurisdiction over disputes and that the arbitration clause was permissive only4.

An arbitration clause may5 be wide enough to cover any dispute or account6 between the partners save a dispute as to whether a binding agreement to arbitrate has been reached7. It may cover a claim in tort8, or the validity of a dissolution notice9, or the question whether the partnership is illegal10 or has been repudiated11, or whether an LLP member has suffered unfair prejudice12. It may be wide enough to survive where the underlying partnership is illegal13. But there must be a ‘dispute’14 which there will not be if one partner is simply misbehaving, for instance by carrying on the business after dissolution15. The arbitration clause will apply even if one party says that the issue is obvious16, and a winding-up petition will not be allowed to proceed if the sum relied upon is in issue in an arbitration17. But the machinery of the arbitration clause in a partnership agreement must prove workable18. It will not prove void as ‘unfair’ even if it relates to less than £3,000 as it would in a ‘consumer’ contract19. The width of the arbitration agreement is a matter of law for the court20 unless the parties have expressly agreed to leave it to the arbitrator21, and the arbitration agreement may be wide enough to cover that very question22. The burden is on the partner arguing that the arbitration clause does not extend to the relief sought23 for an arbitration agreement will be interpreted widely24 and purposively, for instance extending the meaning of ‘partner’ to an expartner25. It may extend to matters which are left to the court’s discretion in the Partnership Act 1890, such as the power to order the return of premiums26 or to decree dissolution under section 3527. If the arbitration clause extends to all matters in dispute, a power to order dissolution will be implicit28. Like any agreement, an arbitration agreement may be repudiated or otherwise terminated29 but for this purpose the arbitration agreement is to be treated as a separate agreement and can be void or voidable only on grounds relating to itself30. Defendants who are not parties to a partnership deed, but are mentioned in it, may be treated as parties to an arbitration agreement in the deed by virtue of the Contracts (Rights of Third Parties) Act 1999, s 8(1)31.   1 In Gillett v Thornton (1875) LR 19 Eq 599 the arbitration clause was held to have survived the expiry of the term of a fixed-term partnership. See also Cope v Cope (1885) 52 LT 607.  2 Home and Overseas Insurance Co Ltd v Mentor Insurance Co Ltd [1990] 1 WLR 153, CA.  3 Premium Nafta Products Ltd v Fili Shipping Co Ltd [2007] UKHL 40.  4 Abbott v Econowall UK  Ltd [2016]  EWHC  660 (IPEC); Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638 explained and Ace Capital Ltd v CMS Energy Corp [2008] EWHC 1843 (Comm).   5 For instance if it covers every dispute ‘arising out of’ the partnership relationship: Mantovani v Carapelli SpA [1980] 1 Lloyd’s Rep 375, CA.  6 Bonnin v Neaume [1910] 1 Ch 732.  7 Heyman v Darwins Ltd [1942] AC 356, but see Harbour Assurance Co (UK) Ltd v Kansa [1993] QB 701.  8 Ulysses Compania Naviera SA  v Huntingdon Petroleum Services Ltd [1990] 1 Lloyd’s Rep 160. Aliter if the clause covers only disputes arising ‘under’ the agreement: Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 at 508.  9 Plews v Baker (1873) LR 16 Eq 564.

335

15.24  The enforcement of remedies between partners 10 Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1993] QB 701; see also note 11 below. 11 Heyman v Darwins [1942] AC 356, HL. But where the main agreement has been repudiated the arbitration clause will usually fall as well: Downing v Al Tameer Establishment Investments [2002] EWCA Civ 721. 12 Fulham Football Club (1987) v Richards [2011] EWCA Civ 855. 13 Westacre Inv Inc v Jugoimport–SPDR Holding Co [1999] QB 740; affd [2000] 1 QB 288, CA, but contrast Soleimany v Soleimany [1999] QB 785, where the court refused to enforce the award, and see dicta of Viscount Simon in Heyman v Darwins Ltd [1942] AC 356 at 366; see also note 9 above. 14 See the Arbitration Act 1996, s 6. 15 Dennehy v Jolly (1874) 22 WR 448 (Ireland). 16 Halki Shipping Corpn v Sopex Oils Ltd [1998] 1 WLR 726, CA. 17 Altomart Ltd v Salford Estates (No 2) Ltd [2014] EWCA Civ 1408. 18 Bruce v Kordula 2001 SLT 983. 19 See the Arbitration Act 1996, s 91, and the Consumer Rights Act 2015. 20 Piercy v Young (1879) 14 Ch  D  200, CA; Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 1 WLR 713. 21 Gillett v Thornton (1875) LR 19 Eq 599 at 605. 22 Pegram Shopfitters v Tally Weiji (UK) [2003] 1 WLR 2990. 23 Premium Nafta Products Ltd v Fili Shipping Co Ltd [2007] UKHL 40; Cook v Catchpole (1864) 34 LJ Ch 60. 24 Premium Nafta Products Ltd v Fili Shipping Co Ltd [2007] UKHL 40; Fiona Trust v Privalov [2007] EWCA Civ 20; Wedlake Bell (a firm) v Jones [2007] EWHC 1143 (Ch). 25 Ellis v Coleman (10 December 2004, unreported), Ch D (Lawrence Collins J). 26 Belfield v Bourne [1894] 1 Ch 521. 27 Phoenix v Pope [1974] 1 WLR 719; contrast Hackston v Hackston 1956 SLT (Notes) 38, OH and Wood v Robson (1867) 15 WR 756 where the phrase was ‘… in case any difference should at any time during the partnership or after the expiration thereof arise …’ Dissolution by the court is considered in Chapter 17. 28 Re Vocam Europe Ltd [1998] BCC 396, Ch D, Rimer J (not followed by Judge Weeks in Exeter City Football Club v Football Conference [2004] 1 WLR 2910, but for reasons applicable to companies rather than partnerships); Olver v Hillier [1959] 1 WLR 551; Vawdrey v Simpson [1896] 1 Ch 166; Walmsley v White (1892) 40 WR 675, where the words were ‘any difference … in regard to … any other matter or thing relating to the partnership or the affairs thereof.’ Similarly in Belfield v Bourne [1894] 1 Ch 521; but cf Roxburgh v Dinardo 1981 SLT 291. 29 Downing v Al Tameer Establishment Investments [2002] EWCA Civ 721. 30 Premium Nafta Products Ltd v Fili Shipping Co Ltd [2007] UKHL 40. 31 Fortress Value Recovery Fund I LLC v Blue Sky Partners LP [2013] EWCA Civ 367.

B  Mediation or ‘ADR’ 15.24  The expense of arbitration in its modern form has made the alternative of mediation more attractive, and a partnership agreement (whether it contains an arbitration clause or not) should contain some such provisions as oblige the contesting parties: (a) to refer their dispute to the senior partner or a person nominated by him for mediation, and failing such mediation, (b) to refer their dispute to an independent mediator, and failing mediation (c) to refer the matter to arbitration. An agreement to refer the dispute to some sort of mediation or conciliation as a precondition to arbitration, if it is to be legally enforceable, must contain (without the need for further agreement) (1) a sufficiently certain and 336

Arbitration and mediation 15.25

unequivocal commitment to commence a process; (2) a means of discerning the steps each party was required to take to start the process; (3) sufficient clarity and definition to enable the court to make an objective determination of the minimum participatory requirements of each party (4)) an indication of how the process would be exhausted or properly terminated1. A successful mediation involves the parties’ consent to the outcome and so the reference of a dispute to a mediator cannot ensure that the dispute is resolved. But mediation has been found to be a very successful means for resolving disputes. Because it involves an element of compromise on both sides it is particularly suited to partnership disputes, where the emotion that is aroused is seldom reflected in the amounts at stake. An agreement to negotiate in good faith can be enforced where it forms part of a larger agreement which will otherwise become unworkable2. Under CPR, Part 1.4 the court is required to further the overriding objective by ‘actively managing cases’ which includes: (e) encouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate …

Chapter 17 of the Chancery Guide exhorts similar encouragement. In this context ‘ADR’ has many meanings but in practice usually means mediation; less often it means arbitration or ‘Early Neutral Evaluation’ (‘ENE’) which is the evaluation of both sides’ arguments by an independent lawyer. 1 Wah v Grant Thornton International Ltd [2012] EWHC 3198. 2 Petromec Inc v Petroleo Brasileiro SA  Petrobras [2006]  EWCA  Civ 1038, distinguishing Walford v Miles [1992] 2 AC 128.

C  Arbitration applications to the court 15.25  If in writing, an arbitration agreement will be subject to the Arbitration Act 1996. The procedure is governed by CPR, Part 62. The Arbitration Claim Form required by CPR, Part 62.4 follows Part 8 procedure and is to be used for all High Court applications relating to arbitration under the 1996 Act (except applications to stay judicial proceedings), including applications to determine issues of jurisdiction, to enforce peremptory orders, to make orders in support of arbitral proceedings, to challenge awards on the ground of want of jurisdiction or serious irregularity and to appeal on a point of law arising out of an award. Applications under section  9 of the Arbitration Act 1996 to stay legal proceedings are to be brought in the court in which the legal proceedings are pending1. But by section 44 of the Arbitration Act 1996 the court retains the power to make certain orders in relation to the arbitral proceedings, and in particular it may make orders for the taking of evidence, the preservation of evidence, the appointment of a receiver and the granting of interim injunctions. It need not necessarily follow, or enforce, the arbitrator’s decision2. 337

15.26  The enforcement of remedies between partners

A committal order under CPR, Part 81.4 will not be made against a partner out of the jurisdiction who is not party to the arbitration, neither will service on him out of the jurisdiction be ordered3. 1 See Art 3 of the High Court and County Courts (Allocation of Arbitration Proceedings) Order 1996, SI 1996/3215, and CPR, Pt 62.3(2). 2 Patley Wood Farm LLP v Brake [2014] EWHC 4499 (Ch). 3 Trans-Oil International SA v Savoy Trading LP [2020] EWHC 57 (Comm).

D  County court 15.26  Proceedings for the enforcement of awards may be commenced in the county court1, and proceedings for the stay of any court proceedings must be commenced in the court in which the proceedings are pending, be it High Court or county court2. Subject to this no county court has jurisdiction under the Act save the Central London County Court, ‘Mercantile List’3 but this list has now been transferred to the Commercial Court of the Queen’s Bench Division and in the county court the list no longer exists. 1 See the Arbitration Act 1996, ss  66 and 101(2); and the High Court and County Courts (Allocation of Arbitration Proceedings) Order 1996, SI 1996/3215, art 4. 2 See the Arbitration Act 1996, s  9; and the High Court and County Courts (Allocation of Arbitration Proceedings) Order 1996, SI 1996/3215, art 3. 3 High Court and County Courts (Allocation of Arbitration Proceedings) Order 1996, SI 1996/3215, art 5.

E  Stay of parallel court proceedings 15.27  If a partner commences proceedings in a matter which by the partnership agreement he has agreed to be referred to arbitration, the defendant may apply to the court to stay the proceedings1 or stay a petition2 so as to allow the arbitration to proceed, and he will usually be awarded his costs of the action that he has rendered abortive. He may not do so before acknowledging service in the action, or after he has taken any step in the action to answer the substantive claim3. If he takes a step in the action he waives his right to arbitration4. The Arbitration Act 1996 is founded on the principle that the parties should be free to agree how their disputes are resolved5. Section 9 provides that on an application to stay the action where the arbitration agreement is binding and relates to a matter susceptible of arbitration6, the agreement shall prevail: (4) … the Court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.

So partners today must appreciate that by agreeing an arbitration clause they may be depriving themselves of access to the courts even where the matter in dispute may (on the one hand) be very serious indeed or (on the other) so trivial that they do not believe it to be an issue at all7. 338

Arbitration and mediation 15.28

The above is the position in England. But it is incompatible with EU law for the court of a member state to make an order to restrain a person from commencing or continuing proceedings before the courts of another member state on the grounds that such proceedings would be contrary to an arbitration agreement8; aliter in non-EU  Lugano Convention states9. And the Equality Act 2010 renders unenforceable an agreement which purports to exclude or limit the Act, and this extends to arbitration agreements10.   1 See the Arbitration Act 1996, s 9. There is also inherent power in the court to stay proceedings brought in breach of an agreement to decide disputes by an alternative method, irrespective of the Arbitration Acts: Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334, HL.  2 Fulham Football Club (1987) v Richards (2011) 2  WLR  1055 (Vos J); Re Vocam Europe Ltd [1998]  BCC  396, Rimer J not followed by Judge Weeks in Exeter City Football Club v Football Conference [2004] 1 WLR 2910, but for reasons applicable to companies rather than partnerships. See the Arbitration Act 1996, s 9(3); Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd’s Rep 357, CA. He must not serve a defence: West London Dairy Society Ltd v Abbott (1881) 44 LT 376, but may obtain the appointment of a receiver: Pini v Roncoroni [1892] 1 Ch 633.   3 See the Arbitration Act 1996, s 9(3).   4 To take a step in the action is to repudiate the arbitration proceedings or to elect to abandon them; seeking an extension of time for service of a defence or setting aside a default judgment or even seeking leave to defend does not amount to this: Lloyd v Wright [1983] QB 1065, CA; Patel v Patel [2000] QB 551, CA.   5 See the Arbitration Act 1996, s 1(b); contrast the earlier law embodied in the Arbitration Act 1950, s 4; Russell v Russell (1880) 14 Ch D 471; Joplin v Postlethwaite (1889) 61 LT 629 and Olver v Hillier [1959] 1 WLR 551.   6 Contrast Exeter City Football Club v Football Conference [2004] 1 WLR 2910 where Judge Weeks held that a contributory’s right to petition for relief under s  459 is inalienable and cannot be diminished or removed even by an arbitration agreement. His reasoning seems to be limited to corporate entities only (para 22) and not ordinary partnerships.  7 Halke Shipping Corpn v Sopex Oils Ltd [1998] 1 WLR 726, CA.  8 West Tankers v Allianz SpA [2009] 1 AC 1138, ECJ.  9 Masri v Consolidated Contractors (Oil and Gas) Company SAL [2009] EWCA Civ 36. 10 Equality Act 2010, s 144; Clyde & Co LLP v Bates van Winkelhof [2011] EWHC 668 (QB).

F  Powers of the arbitrator 15.28  The Arbitration Act 1996 gives the arbitrator the same power as the court to order a party to do or refrain from doing anything1, subject to: (a) the terms of the arbitration agreement, as discussed at para 15.21 above; (b) the lack of jurisdiction over non-parties; (c) interim injunctions for the purpose of preserving evidence or assets2 – these must be obtained from the court in spite of the arbitration agreement3; (d) enforcement – leave of the court may be obtained to enforce the award as if it were an order of the court4. 1 2 3 4

See the Arbitration Act 1996, s 48(5)(a). Cetelem S A v Roust Holdings [2005] 1 WLR 3555. See the Arbitration Act 1996, s 44(2). See the Arbitration Act 1996, s 66.

339

15.29  The enforcement of remedies between partners

G  Costs of arbitration 15.29  The costs of the arbitration are either the parties’ own costs (‘costs of the reference’) or those of the arbitrator (‘costs of the award’). In the absence of agreement to the contrary, both are in the discretion of the arbitrator1. The arbitrator will make his own arrangements to ensure that his fees are paid by the partners; if he fails to do this he will be a mere unsecured creditor. The ranking of the liability between the partners themselves is discussed at para 18.60ff below. 1 See the Arbitration Act 1996, s 6(1).

H  Arbitration appeals to the court 15.30  An application or appeal must be brought within 28 days of the date of the award1 although this time limit may be extended2. The suitor may only appeal with permission of the court: (a) under section 67 of the Arbitration Act 1996 on the grounds of want of substantive jurisdiction; (b) under section 68 of the Arbitration Act 1996 on the grounds that there has been ‘serious irregularity’ as statutorily defined; or (c) under section 69 of the Arbitration Act 1996 on the grounds that there is a question of law, and he satisfies all four of the requirements of section 69(3): (3) Leave to appeal shall be given only if the court is satisfied – (a) that the determination of the question will substantially affect the rights of one or more of the parties, (b) that the question is one which the tribunal was asked to determine, (c) that, on the basis of the findings of fact in the award – (i) the decision of the tribunal on the question is obviously wrong, or (ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and (d) that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.

These requirements will seldom be satisfied in a partnership dispute, and it is therefore a rare case where a disappointed suitor will be able to pursue any sort of appeal from an arbitration award. An application for permission to appeal is itself subject to strict procedural rules under the Practice Direction 62 (Arbitration) as amended. If the court does hear the arbitration application it may then grant leave for the matter to be appealed to the Court of Appeal, but if it declines to do so then the Court of Appeal has no jurisdiction to grant permission to appeal3. 1 Arbitration Act 1996, s 70(2).

340

Injunctions between partners 15.32 2 Arbitration Act 1996, s  80(5), a power only exercised in extreme cases, and the strength of the challenge is critical: Squirrel Films Distribution Ltd v SPP  Opportunities Fund LLP [2010] EWHC 706 (Ch), Lewison J. 3 Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd [2001] QB 388, CA; Athletic Union of Constantinople v National Basketball Association [2002] All ER (D) 507 (May), CA.

3  INJUNCTIONS BETWEEN PARTNERS A Specific performance and dissolution   15.31 B Injunctions restraining misbehaviour by a partner or the firm   15.32 C Mutuality  15.33 D Mandatory injunctions to enforce the personal obligations of a partner  15.34 E Injunctions where dissolution is an alternative remedy   15.35 F Interim injunctions and undertakings   15.36

A  Specific performance and dissolution 15.31  Claims for an injunction to enforce an agreement for a partnership are considered at para  14.1 above. Claims for an injunction to restrain misbehaviour by a partner when the partnership affairs are being wound up need no particular comment1; the rights of the partners in winding up are discussed in Chapter 18. 1 See for example the terms of the interlocutory injunction granted in Landmark Brickwork Ltd v Sutcliffe [2011] EWHC 1239 (QB) discussed at para 15.36 below.

B Injunctions restraining misbehaviour by a partner or the firm 15.32  Each partner has numerous obligations to the others both expressly under the partnership agreement and impliedly1, and breach of those duties will be restrained by court injunction2. Either the other partners or the firm suing in its own name3 may (for instance) restrain a partner from working for a rival4 or himself competing with the firm5, or altering its property6, or from soliciting the customers of the firm for his own benefit7 or excluding the other partners from management of the firm8 or from access to the books and records of the firm9. On his retirement he may be ordered to surrender to the firm such personal office that he may hold as a partner, such as when he is the supervisor of an insolvency10. If the case justifies it, his partners may obtain a ‘freezing’ order against him11, or obtain an injunction restraining him from doing what he is legally entitled to do, such as getting in assets after dissolution if he is likely to misuse them12. 341

15.32  The enforcement of remedies between partners

They may then be met with any of the defences to an equitable remedy; an injunction will not be granted if the offence is trivial13, or if it causes undue hardship14, or the applicant has ‘unclean hands’15, or is guilty of delay16, or seeks to compel a person to perform personal obligations17, as discussed below. In cases of employment contracts, the courts have been prepared to restrain an employee who is in breach of his employment contract from working for others, but only if it is for a short time18 and there is no danger of his starving19. Such cases are sometimes close to partnership cases20 but a true partner is by virtue of his fiduciary duties treated more sternly by the court than most employees. An injunction may be granted to restrain him which lasts at least as long as the partnership, provided that the business in question is not so rare that the injunction stops him working at all, in which case the injunction may be limited in time. He may have wider obligations under the partnership agreement, for instance not to work in a similar business even if it does not actually compete with the firm. A covenant of such width is often void as a restraint of trade, a matter considered later21. If the covenant is not void, then it will be enforced by injunction to the same extent as the other partnership obligations. Interim injunctions are considered at para 15.36 below.   1 The duties of good faith are discussed in Chapter 11.  2 Tate v Charlesworth (1962) 106 Sol Jo 368; Morris v Colman (1812) 18 Ves 437.   3 See CPR, Pt 7 PD 5A, discussed in Chapter 21.  4 Evening Standard Co Ltd v Henderson [1987]  ICR  588, CA; or embarking upon new business: Nixon v Wood [1987] 2 EGLR 26, CA.  5 Aas v Benham [1891] 2 Ch 244; England v Curling (1844) 8 Beav 129.  6 Elmslie v Beresford [1873] WN 152.  7 Voaden v Voaden [1997] CLY 3873; Gillingham v Beddow [1900] 2 Ch 242; Trego v Hunt [1896] AC 7, HL.  8 Hall v Hall (1850) 12 Beav 414; Anon (1856) 2 K & J 441, where the complainant partner had gone mad from overwork but recovered. A partner will be unlikely to obtain an injunction to re-enter partnership premises after dissolution: see para 18.4 below.  9 Floydd v Cheney [1970] Ch 602; Bevan v Webb [1901] 2 Ch 59; Mertens v Haigh (1860) John 735; affd (1863) 3 De G J & Sm 528; Greatrex v Greatrex (1847) 1 De G & Sm 692 but see para 11.25 above. 10 Clements v Udall [2001] BCC 658, Neuberger J. 11 Don King Productions Inc v Warren (No 2) [1998] 2 All ER 608, Moses J. 12 O’Brien v Cooke (1871) IR 5 Eq 51; Hartz v Schrader (1803) 8 Ves 317. 13 For instance, failure to keep the postmaster informed as to their requirements for the delivery of letters: Patching v Jordan (1888) 4 TLR 478; see Lemann v Berger (1876) 34 LT 235; Anderson v Anderson (1857) 25 Beav 190. Similarly an injunction will not be granted to restrain a possible future breach which might never happen: Coates v Coates (1821) 6 Madd 287. 14 Leader v Moody (1875)  LR  20 Eq 145 at 154. It was said in Sharp v Harrison [1922] 1 Ch 502 at 515 that the order ‘would inflict damage upon the defendant out of all proportion to the relief which the plaintiff ought to obtain’. 15 For instance, if he has removed the partnership records, Littlewood v Caldwell (1822) 11 Price 97, but only if his misbehaviour is relevant to the relief he is seeking: Richardson v Blackmore (25 November 2005, unreported), CA. 16 ‘Laches’ is discussed at para 15.61 below. 17 Mortimer v Beckett [1920] 1 Ch 571. 18 In Warner Bros Pictures Inc v Nelson [1937] 1  KB  209 the court limited the injunction to a period of the duration of the employment contract or for three years from judgment, whichever was shorter. In Warren v Mendy [1989] 1  WLR  853, Nourse LJ reviewed the authorities and stated at 865H: ‘Although it is impossible to state in general terms where the line between short and long-term engagements ought to be drawn, it is obvious that

342

Injunctions between partners 15.34 an injunction lasting for two years or more (the period applicable in the present case) may practically compel performance of the contract’. 19 Rely-a-Bell Burglar and Fire Alarm Co Ltd v Eisler [1926] Ch 609. 20 Page One Records Ltd v Britton [1968] 1 WLR 157 per Stamp J at 165. 21 See para 18.72ff below.

C Mutuality 15.33  The obligations of partners are mutual, and whether an injunction will be granted against a partner who is misbehaving may depend upon the good behaviour of the partner seeking the injunction1, or his ability to perform his side of the bargain2. The court will refuse an injunction application made by a partner, whose own role in the partnership is that of a personal nature, against another partner about whom the same could not be said, because an injunction should not be granted in favour of one side to a relationship of reciprocal obligation when it would not be granted to the other3. Nourse LJ, giving the judgment of the Court of Appeal in Warren v Mendy4, remarked that want of mutuality might not alone be decisive against an injunction in an employment case, but might be in ‘the presence of obligations involving mutual trust and confidence’ such as a partnership case. 1 Stocker v Wedderburn (1857) 3 K & J 393; Sichel v Mosenthal (1862) 30 Beav 371. 2 Const v Harris (1824) Turn & R 496; Smith v Fromont (1818) 2 Swan 330. 3 Page One Records Ltd v Britton [1968] 1 WLR 157, cited with approval in Warren v Mendy [1989] 1 WLR 853 at 863. 4 [1989] 1 WLR 853 at 866.

D Mandatory injunctions to enforce the personal obligations of a partner 15.34  Most partnerships require personal activity by a partner, and the question may therefore arise what remedy is available against him if he refuses. An injunction of a positive nature will not usually be granted compelling a partner to work in the partnership1, but an injunction of a negative nature may be granted, restraining him from working elsewhere2. The reason is one of practicality: the court will not make an order which is impossible to enforce. The test is as to the substance and not the form of the injunction, so an injunction in negative form will not be granted where its effect is to oblige the defendant to perform positive obligations of which specific performance would not be granted3, but this is not the same as restraining him from breaching the negative obligations of his partnership4. There is no absolute rule that an injunction will never be granted that may compel partners to work together; such an order may be made if the case warrants it and there is no evidence that the parties would not be able to work together5. 343

15.35  The enforcement of remedies between partners 1 See paras 15.32 and 15.33 above and Warren v Mendy [1989] 1  WLR  853 considered in Lauritzencool AB v Lady Navigation [2005] 1 WLR 3868, CA. The court will not grant a mandatory injunction requiring a person to carry on business: Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, HL, and will only in rare cases make an order enforcing personal services: Hill v C A Parsons & Co Ltd [1972] Ch 305; Whitwood Chemical Co v Hardman [1891] 2 Ch 416. 2 Evening Standard Co Ltd v Henderson [1987] ICR 588, CA (an employment case); Standard Life Health Care v Gorman [2010] IRLR 233, CA (an agency case); Lumley v Wagner (1852) 1 De GM & G 604. 3 Scandinavian Trading Tanker Co AB  v Flota Petrolera [1983] 2  AC  694. In Greatrex v Greatrex (1847) 1 De G & Sm 692 an injunction was granted restraining a partner from keeping partnership books away from the firm’s place of business, which amounted to an order that he return them. 4 Voaden v Voaden [1997] CLY 3873. 5 Wake v Renault (UK) Ltd (1996) Times, 1  August in which Robert Walker J granted an injunction restraining the wrongful termination of a car dealer franchise, but see Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, HL.

E Injunctions where dissolution is an alternative remedy 15.35  Orders for dissolution are considered in Chapter  17. At one time the law was that an injunction would not be granted without dissolution1, especially if the partnership was terminable at will2, where a defendant could terminate the partnership and so thwart the injunction3. The position today is that the circumstances which lead to an injunction may indeed necessitate a dissolution, but often they will not, and the one does not require the other. 1 See Lord Eldon in Marshall v Colman (1820) 2 Jac & W 266, where it was said that the only remedy was an action for an account: see para 14.18ff above. For the present practice, see Watney v Trist (1876) 45 LJ Ch 412 and Nixon v Wood [1987] 2 EGLR 26, where the Court of Appeal considered an injunction between continuing partners without it being suggested that dissolution should have been sought. 2 Fairthorne v Weston (1844) 3 Hare 387; Smith v Jeyes (1841) 4 Beav 503. 3 Miles v Thomas (1839) 9 Sim 606 at 609; dissolution on notice is discussed at para 16.22ff below.

F  Interim injunctions and undertakings 15.36  Injunctions in partnership cases are commonly granted on an interim1 rather than a perpetual basis, and then the claimants must give an undertaking in damages to the defendant. An injunction will not be granted to restrain a covenant where there is no evidence that the defendant is in fact threatening to break the covenant2. In Voaden v Voaden3 a partner had given notice of retirement from the firm and had prematurely left. Lindsay J restrained him by injunction from engaging in rival work during the course of his notice. The firm was required to undertake to continue to pay his profit share, less his receipts and receivables attributable to the outside work that he was doing, and he was ordered to furnish and verify a table of these every month.

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Injunctions between partners 15.37 In Intelsec Systems Ltd v Grech-cini4 an ex-employee was ordered to disclose the names and addresses of the persons with whom he had been in contact with a view to supplying them with or soliciting orders for an electronic system which was confidential to his ex-employer. In G Attwood Holdings v Woodward5 a company director resigned and set up a rival business after he had made approaches to company customers and misappropriated company documents. The court granted a restraining order lasting for a year after his resignation. In Landmark Brickwork Ltd v Sutcliffe6 in similar circumstances the court by interlocutory injunction restrained a former managing director temporarily from: (a) being engaged in a business competing with that of the claimant; (b) canvassing orders for his new business which competed with that of the claimant; (c) seeking to dissuade a supplier from supplying the claimant; (d) using a list of the claimant’s clients which he had downloaded. Similarly in Standard Life Health Care v Gorman7 some agents left a company without giving the requisite notice; an interim injunction was granted restraining them from working for a rival during the notice period. In QBE  Management Services v Dymoke8 (an employment case) a ‘springboard’ interim injunction was granted against a departing employee who took confidential information from his firm, restraining him from starting a rival company before the advantage gained by his wrongful acts was abated. But in Hoad & Taylor v Delves9 the court refused an interim injunction and ordered a speedy trial instead where an injunction would have irremediably put the defendant out of business, and in rather similar circumstances in Scott v Scott10 an injunction was refused where there was doubt as to the adequacy of the claimant’s undertaking in damages. In Imran Hussasin v Agha Tariq Iqbal11 a partner who was running the business was allowed to continue to do so whilst his rights were decided and the owner of the premises was restrained from keeping him out, provided that he kept proper business accounts.   1 See CPR, Pt 25.1. The principles of American Cyanamid Co v Ethicon Ltd [1975] AC 396, HL apply to the grant of such injunctions.  2 Sunseeker International Ltd v Tobia [2011] EWHC 4004 (QB).   3 [1997] CLY 3873.   4 [2000] 1 WLR 1190.   5 [2009] EWHC 1083 (Ch) (John Martin QC).   6 [2011] EWHC 1239 (QB).   7 [2010] IRLR 233.  8 QBE Management Services (UK) Ltd v Dymoke [2012] EWHC 80 (QB).   9 [2012] EWHC 1426 (QB) (Judge Platts) following Lawrence David Ltd v Ashton [1991] 1 All ER 385. 10 Scott v Scott [2012] EWHC 4186 (Ch). 11 [2013] EWHC 458 (Ch) and [2015] EWHC 1551 (Ch).

15.37  Where a partner is in breach of duty to his partners an injunction may be ordered against him and also against a third party who induces the breach1. 345

15.38  The enforcement of remedies between partners

Where an interlocutory injunction is likely to be dispositive of a particular aspect of the litigation, then a higher standard of prospect of success would apply than would be the case under American Cyanamid principles2. 1 See para 18.71 below where this is considered in relation to covenants in restraint of trade. 2 Cayne v Global Natural Resources plc [1984] 1  All ER  225; Horlick v Taylor [2018] EWHC 4034 (Ch).

4 A PARTNER’S APPLICATION FOR A RECEIVER A Receivers generally  15.38 B Partnership receivers appointed by agreement   15.39 C Who may apply to the court for the appointment of a partnership receiver  15.40 D Who may be appointed   15.41 E The grounds for appointment before dissolution   15.42 F The grounds for appointment in a dissolution   15.43 G Procedure on appointment   15.44 H Remuneration  15.46 I Receiver and manager   15.47 J Status and powers of receiver or receiver and manager   15.48 K Restrictions on creditors   15.49

A  Receivers generally 15.38  A single partner or several may apply to the court for a receiver to be appointed if they believe that the assets of the firm are in danger or (more usually) dissolution is being mishandled. Section 37 of the Senior Courts Act 1981 empowers the court to appoint a receiver on an interlocutory or final basis when it appears just and convenient1. According to the terms of the order appointing him he will take over some or all of the powers of the partners in relation to the partnership business or other of its assets2. The appointment will usually be of a professional man (see para 15.41 below), often an accountant, and he acts as an officer of the court (see para 15.48 below). The remedy is a drastic one. A small firm will hardly be able to bear the receiver’s remuneration. A large firm will rarely be put into the hands of a receiver because usually a few partners have enough sense to appreciate that almost any alternative arrangement is preferable. The reputation of any firm will be damaged by the appointment because of the association, in the mind of the public, of ‘receivership’ with insolvency3. Receivership can be a ground for a landlord forfeiting the firm’s lease; this is a question of construction of the lease. The appointment of a receiver by a partner (with which this section is concerned) should first be contrasted with some other receiverships. 346

A partner’s application for a receiver 15.40

(a) Out of court, a mortgagee by deed has a statutory power to appoint a receiver4, a ‘Law of Property Act receiver’. (b) The court may also appoint a receiver in certain other circumstances and in particular5: (i) over a partner’s share in the partnership property following a judgment against him personally for his separate debt, under section 23 of the Partnership Act 18906; (ii) over partnership assets by way of equitable execution for the debts of the firm7. 1 The procedure is governed by CPR, Pt 69. 2 An order may be made for receivership of a certain asset only, to effect a sale of it. 3 This may make the court reluctant to appoint a receiver: see Sobell v Boston [1975] 1 WLR 1587, discussed below. 4 See the Law of Property Act 1925, s 109, and (for a floating charge over agricultural property) see the Agricultural Credits Act 1928. 5 Section 37 of the Senior Courts Act 1981 empowers the court to appoint a receiver on an interlocutory or final basis when it appears just and convenient. 6 See para 10.15 above. 7 See CPD 1998, Pt 69 PD 4.1(3).

B  Partnership receivers appointed by agreement 15.39  A partnership agreement or dissolution agreement may provide that a receiver be appointed out of court, for instance to effect a sale of the business1, but this is rare. Such a receiver will not be an officer of the court but an agent of the firm who is not liable personally for the firm’s obligations2. An acknowledgment of a debt against the firm by him will start time running afresh under the Limitation Act 1980 because he is an agent3. His appointment will cease on the appointment of a receiver by the court4. He can be given by the court no greater power to bind the firm than what has been given to him by the deed appointing him5, but the court has power to award him remuneration on a quantum meruit6. More common than an appointment of a receiver out of court in this way is an unopposed appointment by the court under the procedure discussed below7. 1 2 3 4 5 6 7

Turner v Major (1862) 3 Giff 442. Owen & Co v Cronk [1895] 1 QB 265, CA. Re Hale, Lilley v Foad [1899] 2 Ch 107, CA. Hand v Blow [1901] 2 Ch 721 at 732, CA. Niemann v Niemann (1889) 43 Ch D 198, CA. Prior v Bagster (1887) 57 LT 760. Edwards v Standard Rolling Stock Syndicate [1893] 1 Ch 574.

C Who may apply to the court for the appointment of a partnership receiver 15.40  The appointment of a receiver may always be sought by a partner (including a dormant partner1), provided he has not retired2 and 347

15.41  The enforcement of remedies between partners

is not denying the partnership3. It also may be sought by his personal representatives, if they have a substantial interest in the partnership4, even if only in a fiduciary capacity5. If the claim by the applicant that he is a partner is disputed, a receiver will not usually be appointed6, but may be if he can show: (a) that although he is not a partner he has a substantial interest in the business of the partnership7; or (b) at an interlocutory stage, that he has a good arguable case that he is a partner8. In Canada a receiver has been appointed even where the existence of a partnership is in doubt9. Hale v Hale (1841) 4 Beav 369. Sobell v Boston [1975] 1 WLR 1587. Hardy v Hardy (1917) 62 Sol Jo 142. Hulme v Rowbotham [1907] WN 162. Clegg v Fishwick (1849) 1 Mac & G 294. Per Megarry J in Floydd v Cheney [1970] Ch 602 at 610 following Long Innes J in Tate v Barry (1928) 28 SRNSW 380 at 387. 7 Walker v Hirsch (1884) 27 Ch D 460, CA, where the applicant was held to be no partner although he was held out as such. He was entitled to a salary and a share of profits whilst he loaned £1,500 to the firm, but nothing else on dissolution. His application for a receiver was refused. 8 Floydd v Cheney [1970] Ch 602. 9 Roedde v News-Advertiser Publishing Co (1894) 4 BCR 7. 1 2 3 4 5 6

D  Who may be appointed 15.41  The application may be to appoint joint receivers1 or an expartner2 or one of the partners themselves3 if he is solvent4 and innocent of misfeasance5. But where there is hostility between the partners as in a case of one having been excluded, this will be undesirable6. At one time the court would often order the appointment of a receiver but leave his identity to be settled later; such a procedure is less common today and is no use in cases of urgency. 1 Coomber v Atkins (1895) 39 Sol Jo 793. 2 Hoffman v Duncan (1853) 18 Jur 69; Airey v Boreham (1861) 29 Beav 620. 3 This was done in Brenan v Preston (1852) 2 De GM & G 813 and Hoffman v Duncan (1853) 18 Jur 69. 4 Collins v Barker [1893] 1 Ch 578; Re Upperton (1823) 1 Gl & J 303. The more so if he is wealthy: Sargant v Read (1876) 1 Ch D 600; Tibbitts v Philips (1853) 10 Hare 355. 5 Collins v Barker [1893] 1 Ch  578; Sargant v Read (1876) 1 Ch  D  600. See also Young v Buckett (1882) 51 LJ Ch 504 (a surviving partner was not appointed because he was trying to appropriate customers for himself and was excluding the representatives of the dead partner from the partnership shop). 6 Redwood v Redwood (1908) 28 NZLR 260; Young v Buckett (1882) 51 LJ Ch 504; Wedge v Wedge (1995) 12 WAR 489.

348

A partner’s application for a receiver 15.43

E  The grounds for appointment before dissolution 15.42  A receiver may be appointed even when dissolution is not sought1. In a partnership dispute the purpose of the appointment is2: To hold the ring, to ensure that the partner or partners who happen to be in possession of the partnership trading assets do not obtain advantage, nor damage the partnership assets to the harm of the dissenting partner, nor siphon them away or otherwise maltreat the partnership affairs. It is done without any judgment of the rights or wrongs in the partnership action …

A receiver will be appointed when the firm’s assets are in jeopardy3, for instance if its property is falling into disrepair4, or there is misappropriation5 or misconduct by the controlling partners6 or serious breakdown in the relationship between the partners7. He may be appointed for a short period8 of time when there are serious dissensions and a high degree of difficulty in managing the business properly9. He may be appointed to sell a specific asset; but to do so he must be specifically empowered10. He will not be appointed for mere incompetence on the part of the controlling partners11, or for trivial complaints12, and not in any of the circumstances mentioned next below where the courts have shown reluctance to appoint a receiver in a dissolution. Nor will a receiver be appointed over a professional firm where the damage to the reputation of the business outweighs the consideration in favour of the appointment13.  1 Medwin v Ditcham (1882) 47 LT 250; Baxter v West (1858) 28 LJ Ch 169; Const v Harris (1824) Turn & R 496.   2 Per Harman J in Re a Company (No 00596 of 1986) [1987] BCLC 133 at 135 and per Norris J in Catch a Ride Limited v Gardner [2014] EWHC 1220 (Ch).  3 Pini v Roncoroni [1892] 1 Ch 633 and see Sobell v Boston [1975] 1 WLR 1587 where no such jeopardy was found.  4 Daiches v Bluelake Investments Ltd (1985) 51 P & CR 51.  5 Evans v Coventry (1854) 5 De GM & G 911; Oliver v Hamilton (1794) 2 Anst 453.  6 Baxter v West (1858) 28  LJ  Ch  169; excluding a partner: Blakeney v Dufaur (1851) 15 Beav 40.  7 Wedge v Wedge (1995) 12 WAR 489.  8 Re a Company (No  00596 of 1986) [1987]  BCLC  133 at 137 per Harman J, following Stanfield v Gibbon [1925] WN 11.  9 Re a Company (see note 8 above), per Harman J, following Featherstone v Cooke (1873) LR 16 Eq 298. 10 See para 22.5 of the Chancery Guide. 11 Browell v Reed (1842) 1 Hare 434; Rowe v Wood (1822) 2 Jac & W 553. 12 Goodman v Whitcombe (1820) 1 Jac & W 589. 13 Sobell v Boston [1975] 1 WLR 1587.

F  The grounds for appointment in a dissolution 15.43  After dissolution the court will appoint a receiver for the same reasons as it would before dissolution, and also as an aid to winding up the partnership business. It was once said that the appointment in such a case is made ‘almost as a matter of course’1, but this is no longer the law2; an appointment is 349

15.43  The enforcement of remedies between partners

discretionary, so the mere fact of dissolution without more does not entitle a partner to have a receiver appointed3. He must show primarily that the assets are in jeopardy4, but it has sufficed that there is mismanagement of the business5, or that the defendants are using his assets to carry it on6, or have excluded him7, or are all dead8, or have been very slow in paying what is due to him9, or denied his interest10 or they are not those he agreed to be his partners but are their trustees in bankruptcy11, or where there was a dispute between the partners sufficient to be an impediment to proper winding up12. Breach of a dissolution agreement may warrant the appointment of a receiver13 as may behaviour so far in breach of the partner’s duty of good faith as would warrant the firm being dissolved by the court14. Like the liquidator of a company, his primary function is to get in the debts and preserve the assets pending a winding up15. The court will not appoint a receiver where the expense will not justify it16 or where the partnership agreement might be illegal17, or provides an alternative remedy18, or gives the defendant partner a right (which he is exercising) to buy the whole partnership undertaking19, or where the appointment over a professional practice causes too much consequential damage to its reputation20. In Don King Productions Inc v Warren (No  3)21 Neuberger J was asked to appoint a receiver and manager in a partnership dissolution where the controlling partner had breached the terms of the freezing order which had been made against him. The defendant offered a protective regime whereby the business would be supervised by an independent accountant. Held the defendant’s proposed protective regime would suffice and no receiver would be appointed, but any failure by the defendant to comply with his undertakings would almost certainly lead to an appointment.  1 Sobell v Boston [1975] 1 WLR 1587 at 1591G.   2 In Toker v Akgul (2  November 1995, unreported), CA  Hoffman LJ when giving leave to appeal on 4 July 1994 suggested that it was arguable that an appointment made by a judge on the basis that this was the law would be overturned on appeal; Moloney v Piochiarzki (2004) 51 ACSR 564.  3 Pini v Roncoroni [1892] 1 Ch 633.  4 Toker v Akgul (2 November 1995, unreported), CA.  5 Jack v Bell (1892) 36 Sol Jo 760.  6 Harding v Glover (1810) 18 Ves 281 cited by Goff J in Sobell v Boston [1975] 1 WLR 1587 at 1589B.  7 Naish v Ody (1897) 41 Sol Jo 726; Steele v Grossmith (1872) 19 Gr 141 (Canada).  8 Philips v Atkinson (1787) 2 Bro CC 272.  9 Collins v Young (1853) 21 LTOS 25, HL; Madgwick v Wimble (1843) 6 Beav 495. 10 Doupe v Stewart (1867) 13 Gr 637 (Canada). 11 Freeland v Stansfeld (1854) 2 Sm & G 479. 12 Moloney v Piachiarski (2004) 51 ACSR 564. 13 Davis v Amer (1854) 3 Drew 64. 14 Smith v Jeyes (1841) 4 Beav 503. 15 See para 22.5 of the Chancery Guide. 16 Toker v Akgul (2 November 1995, unreported). 17 Fyson v Miller (1833) 2 LJ Ch 158, LC. 18 Carlen v Drury (1812) 1 Ves & B 154. 19 Tottey v Kemp (1970) 215 Estates Gazette 1021. 20 Per Goff J in Sobell v Boston [1975] 1 WLR 1587 at 1593H following Megarry J in Floydd v Cheney [1970] Ch 602, 610. 21 [1999] 2 Lloyd’s Rep 392.

350

A partner’s application for a receiver 15.45

G  Procedure on appointment 15.44  A receiver may be appointed in the High Court by interim application made with or without notice1, to a Master or Judge, at either an interlocutory or final hearing2, but where possible the appointment will be postposed to the final hearing when it will become plain whether the appointment is necessary3. (a) The application must be supported by evidence as to the fitness of the proposed receiver4. Directions should be given as to the serving of his accounts5 and for his remuneration6 and as to the extent of his powers and duties7. Default by him may lead to his discharge8. Where a receiver is being appointed in court proceedings the court may still enforce an arbitration agreement and stay proceedings in the meantime9. He can be required to give security10, although the modern practice is often to dispense with this, sometimes with disastrous results. Anyone competent to be a receiver ought to have no difficulty in raising security by means of a bank bond. The provisions of CPR, Part 69 and its Practice Direction set out the cumbersome evidence required on all this, including11: 4.1 The written evidence in support of an application for the appointment of a receiver must: (1) explain the reasons why the appointment is required; (2) give details of the property which it is proposed that the receiver should get in or manage, including estimates of: (a) the value of the property, (b) the amount of income it is likely to produce …  1 Hicks v Lockwood [1883] WN 48; CPR, Order 69.3.   2 See the Senior Courts Act 1981, s 37; CPR 69.2(1).  3 Haughey v Synnott [2011] IEHC 467.   4 CPR, Pt 69 PD 4.2, 4.4.   5 See CPR 69.8(1) and CPR, Pt 69 PD 10.1.   6 See CPR 69.7 and CPR, Pt 69 PD 9.   7 Thus in Airey v Borham (1861) 29 Beav 620, Sir John Romilly MR ordered the dissolution of a two-man partnership, and appointed the continuing partner to be a receiver ‘of the debts due to the business’, since the date of the last account period.   8 See CPR 69.9.  9 Pini v Roncoroni [1892] 1 Ch 633; Machin v Bennet [1900] WN 146; see also the Arbitration Act 1996, s 44 (discussed at para 15.21ff above). But the court will not appoint a receiver if this would interfere with the course of the arbitration: Law v Garrett (1878) 8 Ch D 26. 10 See CPR 69.5 and CPR, Pt 69 PD 4.1(4), 7. 11 CPR, Pt 69 PD 4.1.

(a)  County court 15.45  The High Court procedure is adopted by the county court for cases within its jurisdiction which has power to appoint a receiver in any case in which the High Court can do so1. A receiver may be appointed by the District 351

15.46  The enforcement of remedies between partners

Judge if he has trial jurisdiction, and as ancillary or incidental to such an order he may grant an injunction2. 1 See the County Courts Act 1984, s 38, substituted by the Legal Services Act 1990, s 3. 2 See CPR, Pt 69 PD 3.1.

H Remuneration 15.46  A receiver appointed by the court who is not a partner is entitled to remuneration1 which may be fixed by reference to scales of professional charging or assessed by a costs judge2. It is often fixed retrospectively, and remuneration has even been agreed where one of the partners agreed to be receiver and manager without salary but circumstances then changed3. Without the consent of the paying partner or partners, a receiver may only charge for his services if the court gives directions permitting it and specifying how the remuneration is to be determined4. In determining the remuneration, the court awards such sum as is reasonable and proportionate in all the circumstances and takes into account5: (a) the time properly given by him and his staff to the receivership; (b) the complexity of the receivership; (c) any responsibility of an exceptional kind or degree which falls on the receiver in consequence of the receivership; (d) the effectiveness with which the receiver appears to be carrying out, or to have carried out, his duties, and (e) the value and nature of the subject matter of the receivership. Expenses incurred by the receiver (such as professional fees) are not subject to such assessment or dealt with as part of his remuneration, but are accounted for as part of his account6. Remuneration can be disallowed if he is guilty of improper or misguided actions7. He must look for his remuneration to the assets under his control (ie notionally under the control of the court which appointed him) and not to the partners who sought his appointment or who are parties to the litigation: none of the partners can control him as he is not their agent but an officer of the court (see para 15.48 below), and so they cannot be made liable for his expenses and liabilities8. Nor can the court order that his charges rank against creditors with any higher priority9. Conversely, where a partner has been appointed, he is entitled as a receiver to remuneration out of the assets of the firm even though as a partner he owes money to the firm that he cannot pay10. His right to remuneration takes priority over all claims of creditors save the costs of realisation of the assets11.   1 See CPR, Pt 69.7 and 69 PD.9.   2 See CPR, Pt 69.7(5).  3 Harris v Sleep [1897] 2 Ch 80.   4 See CPR, Pt 69.7 and 69 PD.7.   5 See CPR, Pt 69.7(4).   6 See CPR, Pt 69 PD 9.6.

352

A partner’s application for a receiver 15.47   7 Per Michael Hart QC in Mellor v Mellor [1992] 1 WLR 517 at 524G.  8 Evans v Clayhope Properties Ltd [1988] 1 WLR 358, CA, following Boehm v Goodall [1911] 1 Ch 155 at 161 per Warrington J; Glyncorrwy Colliery Co Ltd [1926] Ch 951.  9 Choudhri v Palta [1994] 1  BCLC  184, CA, where the priority of his remuneration was discussed. 10 Davy v Scarth [1906] 1 Ch 55. 11 Re Johnson, ex p Royle (1875) LR 20 Eq 780; Re A Boynton Ltd [1910] 1 Ch 519 and cases noted above.

I  Receiver and manager 15.47  A receiver may not manage the business1, so if the business is to be carried on, a manager ought to be appointed, who will almost always be the same person as the receiver2, but he may be a partner appointed to be manager without salary3 under the direction of the receiver. The powers of a receiver and manager cannot be wider than those of a fully authorised partner4 and depend upon the terms of the order appointing them or him, which ought to be specific as to his powers, and may empower him to employ partners or sub-managers. The jurisdiction to appoint him is the same as that for a receiver. There seems to be no reason why the court should not appoint any professional to carry out any function in relation to the partnership business, even if it involves less authority than the word ‘manager’ implies. If he carries on the partnership business he is personally liable to the customers and other creditors5, but has an indemnity against the firm’s assets6, which takes priority over the general creditors7. He has no claim against the partners personally8. It has been held that after he has retired he may set up business in competition with the firm9. A mere receiver will not attempt to run the business rather than preserving it or disposing of it as the case may be. A receiver and manager can run the business: In Taylor v Neate10 the partnership business was that of a mechanical engineer, ironfounder, boiler maker and contractor, and it was in dissolution following notice. An argument that the court could not appoint a receiver and manager with power to enter into new contracts was rejected by Chitty J11: ‘The manager must carry on the business, and carrying on the business involves entering into contracts … A manager does not speculate with the business, but he carries it on according to the general course of business adopted in the particular trade … When the court appoints a manager the court does it for the purpose of preserving the assets, and nothing more, and does not intend to throw any liabilities of an onerous kind upon the partners.’ Held that a receiver and manager should be appointed but without power to enter into fresh contracts involving liability of more than £200 without the consent of the partners or the judge.

It was once held12 that a receiver and manager cannot be appointed unless dissolution is also claimed, but there seems to be no reason why not13. Since the word ‘receiver’ has implications of insolvency, it is worthwhile asking the court to call a receiver and manager simply a ‘manager’ on his appointment. 353

15.48  The enforcement of remedies between partners  1 Re Manchester and Milford Rly Co, ex p Cambrian Rly Co (1880) 14 Ch D 645 at 653.   2 ‘The function of a manager is usually (but not invariably) combined with that of a receiver’ (per Hubert Picarda, Receivers and Managers (1984) p 212). In the RSC, the term ‘Receiver’ included a manager: RSC  Ord 1, r 4, which was not echoed in the CPR, probably by an oversight.  3 Collins v Barker [1893] 1 Ch 578.  4 Niemann v Niemann (1889) 43 Ch D 198, where Bowen J at 205 held that ‘the court has no power to clothe a receiver with an authority which would wholly transcend the nature of the original arrangement between the parties’.  5 Owen & Co v Cronk [1895] 1 QB 265, CA.   6 Even after he has been discharged and his accounts settled: Levy v Davis [1900] WN 174 per Byrne J; Mellor v Mellor [1992] 1 WLR 517.  7 Re Glasdir Copper Mines Ltd [1906] 1 Ch  365; Batten v Wedgwood Coal and Iron Co (1884) 28 Ch D 317.  8 Evans v Clayhope Properties Ltd [1988] 1 WLR 358, CA following Boehm v Goodall [1911] 1 Ch 155 at 161 per Warrington J.  9 Re Irish (1888) 40 Ch D 49. 10 (1888) 39 Ch D 538. 11 (1888) 39 Ch D 538 at 544 following Jessel MR in Sargant v Read (1876) 1 Ch D 600. 12 Medwin v Ditcham (1882) 47 LT 250. 13 The possibility of the appointment of an interim receiver and manager when the intention was to continue the partnership was discussed in Hall v Hall (1850) 3 Mac & G 79 and in Oliver v Hamilton (1794) 2 Anst 453, ‘upon the very grossest abuse’.

J Status and powers of receiver or receiver and manager 15.48  A receiver appointed by the court is an officer of the court1. He is not an agent of the partner who obtained his appointment2 so he should not share his solicitor in matters of potential conflict3, and may not appeal a bankruptcy order against the firm4. The appointment operates as an injunction5 and interference with him is contempt of court6 even by an outsider7, but it gives the receiver no general power to bring proceedings on behalf of the firm without specific court order8. The effect of the appointment of a receiver over the business of and assets of the firm9 will be to vest in him the powers of the partners in relation to these. He becomes liable to tax in relation to realisation of partnership property10. It will be wrong for any partner to try to manage the business11 or to collect its debts12. For a partner to set up business in competition with that of the business being carried on by the receiver and manager, or to circularise that the original business is no longer carried on, is a contempt of court13. The duty of a receiver is to preserve the assets or to sell them as the case may be. If his duty is to sell he may sell the firm’s property even though the property is vested legally in a partner14.   1 Per Lord Esher in Burt, Boulton and Hayward v Bull [1895] 1 QB 276 at 279.  2 Boehm v Goodall [1911] 1 Ch 155.  3 Bloomer v Currie (1907) 51 Sol Jo 277.  4 Re Jameson and Sandys, ex p Cresswell and Jameson (1891) 8 Morr 278, CA.  5 Baxter v West (1858) 28 LJ Ch 169.  6 Dixon v Dixon [1904] 1 Ch 161, where one of the ex-partners was restrained from competing with the receiver’s management of the business of the firm.

354

Limitation and delay as regards claims between partners 15.50  7 Helmore v Smith (No 2) (1886) 35 Ch D 449, CA, in which a former employee of the business was sent to prison.  8 Saddique v Sadiq [2010] EWCA Civ 458.  9 Which will be the usual order, although a more limited order is possible, such as his appointment over a certain asset only: in Brenan v Preston (1852) 2 De GM & G 813 it was some ship’s machinery. 10 Taxes Management Act 1970, ss 75 and 77; Re Piacentini [2003] 3 WLR 354. 11 Re Plant, ex p Hayward (1881) 45 LT 326, CA; Dixon v Dixon [1904] 1 Ch 161. 12 Irvine v Hervey (1913) 13 ELR 297. 13 King v Dopson (1911) 56 Sol Jo 51; Re Bechstein’s Business Trusts (1914) 58 Sol Jo 864. 14 Re Kyris (No 2) [1998] BPIR 111 at 114; Murray v King [1986] FSR 116 (High Court of Australia), a case concerning the sale of a copyright which was vested legally in the partners. In Sparkle Properties v Residential Developments Ltd [1998]  NPC  73 (Ian Hunter QC) a receiver and manager was held to be authorised to grant leases of flats, but Peter Gibson LJ on 20 July 1998 gave leave to appeal.

K  Restrictions on creditors 15.49  Because interference with a receiver is a contempt, no creditor may levy execution against the assets of the firm without the permission of the court if the receiver declines to pay his debt1. On the application for permission, which is made in the action in which the receiver was appointed, the court may either give leave for execution to be levied or direct that the receiver pay the debt2 or charge the assets in the hands of the receiver, subject to the receiver’s indemnity3. 1 Mitchell v Weise [1892] WN 139. For execution on a judgment against the partnership in the firm name see CPR, Pt 70 PD 61 discussed in Chapter 21. 2 Mitchell v Weise [1892] WN 139. 3 Newport v Pougher [1937] Ch 214, CA; Kewney v Attrill (1886) 34 Ch D 345.

5 LIMITATION AND DELAY AS REGARDS CLAIMS BETWEEN PARTNERS A Limitation generally  15.50 B Limitation in claims between continuing partners: no time period   15.51 C Limitation in claims between the firm and an outgoing partner or his estate: ordinary time period   15.52 D Extension of ordinary time limits   15.56 E Laches, waiver, acquiescence and abandonment   15.61

A  Limitation generally 15.50  The law relating to limitation as between partners has never been very satisfactory or clear. The Statute of Limitations of 1623 curtailed actions of account to those brought within six years after the cause of action arose. The cause of action was the common law action for an account, but equity 355

15.51  The enforcement of remedies between partners

followed the law in prescribing a similar time limit1. The statute contained an exception2 for such accounts as concerned trade ‘between merchant and merchant, their factors and servants’, which included partnership accounts3. This exception survived until 1856 when the ordinary period was extended to some claims between partners4; but difficulties remained as will be seen. 1 2 3 4

Foster v Hodgson (1812) 19 Ves 180. See s 8 of the Act of 1623. See Lord Chelmsford in Knox v Gye (1872) LR 5 HL 656 at 684. See the Mercantile Law Amendment Act 1856, s 9. There is a good historical explanation by Stirling J in Friend v Young (1897) 2 Ch 421 at 430ff.

B Limitation in claims between continuing partners: no time period 15.51  No limitation period applies to an action for an account, which is the usual claim that one partner may bring against his partners1 if the partnership is still continuing between them2. Laches, waiver and acquiescence are discussed below. If the partnership has been a long one then the defendants may try to argue3 that it was not a single partnership but several successive ones, so the plaintiff’s claim relating to the earlier one is barred as discussed below, but that is a different point. If he brings a claim not for an account but (for instance) in tort then the period relevant to that claim under the Limitation Act 1980 applies irrespective of the fact that they were partners. So in a claim for a secret profit by the firm against a partner, time begins to run when the firm first knew the material facts of the claim4. 1 Barton v North Staffordshire Rly Co (1888) 38 Ch D 458 at 463 per Kay J; Tatam v Williams (1844) 3 Hare 347 per Wigram V-C contrasting the position where between the partners ‘all dealings have ceased’, a matter discussed below. 2 See Harman J in A-G  v Cocke [1988] Ch  414 at 421 following Re Richardson [1919] 2 Ch 50 and Sir Robert Megarry in Tito v Waddell (No 2) [1977] Ch 106 at 250–251 (on the Limitation Act 1939); North American Land and Timber v Watkins [1904] 1 Ch 242. 3 As in Penny v Pickwick (1852) 16 Beav 246 and The Pongola (1895) 73 LT 512, where the issue was as to whether the partnership between the ship-owners over a 30-year period was a continuous one, or a new partnership for each voyage. The accounts at the end of each voyage were closed, but grave errors in them were shown. The partnership was held to be continuous, so the accounts for the whole period were reopened. Had each voyage constituted a separate partnership, then the statute would have barred claims regarding the accounts for the years more than six years before action was brought. 4 Page v Hewetts [2011] EWHC 2449 (Admin).

C Limitation in claims between the firm and an outgoing partner or his estate: ordinary time period 15.52  Limitation periods apply to actions between the firm and an outgoing partner or his estate, and to his claim against the firm. The general rule is that no action for an account between partners or ex-partners may be 356

Limitation and delay as regards claims between partners 15.52

brought after the expiry of the six-year or twelve-year limitation period after dissolution1. Only if the continuing partners in the firm are express trustees under a written document for the outgoing partner or his estate, or if they are his personal representatives2, or if they have rendered themselves accountable as constructive trustees3 then no period of limitation can be pleaded by them in a claim against them4. In Knox v Gye5 the House of Lords considered the question whether continuing partners were anyway trustees for the estate of a dead partner so that no limitation period would run in their favour. By a majority they held no6, but that the statutory limitation period is applied by analogy. In Taylor v Taylor7 James LJ followed that case8 and stated: ‘There is no fiduciary relationship between a surviving partner and the representatives of his deceased partner; there are legal obligations between them equally binding on both. There is, in fact, a mere liability to account.’ So the limitation period applied. Section 43 of the Partnership Act 1890 did not alter the law9 but specifically provided: Subject to any agreement between the partners, the amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased partner in respect of the outgoing or deceased partner’s share is a debt accruing at the date of the dissolution or death.

So in the common case of a partner having died or left the partnership, his entitlement, although it will then usually be unascertained, accrues ‘as a debt’ at the date of his departure. He must therefore bring an action within six years or it will be barred by section 5 of the Limitation Act 1980, or 12 years by s 8 if the partnership agreement was under seal10. Similarly a claim to the very existence of a partnership is in substance a claim for an account of its assets and profits and is caught by section  23 of the Limitation Act 1980 which provides the same limit under the Act as is applicable to the claim which is the basis for the duty to account. The claim is then subject to a six-year limitation period by the combined operation of section 43 of the Partnership Act 1890 and either section 5 or section 9 of the Limitation Act 198011.If his entitlement has been agreed or settled he or his representatives may sue for the liquidated sum. If not, he or they must sue for an account. Section 23 of the Limitation Act 1980 means that this will be subject to the same period12: An action for an account shall not be brought after the expiration of any time limit under this Act which is applicable to the claim which is the basis of the duty to account.

Subject to what is said in the next paragraph, where the partner has died or has retired by agreement the position is therefore plain enough; his claim to an account will be barred after six or 12 years, as will the converse claim of the ongoing firm or its members against him.  1 Marshall v Bullock [1998] EWCA Civ 561.  2 Wedderburn v Wedderburn (1838) 4 My & Cr 41, where the period of delay was 30 years.  3 Gwembe Valley v Koshy [1998] 2 BCLC 613, a company case.   4 Section 21(1) of the Limitation Act 1980 provides that: ‘No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action –

357

15.53  The enforcement of remedies between partners … (b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee …’   5 (1872) LR 5 HL 656. The decision was by a majority. It is further discussed at para 15.55 below. The report is notable for the intemperate language in which Lords Westbury and Hatherley disagreed with one another. See also Peninsular Co Ltd v Fleming (1872) 27 LT 93; Re Portsmouth Banking Co (1866) LR 2 Eq 167.   6 Lord Westbury observed rather sententiously: ‘as between the express trustee and the cestui que trust time will not run; but the surviving partner is not a trustee in that full and proper sense of the word. It is most necessary to mark this again and again, for there is not a more fruitful source of error in law than the inaccurate use of language. The application to a man who is improperly, and by metaphor only, called a trustee, of all the consequences which would follow if he were a trustee by express declaration – in other words a complete trustee – holding the property exclusively for the benefit of the cestui que trust, well illustrates the remark made by Lord Mansfield, that nothing in law is so apt to mislead as a metaphor. This is one of the sources of error in this case. There is nothing fiduciary between the surviving partner and the dead partner’s representative, except that they may respectively sue each other in Equity.’   7 (1873) 28  LT  189. The modern law on the status of a partner as a trustee is discussed at para 11.4 above.   8 He rejected the dissatisfaction with Knox v Gye expressed by Sir George Jessell S-G counsel for the plaintiff, and stated in relation to the passage quoted in the last note: ‘I have never read a judgment with which I more entirely concur than that of Lord Westbury.’   9 Per Sir Francis Jeune P in The Pongola (1895) 73 LT 512 at 513. 10 Robert Render v Grech (24 January 1996, unreported), CA. See also Re Artisans’ Land and Mortgage Corpn [1904] 1 Ch 796; Smith v Cork and Bandon Rly Co (1870) IR 5 Eq 65; but see comment on those cases in R v Williams [1942] AC 541 at 554–5 (where it was also remarked that the situs of a specialty debt was formerly of importance because of the different prerogatives of the Archbishops of Canterbury and York). Potter J discussed the 12-year period for a claim ‘on a specialty’ in Aiken v Stewart Wrightson Members’ Agency Ltd [1995] 1 WLR 1281 and held at 1293F that a 12-year period applies to an action for damages for breach of a contract under seal. 11 Bennett v Bennett [2018] EWHC 1931 (Ch). 12 Section 23 was new in the 1980 Act and went further than the Limitation Act 1939, s 19, which imposed a six-year period for ‘an action by a beneficiary to recover trust property or in respect of any breach of trust’ save in cases where the trustee had received the trust property or was guilty of fraud; Manning v English [2010] EWHC 153 (Ch) purportedly following Knox v Gye (1872) LR 5 HL 656 (which was in fact under earlier legislation); Marshall v Bullock [1998] EWCA Civ 561. Contrast Laddie J in Nelson v Rye [1996] 2 All ER 186 at 198G, a statement not included in Millett LJ’s dissent from that case in Paragon Finance v D B Thakerear [1999] 1 All ER 400 at 415; see further para 15.61 below.

(a)  The ‘outgoing’ partner 15.53  The general rule is that no action for an account may be brought between partners or ex-partners after the expiry of the six-year or twelve-year limitation period after dissolution1. But time will only begin to run against a partner if there has been an actual expulsion of him or a dissolution2 of the firm, as opposed to a mere cesser of the business or a departure or inactivity by him without a settlement of accounts3. Kay J observed in Barton v North Staffordshire Rly Co4 that ‘I know of no authority for saying that a partner who does nothing for six years loses all remedies against his co-partners,’ and he held that a limitation period for a partner who was wrongfully excluded from the firm when his claim to a partnership share was refused by the firm, ran from the date of such exclusion, and not before. 358

Limitation and delay as regards claims between partners 15.55 In Miller v Miller5 the partnership business was discontinued and its stock sold in September 1861, but insufficient money was raised to pay the advances that had been made by the Plaintiff, one of the partners. In 1869 he commenced an action for an account. Held, per Sir John Stuart V-C, this was not statute-barred. ‘There was no actual dissolution in October 1861, but only a discontinuance of the business, without any winding up of the affairs …’ In Noyes v Crawley6 the partnership business was discontinued in 1860 and its lease was forfeit by its landlord in 1861, when one partner, the defendant, rendered an account to the other, the plaintiff, showing £787 due to the plaintiff. Not until 1878 did the plaintiff sue for an account. Held per Malins V-C the claim was statute-barred, and distinguished Miller v Miller (above), saying, ‘Here I have a case in which … there was a dissolution, or termination, which is the same thing.’ See last para and Marshall v Bullock [1998] EWCA Civ 561. See Partnership Act 1890, s 43 discussed in last para. Millington v Holland (1869) 18 WR 184. (1888) 38 Ch D 458 at 463, followed Re Severn and Wye and Severn Bridge Rly Co [1896] 1 Ch 559 and Welch v Bank of England [1955] Ch 508 at 545. See also Clegg v Edmondson (1857) 8 De GM & G 787. 5 (1869)  LR  8 Eq 499. The case was discussed critically in Noyes v Crawley (1878) 10 Ch D 31 where it was suggested that it might have been overruled by Knox v Gye (see below) but it was followed by the Court of Appeal in Robert Render v Grech (24  January 1996, unreported), CA. 6 (1878) 10 Ch D 31. 1 2 3 4

(b)  The length of the account 15.54  If the claim to an account is not statute-barred because the dissolution did not take place more than six or 12 years before the action was brought, then the order may require an account to be taken through many previous years back to the date of the last ‘settled’ account or to the commencement of the partnership, even 30 years earlier1. So where a family partnership commenced in 1853 and after the death of the father in 1886 continued between his sons without any intermediate agreement or settlement of accounts, but was dissolved in 1893, an account was ordered to run back as far as 18532. 1 The Pongola (1895) 73 LT 512. 2 Betjemann v Betjemann [1895] 2 Ch 474. Similarly in Hopper v Hopper [2008] EWHC 228 and [2008] EWCA Civ 1417 in 2008 an account was ordered running back to 1989.

(c)  Property coming into the partnership after dissolution 15.55  The question arose in Knox v Gye1 whether a plaintiff, whose claim to an account had been statute-barred because the firm had been dissolved more than six years before, could seek an account because a sum of partnership money had come into the hands of the defendant continuing partner less than six years before the action commenced. The House of Lords held no; the 359

15.56  The enforcement of remedies between partners

majority, including Lord Chelmsford, said that an account would include outstanding debts, and that debts once statute-barred, could not be revived, or ‘every debt due to a partnership after a dissolution must in like manner give a fresh right to demand an entire account of the whole of the partnership concerns’2. But they left open the possibility of the plaintiff having the right to ‘sue for his share of this sum … the surviving partner being at liberty to defend himself by alleging and proving that the whole of the sum received had been applied, or was applicable, to the payment of partnership liabilities’3. This uncertainty was resolved by the Privy Council in Gopala Chetty v Vijayaraghavachariar4 where it was held: (a) if the partnership has been wound up with the mutual rights and obligations discharged, and the unexpected sum later falls into the credit of the firm, it should be divided between the former partners in accordance with their partnership shares. For Limitation Act purposes, the cause of action only accrues when the sum comes into the hands of the firm; (b) if the partners have not ‘squared up’ before the item in question appears, then accounts must be taken. But ‘if it is too late to have recourse to [the remedy of an account] then it is also too late to claim a share in an item as part of the partnership assets, and the plaintiff does not prove, and cannot prove, that upon the due taking of the accounts he would be entitled to that share’5. So if a partner’s claim to an account has been statute-barred, his claim in respect of the latecoming item is barred also. The rule that where there are no settled accounts a partner may be barred from claiming for property which has later come into the firm, or from claiming for a contribution for a firm liability that he has personally incurred, is subject to exceptions where6: (a) liability for the item is the subject of a specific agreement between the partners, or (b) the item has arisen so unexpectedly that it would not have featured in the accounts if there had been any accounts, or (c) the reason that there are no accounts is that none would have served any purpose, for instance where there appeared to be no assets or liabilities. 1 2 3 4

(1872) LR 5 HL 656, further discussed in the notes to para 15.52 above. (1872) LR 5 HL 656 at 686. (1872) LR 5 HL 656 at 687. [1922] 1  AC  488. The judgment was delivered by Lord Phillimore and followed by Peter Gibson LJ in Marshall v Bullock [1998]  EWCA  Civ 561 and by Judge Kirkham sitting as a High Court Judge in Manning v English [2010] EWHC 153 (Ch); contrast Scott v Milne (1843) 12 LJ Ch 233. 5 [1922] 1 AC 488 at 496. 6 Marshall v Bullock [1998] EWCA Civ 561.

D  Extension of ordinary time limits 15.56  If the ordinary time limits apply, they may be extended in the circumstances mentioned in Part II of the Limitation Act 1980: 360

Limitation and delay as regards claims between partners 15.58

(a) by section 28, if the person to whom the cause of action accrued was then under a disability; (b) by sections  29, 30 and 31, by acknowledgment or part payment, as discussed further below; (c) by section  32, where there has been fraud, concealment or mistake, as further discussed below.

(a)  Acknowledgment or part payment 15.57  When time has begun to run, for instance because of the death or departure of a partner, it may begin running afresh if the defendant acknowledges the debt or makes any payment in respect of it1, but a claim once barred is not thereby revived2. 1 See Limitation Act 1980, s 29(5). 2 See Limitation Act 1980, s 29(7).

(i) Acknowledgment 15.58  An acknowledgment must be in writing and signed by the person making it1. It may be made by an agent, and must be made to the person with the claim or to his agent2, which includes a single partner in a firm if acting within his authority3. It binds the person making it and his successors4. It is only effective if a ‘right of action has accrued to recover … any debt or other pecuniary claim’5 but this has been stretched6 to mean that the actual amount of the debt need not be identified7; all that is needed is that the debt should be recognised8; although the mere acknowledgment of facts that might give rise to a liability is insufficient9. So the requirement of an ‘accrued right’ to a ‘debt or other pecuniary claim’ is not satisfied by the mere existence of a claim to an account, and a mere acknowledgment of a right to account is insufficient to keep alive a claim to an account after the end of the initial limitation period10. In Manning v English11 the two former partners in a dissolved firm instructed the accountants to prepare dissolution accounts (which in the end were never agreed). Held that this act did not amount to an acknowledgment of any debt from one partner to the other.

But an account stated12 may constitute an acknowledgment13 either of a single item in the account, or of the settled balance14, and Lord Denning has observed15 that ‘A promise in writing by a debtor to pay whatever sum is found due on taking an account is a good acknowledgement.’   1 See the Limitation Act 1980, s 30(1).   2 Partnership Act 1890, s  15 provides that any admission made ‘in the ordinary course of business’ is evidence against the firm. Similarly by a receiver: Re Hale [1899] 2 Ch 107; cf Whitley v Lowe (1858) 25 Beav 421.   3 See the Limitation Act 1980, s 30(2). This is discussed further at para 19.14ff below.

361

15.59  The enforcement of remedies between partners   4 See the Limitation Act 1980, s 31(6).   5 Limitation Act 1890, s  29(5), repeating the Limitation Act 1939, s  23, which put upon a statutory footing the judge-made doctrine of acknowledgement which had always flown in the face of the clear words of s 1 of the statute of 21 Jac 1. The modern stautory words seem narrower than the judge-made exceptions.  6 Diplock LJ, perhaps relying upon pre-1939 law, stated in Dungate v Dungate [1965] 1 WLR 1477 at 1387, ‘There is clear authority that an acknowledgement under this Act need not identify the amount of the debt and may acknowledge a general indebtedness…’, but see Manning v English noted in the text above.  7 Dungate v Dungate [1965] 1  WLR  1477, CA, applied Bradford & Bingley plc v Rashid [2006] UKHL 37.   8 Per Harman J in Wright v Pepin [1954] 1 WLR 635, followed by Buckley J in Re Flynn (No 3) [1969] 2 Ch 403 at 411.  9 Re Flynn (No 2) [1969] 2 Ch 403. 10 Manning v English [2010] EWHC 153 (Ch). 11 [2010] EWHC 153 (Ch) following Marshall v Bullock [1998] EWCA Civ 561. 12 See para 14.42 above. 13 Ashby v James (1843) 11 M&W 542. 14 Siquerira v Noronha [1934] AC 332. 15 In Good v Parry [1963] 2 QB 418, with whom the other LJs agreed.

(ii)  Part payment 15.59  A part payment binds all persons liable in respect of the claim1, so part payment by a single partner binds the firm2. A payment of interest is treated as payment in respect of the principal debt3. The part payment must be an acknowledgment of the debt in question and not of some other debt, so the question may arise which debt the payor was intending to pay off when he made the payment4. 1 2 3 4

See the Limitation Act 1980, s 31(7); Griffiths v Hicks (1850) 15 LTOS 349. Wright v Pepin [1954] 1 WLR 635; Goodwin v Parton and Page (1880) 42 LT 568, CA. See the Limitation Act 1980, s 29(6). Re Footman Bower & Co [1961] 1 Ch 443; Friend v Young [1897] 2 Ch 421.

(b)  Fraud, concealment or mistake 15.60  There is no period1 applicable to a claim by the firm against a partner for dishonest breach of his fiduciary duty2. Where the cause of action against the partner does have a limitation period, by section  32 of the Limitation Act 1980 a period of limitation will not begin to run until the plaintiff has discovered (or could with reasonable diligence have discovered) the relevant fraud, concealment or mistake, where either3: (a) the action is based upon the fraud of the defendant; (b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant4, and ‘deliberate concealment’ extends to any deliberate commission of a breach of duty5; and (c) the action is for relief from the consequences of a mistake6. 362

Limitation and delay as regards claims between partners 15.61

For the purpose of (b) any deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty7. So any false accounting or breach of other fiduciary duty by a partner will prevent his having the benefit of the statute until it is known of by or should with ‘reasonable diligence’ have become known to his partners, and the phrase ‘reasonable diligence’ will be construed narrowly because partners are entitled to trust one another and are under no obligation to be checking each other’s activities8: In Rawlins v Wickham9 a partner had been induced to enter into a firm by fraudulent misrepresentation. After four years he sought to rescind the partnership agreement. It was said that he was guilty of delay and should have ascertained the correct position earlier. The Court of Appeal rejected this contention, and Knight Bruce LJ said10: ‘He was entitled to believe their representations to be accurate without looking at the books. He was entitled to continue in that belief until grounds for suspicion arose, or information was given him by one of the partners.’

In addition, if the partner has dishonestly made a secret profit from the firm, no period of limitation will apply because the firm’s claim against him will be a claim in respect of his fraud or fraudulent breach of trust within section 21(1)(a) of the Limitation Act 198011. In Betjemann v Betjemann12 a partner discovered that another partner had been fraudulently drawing more than his share and that the fraud had been concealed. The Court of Appeal held that there was no bar to an action against the latter for an account covering a period of nearly 40 years.   1 By the Limitation Act 1980, s 21(1)(e).  2 Gwembe Valley Development Co v Thomas Koshy [2003] EWCA Civ 1478.  3 See the Limitation Act 1980, s  32(1); and Cave v Robinson Jarvis and Rolf (a firm) [2002] UKHL 18.   4 The concealment may either be contemporaneous with the accrual of the cause of action or subsequent to it: Sheldon v RHM Outhwaite Ltd [1996] AC 102.   5 Section 32(2). ‘Breach of duty’ includes any legal wrongdoing raised in an action for which a period of limitation is prescribed: Giles v Rhind [2009] Ch 191, CA.   6 See Phillips-Higgins v Harper [1954] 1 QB 411.  7 Gwembe Valley Development Co v Thomas Koshy [2003] EWCA Civ 1478; Newgate Stud Farm v Penfold [2004] EWHC 2993 (Ch), David Richards J, both company directors’ cases.   8 See the Limitation Act 1980, s  32(2). See also Cave v Robinson Jarvis and Rolf (a firm) [2002] UKHL 18, [2002] 2 All ER 641; Beaman v ARTS [1949] 1 KB 550, following Bulli Coal Mining Co Ltd v Osborne [1899] AC 351.   9 Per Rigby LJ in Betjemann v Betjemann [1895] 2 Ch 474 at 482: ‘What is the duty of a man to inquire? To whom does he owe that duty? Certainly not to the man who has committed the concealed fraud.’ 10 (1858) 3 De G & J 304, a case of laches rather than limitation, but the principle was the same. 11 (1858) 3 De G & J 304 at 313. 12 [1895] 2 Ch 474. See also Stainton v Carron Co (1857) 24 Beav 346.

E  Laches, waiver, acquiescence and abandonment 15.61  Laches is a defence to any equitable claim; it means delay by the claimant combined with circumstances that make it unjust that his claim 363

15.61  The enforcement of remedies between partners

should remain enforceable1. In a partnership dispute a claim for specific performance, rectification, indemnity2 and rescission are all equitable and subject to no specific limitation period in the Limitation Act 1980 but are subject to the doctrine of laches3. By contrast it cannot bar a claim to a declaration as to the existence of a property right4. A claim for a partnership account is anomalous because a limitation period is applicable to it5, and because an action for account formerly lay both at law and in equity6. But a claim to reopen partnership accounts has been assumed to be an equitable one which faces a defence of laches7. When the Limitation Acts do not apply, the preliminary question will be whether a limitation period will be applied by analogy, so as to cut off the claim after (usually) six years8. Such an analogy has been applied in cases of a claim by a principal against his agent for an account9 and an equitable claim for breach of fiduciary duty10. So the court should apply the limitation period by analogy in partnership cases wherever the equitable relief sought was comparable to relief available at law; but the doctrine of laches may still apply to shorten the period11. To decide whether a defence of laches succeeds, the two important matters are the length of delay and the nature of the acts done (or not done) by either plaintiff or defendant in the interval12. It depends upon ‘the degree of diligence which might be reasonably required, and the degree of change which has occurred’13. In Bennett v Bennett G Bompas QC sitting as a judge of the High Court stated14: The passage of time is of considerable importance when, as in the present case, the foundation for the claim being asserted is an oral agreement.

It is a question of unconscionability15. In Patel v Shah16 a claimant claimed a beneficial interest in properties which had been bought as part of a joint venture. During the property slump in the 1990s he had failed to make any contribution to the losses of the venture or to claim any share. The Court of Appeal held that he remained quiet while a loss was made, and it was unconscionable for him to claim a share in the ultimate success of the venture.

It is not fatal to a claim that the firm is insolvent or has been dissolved before the writ was issued, nor that the claimant spends some weeks ascertaining the true facts and taking legal advice17. Mere delay alone by the claimant is insufficient18, unless unfair to the defendants19, or unless in the circumstances it is evidence that the claimant has released, waived or abandoned his rights20. Where it is plain that the others continued to treat his claim as a good one they cannot plead laches to it21. An aggrieved but innocent partner may elect whether he treats the partnership at an end. If he elects to affirm the partnership, he does not waive a right to damages for loss caused by his partner’s breach22.  1 Patel v Shah [2005] EWCA Civ 157 followed in Mukerjee v Sen [2013] EWHC 1997 (Ch).  2 West v Skip (1749) 1 Ves Sen 239.  3 Where statute provides a limitation period, acquiescence, abandonment or estoppel may bar a claim within that period, but the pure doctrine of laches will not apply: Re Pauling’s Settlement Trusts [1964] Ch 303 at 353.

364

Limitation and delay as regards claims between partners 15.62  4 Fisher v Brooker [2009] 1 WLR 1764.   5 Limitation Act 1980, s 23 is discussed at para 15.52 above; Philips-Higgins v Harper [1953] 1 QB 111.  6 S J Stoljar (1964) 80 LQR 203. ‘A claim for an account in equity, absent any trust, has no equitable element; it is based upon legal, not equitable rights’, per Millett LJ in Paragon Finance v D  B Thakerear [1999] 1  All ER  400 at 415 quoting Lindley LJ in How v Earl Winterton (1896) 2 Ch 626 at 639.  7 Bennett v Bennett [2018]  EWHC  1931 (Ch); Park v Park 1970  SLT (Notes) 59; Yahya v Yahya (13 May 1997, unreported), CA, where the six-year period was applied by analogy.   8 Limitation Act 1980, s 36 refers to the application of the statutory time limit by analogy in cases of ‘equitable relief’.  9 Paragon Finance plc v D B Thakerar & Co [1999] 1 All ER 400, esp Millett LJ at 415–416 and cases there cited. 10 Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1  WLR  112, CA; Frawley v Neill [2000] CP Rep 20; Coulthard v Disco Mix Club Ltd [1999] 2 All ER 457. 11 P&O Nedlloyd BV v Arab Metals Co [2007] 1 WLR 2288, CA. 12 Fisher v Brooker [2009] 1  WLR  1764, following Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 240. 13 Per Lord Blackburn in Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 at 1280. See Nicholls J in Elton John v James [1991] FSR 397. The failure of Laddie J to apply the limitation period by analogy in Nelson v Rye [1996] 2 All ER 186 at 201c was forcefully pointed out by Jules Sher QC sitting as a deputy judge in Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707 and by the Court of Appeal in Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1 WLR 112, CA and in Paragon Finance v D B Thakerear [1999] 1 All ER 400 at 415. 14 Bennett v Bennett [2018] EWHC 1931 (Ch) at 300. 15 Frawley v Neill (1999) Times, 5  April, 143 Sol Jo LB  98, CA (followed CA in Re Loftus [2007] 1  WLR  591), and see in particular the observation of Aldous LJ in Patel v Shah [2005] EWCA Civ 157. 16 [2005]  EWCA  Civ 157 (followed by CA in Re Loftus [2007] 1  WLR  591 and Sales J in Mukerjee v Sen [2013] EWHC 1997 (Ch)); Patel v Shah (Ch D) Kevin Garnett QC 15 July 2004; Frawley v Neill (1999) Times, 5 April. 17 Senanayake v Cheng [1966] AC 63. 18 Weld v Petre [1929] 1 Ch 33. In Chandroutie v Gajadhar [1987] AC 147 the Privy Council held it no bar to the claim of a partner’s widow that she took two years to issue a writ after his death, and in Fisher v Brooker [2009] 1 WLR 1764 the successful claimant had waited 38 years. 19 Fisher v Brooker [2009] 1  WLR  1764, where the claim was for music royalties which the defendants had benefited from, so it was not unfair that they should disgorge his share; Reilly v Walsh (1848) 11 I Eq R 22; Elton John v James [1991] FSR 397. 20 Blake v Gale (1886) 32 Ch D 571; McFadgen v Stewart (1865) 11 Gr 272 (Canada). 21 Penny v Pickwick (1852) 16 Beav 246. 22 Bishop v Golstein [2014] EWCA Civ 10 at para 25, for which Briggs LJ stated in support of his proposition, ‘This is trite law which needs no authority.’

(a)  Activity by the defendants 15.62  Where the plaintiff seeks to enforce an agreement that he should enter into partnership with others, or to enforce an existing but moribund partnership arrangement, he will fail if it can be said that he has ‘stood by without protest’ and let the others do all the work and spend all the money to bring the enterprise to a successful conclusion1. Activity by the defendants is irrelevant if it is concealed from the claimant by the defendants2 or is not disclosed to him under their duty to him of good faith3. 365

15.63  The enforcement of remedies between partners 1 Blundon v Storm (1972) 20 DLR (3d) 413 at 423, Supreme Court of Canada; Prendergast v Turton (1843) 13 LJ Ch 268; Cowell v Watts (1850) 2 H & Tw 224 where inactivity for 18 months was fatal. 2 Clements v Hall (1858) 2 De G & J 173; Rawlins v Wickham (1858) 3 De G & J 304. 3 Blundon v Storm (1972) 20 DLR (3d) 413; Betjemann v Betjemann [1895] 2 Ch 474, CA; Rawlins v Wickham (1858) 3 De G & J 304; Clegg v Edmondson (1857) 8 De GM & G 787.

(b)  Inactivity by the claimant 15.63  The longer the delay, and the greater the obvious activity by the defendants, the more easily will the court infer that inactivity by the claimant is either evidence of abandonment of his rights, or a circumstance which will render it unfair for him to assert those rights against the defendants1. In Rule v Jewell2 a call of £25 was made on each partner in a rather unprofitable mining venture. Two did not pay. Their shares were purportedly forfeited. Six years later the trading balance against the partners had halved and they then asserted a claim, and succeeded in showing the forfeiture invalid. But their claim to be partners was disallowed on the grounds of their delay3. By contrast in Clarke and Chapman v Hart4 where the facts were similar, the partners whose shares had allegedly been forfeited asserted for a period of 18 months before taking proceedings that they would expect a share in the profits. Held (House of Lords) that in the circumstances such delay could not be evidence of abandonment.

His delay may be fatal even if it is a claim for fraud5. Where a partner who has been induced to enter into a partnership by fraud continues to act in the partnership (for even two months after discovering the fraud)6, his claim to rescind is defeated7. A claim to any interest in a business of fluctuating fortunes is also easily defeated by the claimant’s delay8. In Blundon v Storm9 a marine treasure-seekers’ partnership agreement provided that termination would only be when ‘the project is completely abandoned.’ All partners other than Storm pursued it with diminishing enthusiasm. But they did not wholly abandon it. Storm renewed the treasure trove licence in his own name and in February 1965 he told them of this and purported to determine the partnership; they complained but did not seek an injunction. He continued diving for treasure actively, they less so; but in September 1965 he discovered the treasure. When he revealed this in April 1966, they immediately began the action. Held that their claim was not barred by their laches; they were not under an obligation to seek an injunction in 1965, and their other actions showed that there was no abandonment or acquiescence.

Delay is less culpable if the claimant has kept his claim alive by protesting10, or if the firm has set aside a fund to meet his claim11  1 Kamruz Zaman v Hamid Yusuf Zoha [2006]  EWCA  Civ 770; Re Jarvis dec’d [1958] 1 WLR 815 citing dictum of Knight Bruce LJ in Clegg v Edmondson (1857) 8 De GM & G 787 at 814; Cowell v Watts (1850) 2 H & Tw 224; Tilsley v Jevon (1673) Cas temp Finch 66. In Jones v North Vancouver Land and Improvement Co [1910] AC 317 at 328 a shareholder ‘lay by’ while the company ‘weathered the storm’ and 12 years later he made a claim, which

366

Limitation and delay as regards claims between partners 15.64 the Privy Council rejected (following Prendergast v Turton (1843) 13 LJ Ch 268), saying (per Lord Atkinson at p 328): ‘A proceeding more unmeritorious, more cynically audacious, could not well be conceived.’ In Latchan v Martin (1984) 134 NLJ 745, PC a sale was refused.   2 (1881) 18 Ch D 660; this was a case of a mining enterprise, and such concerns were regarded in the earlier cases as highly speculative.   3 The decision was not strictly one of laches, for the claimants were seeking a declaration that they were entitled to an ‘executed’ legal entitlement to a share, not to a claim to an ‘executory’ interest such as one by a partner ‘to enforce the performance of an agreement or to declare a trust or to obtain any other right of which he is not in possession’ per Kay J at 663–664. He therefore decided the case as one of abandonment or estoppel rather than laches. See also Prendergast v Turton (1841) 1 Y & C Ch Cas 98.   4 (1858) 6 HL Cas 633.  5 Cuthbert v Edinborough (1872) 21 WR 98: fraud alleged but not ‘clearly made out’; claim disallowed after 14 years.  6 Riddel v Smith (1864) 10  LT  561; contrast the one-month delay in Senanayake v Cheng [1966] AC 63, PC.  7 Nye v Beale (1852) 18 LTOS 270; as to the relevance of ignorance of the right to rescind see Holder v Holder [1968] Ch 353, CA.  8 Rowden v Parker (1905) 50 Sol Jo 140; Moung Tha Huyin v Thein Myah (1900) ILR 28 Calc 53 (India).   9 (1972) 20 DLR (3d) 413, SC Canada. 10 Blundon v Storm (1972) 20 DLR (3d) 413 at 424, SC Canada; Clarke and Chapman v Hart (1858) 6  HL  Cas 633; Clegg v Edmondson (1857) 8 De GM & G  787. In Kerr v Morris [1987] Ch 90 the claim was to restrain an ex-partner from setting up a certain rival business in breach of covenant. It was held by the Court of Appeal (at 103C) that a delay in bringing the proceedings from June to December was no bar to interlocutory relief because from the beginning the partners made it plain that they intended to uphold the covenant: ‘He went ahead with his eyes open’. 11 Re Shadwell Waterworks (1869) 18 WR 160.

(c)  Acquiescence and actual disclaimer or abandonment 15.64  Acquiescence inferred from delay will bar a claim to reopen settled accounts1, and such acquiescence need not amount to consent to the accuracy of all the items2. If a partner with full knowledge of the relevant facts consents to another exploiting a business opportunity for his own personal gain, then the other partner’s misbehaviour ceases to be a breach of duty, and full knowledge of the relevant facts does not entail an understanding of the legal effects of them3. If a partner leaves the firm or states or implies that he can no longer contribute to the losses of the firm and he is disclaiming any beneficial interest in it, and his partners continue the venture alone and eventually make a success of it, his claim is barred4. In Palmer v Moore5 a partner in a gold-mine departed saying to the others, ‘I am out of it’, and on the strength of this the partners continued to finance the mine alone. Less than two years later they sold it profitably, and then he claimed his share. Held that the claim was barred, not by laches (since it was not an equitable one) but by abandonment.

Release or abandonment can only be a successful defence when the claimant was sui juris and had full knowledge of the facts6 and their legal effect7. 367

15.64  The enforcement of remedies between partners 1 Cuthbert v Edinborough (1872) 21 WR 98. As to reopening settled accounts generally see para 14.42ff above. 2 Mosse v Salt (1863) 32 Beav 269. 3 Sharma v Sharma [2013] EWCA Civ 1287. 4 Bothe v Amos [1975] 2 All ER 321, CA; M’Lure v Ripley (1850) 2 Mac & G 274; Walsh v Scanlan (1892) 7 Nfld LR 633 (Canada). 5 [1900] AC 293, PC. 6 Re Pauling’s Settlement Trust [1962] 1 WLR 86; and on appeal [1964] Ch 303. 7 Re Howlett [1949] Ch 767 at 775.

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16 Dissolution, retirement and expulsion without court order Contents

para 1 Dissolution generally A The meaning of dissolution, ‘technical dissolution’ and winding up���������������������������������������������������������������������������������16.1 B Dissolution on illegality, repudiation, frustration or rescission���16.6 C Dissolution under the partnership agreement�����������������������������16.9 D Dissolution by subsequent agreement or implication����������������16.14 E Setting aside dissolution agreements�����������������������������������������16.19 F Publicising dissolution��������������������������������������������������������������16.21 2 Dissolution by notice A Express provision for dissolution on notice������������������������������16.22 B Partnerships at will dissolved on notice������������������������������������16.23 C The nature and effect of a notice����������������������������������������������16.24 3 Dissolution by death, bankruptcy or charging A Death���������������������������������������������������������������������������������������16.28 B Bankruptcy�������������������������������������������������������������������������������16.29 C Dissolution when a partner’s share is charged��������������������������16.32 4 Retirement and expulsion A Retirement and expulsion generally������������������������������������������16.33 B Retirement�������������������������������������������������������������������������������16.35 C The right to expel���������������������������������������������������������������������16.38 D Exercise of the right to expel����������������������������������������������������16.42

1  DISSOLUTION GENERALLY A The meaning of dissolution, ‘technical dissolution’ and winding up   16.1 B Dissolution on illegality, repudiation, frustration or rescission   16.6 C Dissolution under the partnership agreement   16.9 369

16.1  Dissolution, retirement and expulsion without court order

D Dissolution by subsequent agreement or implication   16.14 E Setting aside dissolution agreements   16.19 F Publicising dissolution  16.21

A The meaning of dissolution, ‘technical dissolution’ and winding up 16.1  The termination of the partnership is called its ‘dissolution’. It may happen by: (a) arbitration or other agreement1; or (b) by operation of law2; or (c) by court order, a ‘Dissolution Order’3. The effect of dissolution is to impose upon the partners an obligation to wind up the firm in the manner discussed in Chapter 18. The words ‘winding up’ mean the process whereby the business and other affairs of the firm are disposed of and settled, the creditors paid and the ultimate surplus distributed amongst the partners until the partnership is nothing but a memory. ‘Dissolution’ is the beginning of that process. It is sometimes said that any change in the membership of the firm, by the admission or withdrawal of a partner, causes some sort of dissolution4. The Partnership Act 1890 gives no support for such a view. The nature of a partnership will obviously change to some extent when a member joins or leaves, and the change has been called a ‘technical dissolution’, as if partnership law could envisage some median position halfway towards real dissolution5. But dissolution is a formal event, and the circumstances in which it occurs are listed in sections 32–35 of the 1890 Act, and the arrival or departure of a partner is not one of them. The opening words of section 37 draw a clear distinction between (on the one hand) dissolution and (on the other) a change in the membership of a continuing firm, ‘On the dissolution of a partnership or retirement of a partner …’ as do sections  17(1) and 43. These sections make no sense if a retirement causes a dissolution of the partnership, whether ‘technical’ or not. The phrase ‘technical dissolution’ is best avoided. 1 Considered at para 16.14ff below. Arbitration is discussed at para 15.21ff above. 2 Considered at paras 16.22ff and 16.28ff below. 3 Considered in Chapter 17. 4 See State Tax (SA) v Cyril Henschke P/L  (2010)  CLR  508 High Ct of Australia and the Joint Report of the Law Commissions on Partnership Law 2003 (Cm 6015) para 2.6, and Eichelbaum CJ in Hadlee v CIR (1989) 2 NZLR 447 at 455, following Federal Commissioner of Taxation v Jeffries (1980) 80 ATC 284. See also HLB Kidsons (a firm) v Lloyds Underwriters [2008] EWHC 2415 (Comm), which illustrates the difficulties which arise if there is a debate as to whether or not a ‘technical dissolution’ has taken place, and where perhaps the judge misunderstood the speeches of the House of Lords in IRC  v Gibbs (1942)  AC  401. By contrast, see Chia v Ireland (2000) SASC 47, Truong v Lam (2009) WASCA 217 and Lord Penrose in Maillie v Swanney 2000  SLT  464, OH referring to changes in membership: ‘In most cases such changes occur without any question of dissolution arising …’. 5 See the Australian case Commissioner of State Taxation v Cyril Henschke Pty Ltd (2010) HCA 43.

370

Dissolution generally 16.5

(a)  Insolvency Act terminology 16.2  Under the Insolvency Act 19861, which brought into partnership law the language of company insolvency, the court order that terminates a partnership is confusingly called not a ‘Dissolution’ order but a ‘Winding-up’ order2, for in company law ‘dissolution’ is the end and not the beginning of the process of winding up3. 1 As modified by the Insolvent Partnerships Order in the manner discussed in Chapter 22. 2 This is further discussed at para 22.2 below. 3 This passage was cited with approval in The Connaught Income Fund v Capita Financial Managers [2014] EWHC 3619 (Comm) para 26.

(b)  Dissolution against one or against all 16.3  Dissolution envisages a cesser of the whole partnership. By contrast a partner can retire1 or be expelled2, in which case the remaining partners go on without him. As between him and them there is an end to the partnership though not between the remaining partners themselves. 1 See para 16.35ff below. Whether there is dissolution when a partner retires is further discussed at para 16.1 above. 2 See para 16.38ff below.

(c)  Consequences of dissolution (i)  Winding up 16.4  The principal consequence of dissolution is that the partners come under an obligation to wind up the business and the firm1. 1 See the Partnership Act 1890, s 39, which is printed in Appendix A below and discussed in Chapter 18.

(ii) Creditors 16.5  Outside creditors of the firm are not prejudiced by a dissolution, but remain entitled to enforce their claims against any partner as if dissolution had not occurred1. 1 Judgment and execution against the firm are discussed at para 21.38ff below.

371

16.6  Dissolution, retirement and expulsion without court order

B Dissolution on illegality, repudiation, frustration or rescission (a) Illegality 16.6  Illegality of the partnership business causes the immediate dissolution of an existing firm as discussed at para 4.20 above. Section 34 of the Partnership Act 1890 provides: A partnership is in every case dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it on in partnership.

This provision in the Act cannot be excluded by agreement between the partners.

(b)  Repudiation and frustration 16.7  The effect of a partnership agreement being repudiated by breach is discussed at para  14.11ff above. In 19841 it was said that the doctrine of repudiation applied to partnerships, but the better view is that the remedy of a partner who is affected by another’s breach of the partnership agreement is to apply to the court for a dissolution order under the Partnership Act 18902. The effect of a valid repudiation being accepted is that dissolution is effected at least as between the parties to the repudiation. If the doctrine of repudiation applies to partnerships, the doctrine of frustration might apply as well with similar consequences, but there is no authority on the point. 1 See the decision of Harman J in Hitchman v Crouch Butler Savage Associates (1983) 127 Sol Jo 441, 80 LS Gaz 554, discussed at para 14.12 above. 2 Hurst v Bryk [2000] 1 AC 185, HL. For repudiation see para 14.11 above.

(c) Rescission 16.8  The Act1 deals with the possibility of a partnership agreement being rescinded for fraud or misrepresentation, and this has rather special consequences discussed at para 14.7 above. 1 See the Partnership Act 1890, s 41, which is printed in Appendix A below.

C  Dissolution under the partnership agreement (a)  Provisions for expiry 16.9  Unless the partnership agreement provides otherwise1, the partnership is dissolved automatically without any act of the partners if the membership 372

Dissolution generally 16.11

is reduced to one, or if the partnership agreement provides or implies that it is for a certain term only. That term may be: (a) (b) (c) (d)

the lives of certain partners; a fixed term of years; the conclusion of a certain project; or the happening of some other event.

Section 32 of the Partnership Act 1890 provides: Subject to any agreement between the partners, a partnership is dissolved – (a) if entered into for a fixed term, by the expiration of that term; (b) if entered into for a single adventure or undertaking, by the termination of that adventure or undertaking … 1 See para 16.35 below.

(b)  Lives and terms of years 16.10  Partnership agreements sometimes specify that the duration of the firm is a term expiring on the death of all but one partner, unless determined previously in accordance with the agreement. A provision that the firm will not dissolve until the expiry of certain lives does not create a partnership at will determinable on notice1 but a partnership continuing for the duration of the lives2. The Partnership Act 1890 provides3 (as discussed below)4 that in the absence of agreement to the contrary, the death of any partner dissolves the whole firm. If in practice it continues beyond its term date it continues as a partnership at will as discussed at para 7.8 above. 1 2 3 4

Dissolution on notice is discussed at para 16.22 below. Abbott v Abbott [1936] 3 All ER 823, following Moss v Elphick [1910] 1 KB 846. See the Partnership Act 1890, s 33(1) which is printed in Appendix A below. See para 16.28 below.

(c)  The end of an agreed venture 16.11  If the partnership is for a single agreed project, such as the exploitation of certain rights until a company is formed to take them over1, the partnership will then be dissolved without any formal act of dissolution2. But difficulties often arise as to what the particular project is3, and when it ended or was abandoned4, and whether the partnership continues if the project is repeated by the same partners or is a new partnership5. So this particular limitation on the length of a partnership is unsatisfactory and the court will put the burden of proof upon the partner alleging such a limitation6 and will not infer that the terms of the partnership are (for instance) commensurate with the partnership lease7. 373

16.12  Dissolution, retirement and expulsion without court order 1 Lindern Trawler Managers v W H J Trawlers (1949) 83 Ll L Rep 131. 2 Bagshaw v Parker (1847) 10 Beav 532; Tait v Winsby [1943] 1 DLR 81 (Canada). 3 In Wilson v Kirkcaldie (1894) 13 NZLR 286 the courts of New Zealand found themselves considering a partnership that was to continue ‘so long as profitable’ and held that it was not a partnership at will determinable on notice. Compare Moss v Elphick [1910] KB 846; noted at para 16.15 below. 4 See note 3 above and Walsh v Scanlan (1892) 7 Nfld LR 633 (Canada). 5 J & J Cunningham Ltd v Lucas [1957] 1 Lloyd’s Rep 416. 6 Burdon v Barkus (1862) 4 De GF & J 42. 7 See Lord Eldon in both Jefferys v Smith (1820) 1 Jac & W 298 and Crawshay v Maule (1818) 1 Swan 495; Alcock v Taylor (1830) Taml 506.

(d)  The happening of some other event 16.12  The partnership agreement may specify an occurrence which will trigger dissolution. In Bagshaw v Parker1 the partnership agreement provided for dissolution as regards the defendant partner in the event of such severe illness as should oblige him to quit India for more than one year. He returned to India but became an incurable lunatic on the way. Held (on the construction of the agreement) that the partnership dissolved in accordance with the deed.

The partnership agreement may provide that some or all of the partners may determine the partnership, usually by notice to the others, if a certain situation arises2. Dissolution by notice is discussed at para 16.22ff below and arbitration at para 15.21ff above. 1 (1847) 10 Beav 532. 2 In DB Rare Books Ltd v Antiqbooks [1995] 2 BCLC 306 the clause in the partnership entitled one of the partners to give notice to purchase the interest of the other if the latter committed a material breach of the partnership agreement, a question which almost inevitably led to litigation.

(e)  Waiver of conditions 16.13  If the partnership agreement provides that dissolution should only occur in certain circumstances or subject to certain conditions (for instance that dissolution should only be by deed1), such provisions may be waived by the partners proceeding with dissolution without compliance with the condition, for any mutual rights of the partners may be varied by the consent of all2. Often a partnership which was originally for a fixed term is continued beyond that date by express or implied agreement between the partners. Once the business has continued beyond its term date3 (other than merely for winding up4) it becomes (in the absence of other agreement) a partnership at will determinable on notice, and no more subject to automatic dissolution5. 1 Hutchinson v Whitfield (1830) Hayes 78 (IR). 2 See the Partnership Act 1890, s 19, which is printed in Appendix A below.

374

Dissolution generally 16.16 3 The consequences of such continuation are considered at para 7.8 above. 4 Griffiths v Bracewell (1865) 35 Beav 43. 5 Parsons v Hayward (1862) 4 De GF & J 474.

D Dissolution by subsequent agreement or implication (a)  Agreement express or implied 16.14  The partners can agree unanimously to dissolve their partnership notwithstanding any provision in their partnership agreement restricting this. By contrast if they continue the business after the agreed dissolution date without any ‘settlement or liquidation of the partnership affairs’, the continuance is presumed by section 27(2) of the Partnership Act 1890 to be a continuance of the partnership and the dissolution agreement will be waived or abandoned1. An agreement to dissolve immediately may be made orally2 even where the partnership is for a fixed term3 or may be inferred from the circumstances4, for instance from lengthy correspondence about winding up which is carried on without any suggestion that the business might be revived5, or from separation and divorce proceedings in a husband and wife partnership6, or where intervention by the Law Society in a solicitors’ practice under Schedule 1 to the Solicitors’ Act 1974 has made it impossible (if not illegal)7 for them to carry on the firm8. As to abandonment, see para 16.17 below. Pearce v Lindsay (1860) 3 De GJ & Sm 139. O’Neill v Whelan (1951) 85 ITLR 111. Bolton v Carmichael (1856) 1 Ir Jur (NS) 298. Holdgate v Holdgate (2002) 3 NZLR 609 CA. Watts v Hart [1984] STC 548; Faraday, Rodgers and Eller v Carter (1927) 11 TC 565, CA. A termination agreement which is not acted upon is ineffective (ibid). 6 Bothe v Amos [1976] Fam 46, CA. 7 Illegality in this context is discussed at paras 4.2 and 4.11 above. 8 Barnes Thomas t/a Barnes Thomas & Co v Leavesley [2002] All ER (D) 982. 1 2 3 4 5

(b)  Agreements to agree 16.15  If the partnership agreement provides that dissolution shall take place ‘by mutual agreement only’ the court will enforce the agreement and refuse to treat the partnership as a partnership at will determinable by notice by one partner only1. 1 Moss v Elphick [1910] 1 KB 846.

(c) Arbitration 16.16  The power of an arbitrator to order dissolution is discussed at para 15.28 above. 375

16.17  Dissolution, retirement and expulsion without court order

(d) Abandonment 16.17  A partner may abandon his interest in the firm as discussed at para 15.64 above, and a whole partnership may similarly be abandoned by total inactivity over a long period of time1. If one partner leaves the business and goes into hiding, the partnership can be treated as against him as ended2. 1 Pearce v Lindsay (1860) 3 De GJ & Sm 139. 2 Parsons v Benn (1849) 14 LTOS 171; Jorgensen v Boyce (1896) 22 VLR 408 (Canada); Bothe v Amos [1975] 2 All ER 321; Patel v Shah [2005] EWCA Civ 157 CA.

(e)  Transfer of the business 16.18  Dissolution may be implied if the business of the firm is taken over by a company controlled by the partners. Provided that all members and creditors assent, then ‘the firm should drop out … and the company should come in’1. In Chahal v Mahal2 the assets and business of a partnership were transferred to a company. The Court of Appeal held that such a transfer would usually imply the dissolution of the partnership but not here where the company was owned by some but not all of the partners and the excluded partner had never been consulted about the transfer. Implied dissolution of the firm may take place if the assets and liabilities pass from the firm to another firm or individual, but for a former partner to rid himself of his liability to outsiders he needs their consent, as discussed at para 20.17ff below. Novation is considered at paras 20.15 and 20.21 below. 1 Lindern Trawler Managers v W H J Trawlers (1949) 83 Ll L Rep 131. 2 [2005] 2 BCLC 655, followed in Boyle v Burke [2019] EWHC 3364 (Ch).

E  Setting aside dissolution agreements 16.19  Dissolution agreements (discussed at para 18.34ff below) may be set aside for fraud, misrepresentation, undue influence, mistake1 or any other ground upon which a contract may be held void or voidable2. Partners owe one another a duty of good faith when negotiating to buy or sell a partnership share as discussed at para 11.43ff above, and so may not take advantage of any superior knowledge that they have in breach of this duty when agreeing terms of dissolution or the dissolution agreement will be voidable. But because partners’ duties are mutual, there is not the imbalance of position which usually arises in a fiduciary relationship, and so where a dissolution agreement is made: The requirements to disclose and not to mislead are in ordinary circumstances sufficient protection for the parties. There is in my view no warrant for imposing a requirement that in an objective sense parties receive ‘full value’

376

Dissolution generally 16.21 for their interests if they decide to terminate their relationship. Rather, effect should be given to the parties’ own bargain3. 1 Blay v Pollard and Morris [1930] 1 KB 628. 2 Knight v Marjoribanks (1848) 11 Beav 322. 3 Per MacFarlan JA in Trinkler v Beale (2009) 72  NSWLR at para  47, following Chan v Zacharia (1983) 154 CLR 178 and Hospital Products v United States Surgical Corporation (1984) HCA 64.

(a)  Personal representatives 16.20  The personal representatives of a deceased partner, in whom his share has vested after his death1, may validly agree a dissolution with the surviving partners2. It is different if the surviving partners are themselves the personal representatives; any agreement that they notionally reach with themselves is voidable by the beneficiaries of the deceased partner’s estate, as will be an agreement by a partner’s executors to sell to the surviving partners for the purpose of its being resold to one of the executors3. But any such sale will not be voidable if it is expressly permitted by the partnership agreement4. A claim to set aside the sale may also be barred by laches5. 1 The rather limited rights of personal representatives and other successors of a partner are discussed at para 10.17ff above. 2 Chambers v Howell (1847) 11 Beav 6; Davies v Davies (1837) 2 Keen 534. 3 Cook v Collingridge (1823) Jac 607. 4 Hordern v Hordern [1910] AC 465, PC. 5 See para 15.61 above.

F  Publicising dissolution 16.21  In order that an ex-member should not be liable to new creditors of a continuing firm he should ensure that his departure is advertised in the London Gazette as discussed at para 20.25 below. He has a statutory right to advertise his retirement or a dissolution. Section 37 of the Partnership Act 18901 provides: On the dissolution of a partnership or retirement of a partner, any partner may publicly notify the same, and may require the other partner or partners to concur for that purpose in all necessary or proper acts, if any, which cannot be done without his or their concurrence.

The section may apparently be controlled2 but not excluded by agreement3. The court will restrain a partner from publicising a dissolution maliciously in breach of his duty of good faith discussed in Chapter 11, or from phrasing the notice in a way that would solicit business for himself4. He must not use the opportunity to suggest (for instance) that the business is closing down5, nor that the business is now his, or he will liable for passing off as discussed 377

16.22  Dissolution, retirement and expulsion without court order

at para  5.9 above. The termination of his liability to outsiders is discussed generally in Chapter 19. 1 Following Hendry v Turner (1886) 32 Ch D 355, applying Troughton v Hunter (1854) 18 Beav 470. 2 An injunction will restrain a partner from publicising the dissolution in a way contrary to what has been agreed: Dean v Wilson (1878) 10 Ch D 136. 3 It is in mandatory terms, and not prefaced by any statement that it is subject to contrary agreement between the partners, and to some extent it is for the public protection. 4 Dean v Wilson (1878) 10 Ch  D  136; the requirement of the Solicitors’ Practice Rules (discussed below) that clients must be told, does not override the obligations of the partners to each other. 5 He may usually advertise that he is leaving the business but he may not advertise that the business is ceasing, at least while there is a chance of the business being sold as a going concern: Bradbury v Dickens (1859) 27 Beav 53.

2  DISSOLUTION BY NOTICE A Express provision for dissolution on notice   16.22 B Partnerships at will dissolved on notice   16.23 C The nature and effect of a notice   16.24

A  Express provision for dissolution on notice 16.22  Sometimes a partnership agreement will specify that a partner can dissolve the firm in certain circumstances or upon serving notice of a certain length, perhaps expiring at the end of the firm’s year of accounting. On the expiry of such a notice the partnership dissolves in a similar manner as if it had originally been for a fixed term. If the notice must be of a specified minimum length, then in calculating the period, the day upon which the notice was given is left out of account. When the period is a month or a specified number of months after the giving of notice, the general rule is that the notice ends upon the corresponding date in the appropriate subsequent month1. 1 Dodds v Walker [1981] 1 WLR 1027 per Lord Diplock at 1029B.

B  Partnerships at will dissolved on notice 16.23  The firm may be dissolved by notice1 (taking effect either at a future date or immediately) if the partnership is a partnership at will. Section 32(c) of the Partnership Act 1890 provides: Subject to any agreement between the partners, a partnership is dissolved – (c) If entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership.

378

Dissolution by notice 16.24

Rather oddly the same point is made also in section 26 of the Act, under the misleading heading ‘Retirement from partnership at will’: (1) Where no fixed term has been agreed upon for the duration of the partnership, any partner may determine the partnership at any time on giving notice of his intention to do so to all the other partners. (2) Where the partnership has originally been constituted by deed, a notice in writing, signed by the partner giving it, shall be sufficient for this purpose.

Notwithstanding the difference in wording, sections 32 and 26 are intended to mean the same thing2, but difficulty has still been found as to the meaning of the phrases ‘no fixed term’3 and ‘undefined time’. Almost any agreement as to the duration of the firm will take it outside the ambit of these words as is discussed at paras 7.6ff and 16.10ff above. Where a partnership continues beyond its fixed term it does so as a partnership at will, but under such of the provisions of the former partnership agreement as are compatible with a partnership at will4. Section 27(1) of the Partnership Act 1890 provides: Where a partnership entered into for a fixed term is continued after the term has expired, and without any express new agreement, the rights and duties of the partners remain the same as they were at the expiration of the term, so far as is consistent with the incidents of a partnership at will.

The meaning and effect of this is discussed at para 7.8ff above. 1 2 3 4

Peacock v Peacock (1809) 16 Ves 49; Miles v Thomas (1839) 9 Sim 606 at 609. But a distinction was mentioned in Moss v Elphick [1910] 1 KB 846 at 849. See the Partnership Act 1890, s 26(1). Clark v Leach (1863) 1 De GJ & Sm 409; Parsons v Hayward (1862) 4 De GF & J 474.

C  The nature and effect of a notice (a)  How notice may be given 16.24  The Act does not require the notice to be in writing1 or signed, save where the partnership agreement was by deed2; nor does it specify how it should be served, although either of these matters may be specified in the partnership agreement. So where the agreement is not under seal notice may be given orally, but it must be given to all the partners3 and must be clear as to its purpose4. A claim form in a dissolution action will suffice as such notice5, as will a defence6, but an offer to dissolve on terms7, or a statement that a partner’s share is forfeit8, will not, unless the defect is waived9. Notice may be given implicitly by what could otherwise be called an act of repudiation, such as where one partner sent to the others a letter saying10: This money is being returned to you after you were unable to fulfil your obligations as per our agreement, rendering the agreement null and void.

The notice need not be of immediate effect, but may specify a date in the future from which it is to be operative11; unfortunately the other partners may 379

16.25  Dissolution, retirement and expulsion without court order

then be able to serve a shorter notice in the interim. The validity of a notice which contains an error such as an error as to its expiry date depends upon how a reasonable recipient would understand the notice12.   1 There is no inference that a notice must be in writing unless specified: Gerson (Leasing) Ltd v Greatsunny Ltd [2010] All ER (D) 154 (Jun), ChD, N Strauss QC.  2 Doe d Waithman v Miles (1816) 1 Stark 181, and see the Partnership Act 1890, s  26(2), quoted above, which states that a signed and written notice will be ‘sufficient’ where the agreement was constituted by deed. Plainly the purpose of the subsection is to declare that a deed is not necessary to dissolve a partnership created by deed. But will something less than written notice, duly signed, suffice? If so, what? The suspicion must be that nothing less will suffice.  3 Wheeler v Van Wart (1838) 9 Sim 193.  4 Steuart v Gladstone (1878) 10 Ch  D  626 at 650; Parsons v Hayward (1862) 4 De GF & J  474; Hammond v Breasley (10  December 1992, unreported); Toogood v Farrell [1988] 2 EGLR 233, CA.  5 Unsworth v Jordan [1896] WN 2: it is service and not the issue of a writ that effects dissolution. See also Down v Lutz (1954) 12 WWR 407 (Canada).  6 Syers v Syers (1876) 1 App Cas 174, HL.  7 Hall v Hall (1855) 20 Beav 139.  8 Clarke and Chapman v Hart (1858) 6 HL Cas 633.  9 Laycock v Bulmer (1844) 13 LJ Ex 156. 10 Worbey v Campbell [2017] CSIH 49 CA200/15. 11 Mellersh v Keen (1859) 27 Beav 236. This is implicit from the Partnership Act 1890, s 32. 12 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, HL, following Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 and overruling Hankey v Clavering [1942] 2 KB 326.

(b)  No duty not to serve a notice 16.25  The partner serving a dissolution notice is acting in his own interest and not as an agent of the firm and so has no duty not to serve it at a time when he will harm his partners1. Contrast a power of expulsion, discussed at para 16.38 below. If there is a partnership at will any partner may dissolve at a moment’s notice2, however inconvenient this may be3. In Featherstonhaugh v Fenwick4 it was argued5 unsuccessfully that a partnership at will could not be dissolved without 12 months’ notice, because the business had recently entered into substantial contracts. Sir William Grant MR rejected the contention that the partner serving notice of dissolution owed any duty to the recipient when he observed6: In the case of a partnership such as this, subsisting without articles, and for an indefinite period, any partner may say, ‘It is my pleasure on this day to dissolve the partnership’.

When a majority can dissolve the firm under an express power in the partnership agreement, they may do so even if the minority partners have served retirement notices which have not yet expired. The fact that dissolution is more advantageous to them than the consequence of retirement is no evidence of bad faith or impropriety on their part7. In Walters v Bingham8 Sir Nicholas Browne-Wilkinson V-C rejected a dissolution notice which was served in order to prevent the investigation of 380

Dissolution by notice 16.27

the fraud of the partner serving the notice. This suggests that a partner who serves such a notice is at least under a duty to act bona fide towards his partners but it is hard to see quite how such a duty arises. 1 See Lord Selborne in Cassels v Stewart (1881) 6 App Cas 64 at 74 on the right of a partner to sell his share whenever he likes. If a partner dissolves in order to appropriate the partnership business for himself, his notice will be valid but he will be accountable for what he appropriates; see Clegg v Edmondson (1857) 8 De GM & G 787, and para 11.7 above. 2 Crawshay v Maule (1818) 1 Swan 495. 3 Featherstonhaugh v Fenwick (1810) 17 Ves 298 at 311. See also Whitehead v Howard (1877) 11 NSR (2 R & C) 423 (Canada). But in Scotland a partner in breach may not serve notice: Hunter v Wylie 1993 SLT 1091n, following Graham & Co v United Turkey Red Co 1922 SC 533. 4 (1810) 17 Ves 298. 5 By Sir Samuel Romilly, no less. 6 (1810) 17 Ves 298 at 309. 7 Per Mummery J, upheld as ‘impeccable’ by Balcombe LJ in Sobell v Hooberman (20 December 1993, unreported), CA. 8 [1988] 1 FTLR 260; see also Hunter v Wylie 1993 SLT 1091n (OH).

(c)  The effective date of the notice 16.26  The notice can take effect instantaneously1. It takes effect at the moment that it is received2 unless the partnership agreement provides otherwise or the notice specifies another date; s  32 of the Partnership Act 1890 provides that as regards dissolution of a partnership at will by notice: the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is so mentioned, as from the date of the communication of the notice.

This is equally applicable to dissolution notices where the partnership is not a partnership at will. Dissolution must occur when the partnership agreement specifies but if nothing has been agreed it must be when all partners have been communicated with, because a partnership cannot be dissolved against one partner and not the others. The date of communication would appear to be the date that the notice comes to the actual knowledge of the intended recipient3, but if sent by post, properly addressed, service is presumed (unless the contrary is proved) when the letter would be delivered in the ordinary course of post4. 1 Firth v Amslake (1964) 108 Sol Jo 198, and see the quotations from Sir William Grant MR at para 16.25 above. 2 McLeod v Dowling (1927) 43 TLR 655. 3 Newcastle Hospitals Trust v Haywood [2018] UKSC 22, a case on employment notices in which the matter is fully discussed. 4 Interpretation Act 1978, s 7.

(d)  The consequences of the notice 16.27  Once it has been served, a notice may not be withdrawn without the consent of all the partners1, but it may be waived by a new partnership being 381

16.28  Dissolution, retirement and expulsion without court order

constituted2. The fact that the recipient may be mentally incapable does not invalidate the notice3 but is said to give the partner serving the notice the right to withdraw it before it is acted upon4. 1 Jones v Lloyd (1874) LR 18 Eq 265. 2 Laycock v Bulmer (1844) 13 LJ Ex 156. 3 Jones v Lloyd (1874) LR 18 Eq 265; Mellersh v Keen (1859) 27 Beav 236; Lyon v Coward (1846) 15 Sim 287. 4 Robertson v Lockie (1846) 15 Sim 285.

3 DISSOLUTION BY DEATH, BANKRUPTCY OR CHARGING A Death  16.28 B Bankruptcy  16.29 C Dissolution when a partner’s share is charged   16.32

A Death 16.28  The death of any partner dissolves the whole firm unless there is agreement to the contrary1. Section 33(1) of the Partnership Act 1890 provides: Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death … of any partner.

A written partnership agreement usually excludes this provision and declares that the partnership will not dissolve on the death of a partner, and provides for the manner in which his share should be bought out as if he had retired, which is discussed at para 18.34ff below. If the agreement merely provides that the firm is to continue for a fixed term of years, the presumption is that the firm will be dissolved by death notwithstanding that the term has not expired2, but this will be rebutted by evidence of contrary agreement or intention3. If a valid notice of dissolution has been sent but has not arrived4 or has not expired5 before a partner dies, the death and not the notice dissolves the firm. If no such notice is served but the partnership is a partnership at will determinable on death, it does not cease to be so merely because the provisions of the will of the deceased partner attempt to keep it in existence6. In a two-partner partnership an agreement that the firm should not dissolve on death operates to preserve it as a firm between the surviving partner and the executors of the deceased7; but if the executors decline to become partners then dissolution is deemed to have taken place at the date of death8. 1 Re Agriculturist Cattle Insurance Co (1870) 5 Ch App 725; Crawshay v Moule (1818) 1 Swan 495 at 505. 2 Gillespie v Hamilton (1818) 3 Madd 251, applied in Chapman v Beckinton (1842) 3 QB 703.

382

Dissolution by death, bankruptcy or charging 16.30 3 See para 16.35 below. 4 McLeod v Dowling (1927) 43 TLR 655. 5 Bell v Nevin (1866) 12 Jur NS 935. 6 In Craven v Craven (1908) 52 Sol Jo 498 a partner’s will left his share to his wife for life, with remainder to his partner. Held the partnership had still dissolved at his death, and if it had not it was still a partnership at will dissoluble by either the partner or the widow. See also Crosbie v Guion (1857) 23 Beav 518. 7 Hill v Wylie (1865) 3 M (Ct of Sess) 561. 8 Lancaster v Allsup (1887) 57 LT 53.

B Bankruptcy (a)  Bankruptcy of a partner 16.29  The bankruptcy of any partner dissolves the whole firm unless there is agreement to the contrary. Section 33(1) of the Partnership Act 1890 provides: Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the … bankruptcy of any partner.

Any written partnership agreement should exclude this provision and declare that the partnership will not dissolve on the bankruptcy of a partner, but that such an event will empower the remaining partners to expel him or require him to retire1. Without such agreement the firm dissolves on the bankruptcy without notice, and some of the partners may even not know that the dissolution has happened. It is the bankruptcy order and not the petition that effects dissolution2. Any attempt to forfeit his share on bankruptcy is void as a fraud on his creditors3, ‘the anti-deprivation rule’. In Whitmore v Mason4 Page Wood V-C observed: No person possessed of property can reserve that property to himself until he shall become bankrupt, and then provide that, in the event of his becoming bankrupt, it shall pass to another and not to his creditors. 1 2 3 4

Mannigel v Aitken (1985) 9 FCR 1 (Australia). Ex p Smith (1800) 5 Ves 295. Perpetual Trustee Co Ltd v BNY Ltd [2010] 3 WLR 87, CA. (1861) 2 John & H 204, approved Perpetual Trustee Co Ltd v BNY Ltd [2009] EWCA Civ 1160, para 34.

(b)  Insolvency of a corporate partner 16.30  The Partnership Act 1890 fails to mention corporate partners at all so it is no surprise that it gives no guidance as to whether the word ‘bankruptcy’ is intended to include corporate winding up. There is no English decision directly in point. In Fryer v Ewart1 the House of Lords held that the word ‘bankruptcy’ in the Conveyancing Act 1881 embraced corporate winding up, even solvent winding up for the purpose of company 383

16.31  Dissolution, retirement and expulsion without court order

reconstruction. However, in Australia a corporate dissolution has been held not to be a bankruptcy2. 1 [1902] AC 187, where Lord Lindley gave a useful account of the then differences between individual bankruptcy and corporate insolvency. 2 Anderson Group v Davies [2001] NSWSC 356.

(c)  Insolvency of the firm 16.31  An insolvent partnership may be wound up as an unregistered company in the circumstances described in Chapter 22, but that procedure is quite different from dissolution.

C  Dissolution when a partner’s share is charged 16.32  If a charging order is made against the share of a partner in the partnership, the other partners have the option to dissolve the whole firm by notice. Section 33(2) of the Partnership Act 1890 provides: A partnership may, at the option of the other partners, be dissolved if any partner suffers his share to be charged under this Act for his separate debt.

This replaces the earlier rule that execution against a partner’s share of the assets operates itself as a dissolution1. The phrase ‘charged under this Act’ is a reference to section  23(2)2 which empowers the court on the application of a judgment creditor to charge a partner’s interest in the partnership property and profits. The procedure is cumbersome and seldom used. The option for the other partners to dissolve the partnership only arises where the charge has been made under the Act and not, for instance, under the Charging Orders Act 1979, or made by the partner voluntarily. The option is that of ‘the other partners’, which means all of them and not just a majority3. 1 Aspinall v London and North Western Rly Co (1853) 11 Hare 325 at 351, following Skipp v Harwood (1747) 2 Swan 586, and see Davies v Barlow (1881) 2 NSWR (L) 66 (Australia). 2 Considered at para 10.15 above. 3 Per Lord Lindley Supplement on the Partnership Act 1890.

4  RETIREMENT AND EXPULSION A Retirement and expulsion generally   16.33 B Retirement  16.35 C The right to expel   16.38 D Exercise of the right to expel   16.42 384

Retirement and expulsion 16.35

A  Retirement and expulsion generally (a)  The need for specific agreement 16.33  The effect of a retirement or expulsion is that a partner leaves and the firm continues without him. Such an arrangement is to be found in most partnership agreements, or may be reached ad hoc, but will be implied if a partner departs on the understanding that the others are to carry on the business by themselves1. Without it the purported retirement of a partner or his purported expulsion are breaches of the partnership agreement which may entitle a dissatisfied partner to apply for general dissolution from the court. 1 Sobell v Boston [1975] 1 WLR 1587.

(b)  The purchase of the departing partner’s share 16.34  Where a partner leaves without dissolution, the value of his share is computed and paid to him by the continuing partners. If there is no agreement on this the court may order the share to be bought out at a valuation1. If a partner retires he impliedly agrees that he should receive the value of his share and he is an unsecured creditor of the continuing partner or partners, who take over the business2. How his share is valued is discussed at para 18.35 below, and his right to interim profits is discussed at para 18.6ff below. 1 Sobell v Boston [1975] 1 WLR 1587. 2 Chia v Ireland (2000) SASC 47; Truong v Lam (2009) WASCA 217.

B Retirement (a)  Agreement required 16.35  A partner cannot resign unilaterally, or abandon his share, but may only retire if there is a provision in the partnership agreement for this or he has the consent of all his partners, which may be implicit for instance if the rules of the profession require retirement. Any partnership agreement should provide for the circumstances (or age) at which a partner may voluntarily retire or is bound to retire, but must take into account questions of age discrimination discussed in Chapter 13. The agreement should also be clear as to whether the effect of the retirement of the penultimate partner will indeed result in a simple retirement with the outgoing partner being bought out and the business continuing, or whether its effect will be to cause a dissolution because there can be no continuing partnership if there is only one partner left. This will be a question of the 385

16.36  Dissolution, retirement and expulsion without court order

construction of the agreement, but probably the implication will be towards the former meaning than the latter. The right or duty to retire is consistent with the ‘incidents of a partnership at will’1, so if it is in a fixed-term partnership agreement it is continued in the partnership at will that arises after the term date2. The Partnership Act 1890 lays down no rules for the manner in which a partner may retire3 but the court will enforce any agreed retirement arrangement between the partners. Retirement and its effect are discussed at para 18.34 below. 1 Per the Partnership Act 1890, s 27(1), which is printed in Appendix A below. 2 This is explained at para 7.8 above. 3 Although the Act envisages retirement by mentioning some of its consequences (eg in s 43).

(b)  Retirement on notice 16.36  It is desirable that if a partner has a right to retire on notice (whether or not after reaching a specified retirement date), the notice should expire at the end of the accounting year of the firm. How a valid retirement notice may be served is a matter of construction of the agreement, but the authorities on dissolution by notice given at para  16.24ff above are instructive on this. In the absence of other agreement a dissolution notice once given may not be withdrawn without the consent of all the partners1, but it may be overtaken by a dissolution if the other partners have power to effect this under the partnership agreement: it is no breach of their duties thus to thwart a retirement2. In relation to the period of the partner’s notice, the partnership agreement may also provide: (a) for any restriction on the right of the retiring partner to take part in management decisions; (b) for the other partners on receipt of the notice to be able to give short notice to retire themselves, so their notice expires no later than his. The agreement may also provide that a retirement notice may not be served if (for instance) another retirement notice is already pending, lest the cost to the continuing partners in buying out the retiring partners is in the short term too great3. Such a restriction might arguably be void as a restraint on trade, but probably not. In Esso Petroleum v Harpers’ Garage (Stourport) Ltd4 Lord Pearce, commenting upon the restraint of trade doctrine discussed in Petrofina (GB) Ltd v Martin5 remarked, ‘Partners habitually fetter themselves to one another’. 1 Toogood v Farrell [1988] 2 EGLR 233, CA; Jones v Lloyd (1874) LR 18 Eq 265. 2 Sobell v Hooberman (20  December 1993, unreported), CA, contrast Walters v Bingham (1988) 1 FTLR 260 considered at para 16.25 above. 3 Simultaneous retirement notices were considered by Anthony Grabiner QC sitting as a deputy in the Chancery Division in Axa Equity & Law Life Assurance Society plc v Wootton [1997] 11 EG 30, a case which reached the House of Lords on another point: [2002] 2 WLR 1081. 4 [1968] AC 269 at 329. 5 [1966] Ch 149, part quoted at para 4.9 above.

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Retirement and expulsion 16.39

(c)  Implied terms 16.37  The retirement of a partner almost always involves the sale of his share to the continuing partners. Kekewich J in Gray v Smith1 held that an agreement to retire was effected by consent to ‘withdraw’ from a partnership and implied two things: an assignment of the assets, and an indemnity against future liabilities: First, that the withdrawing partner shall make over to the continuing partners all his interest in the partnership and in the partnership assets, whether there be real or personal estate, whether there be outstanding contracts … Secondly … the continuing partners shall indemnify the retiring partner against all the liabilities of the firm from that time forth.

So it will be an implied term of an arrangement whereby continuing partners buy a partner out, that he will cease to be liable to contribute to the debts of the business2. But such an implication will be overridden by the express words of a retirement agreement3. Express retirement from the firm and how the share of a consensually withdrawing partner should be valued is considered at para 18.35 below; the nature of his indemnity is discussed at para 18.40 below. 1 (1889) 43 Ch D 208 at 213. 2 Rushton (QLD) Pty v Rushton (NSW) Pty (2003) 1 QdR 320. 3 Liddle v Liddle [2017] EWHC 2261 (Ch).

C  The right to expel (a)  No statutory right 16.38  No partner can be expelled from a partnership unless the partnership agreement expressly provides for this1. Section  25 of the Partnership Act 1890 provides: No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners. 1 The Act does not contemplate the possibility that such agreement may be implied.

(b)  The agreed right of expulsion (i)  Expulsion clauses generally 16.39  A written partnership agreement usually contains a clause saying that a partner may be expelled by a specified majority of the others in certain circumstances, such as his bankruptcy, incapacity or serious breach of duty. 387

16.40  Dissolution, retirement and expulsion without court order

This is one of the most useful clauses in the agreement. But when the right is only exercisable in the event of misconduct by the partner, there may be a dispute of fact as to whether the power has become exercisable1. The expulsion of the partner may be suspended by the court pending the outcome of that dispute2 if the balance of convenience requires this; a well-drawn partnership agreement will empower the majority to suspend the partner himself in the same circumstances. The draftsman of an expulsion clause should: (a) provide that in a large partnership a specified large majority of the management board or the unanimous vote of all other partners should expel a partner without any reason being given at all; (b) provide that the expelled partner is paid out for his share on terms as generous as if he had voluntarily retired, or he will have every reason to fight the expulsion decision and argue that the partnership has been repudiated or ought to be dissolved. The fact that a former member has been lawfully expelled, in accordance with the partnership agreement, does not preclude him from claiming for future loss of profit arising out of earlier conduct by the other members which is contrary to whistle-blowing protections afforded by Employment Rights Act 19963. Such an expulsion does not necessarily break the chain of causation between the acts complained of and the loss suffered. The effect of the right to expel, and its exercise, on such a claim depends on what led to the expulsion. Even the fact that a member may have been in breach of the partnership agreement, so giving rise to the right to expel, is not an automatic bar to a claim for loss of profits arising out of the expulsion if, as a matter of fact, the reason for his breach (and so the expulsion) was the earlier wrongful conduct of the other members4. 1 Witt v Corcoran (1872) 21 WR 47. 2 Mingaye v Wilkins (1848) 11 LTOS 41, LC. 3 Sections 48 and 49 of the Employment Rights Act 1996. The same would presumably be true of conduct contrary to the Equality Act 2010. 4 Wilsons Solicitors LLP v Roberts [2018] EWCA Civ 52.

(ii) Construction 16.40  The expulsion clause will be construed ‘strictly against the partners exercising the power of expulsion’1 and it will not usually2 empower a minority to expel a majority3 or a single partner to claim that an expulsion power vested in ‘partners’ is exercisable by him alone4. A clause enabling one partner to be expelled by all the others cannot be used to expel two partners at once5. A requirement that the notice be signed by the senior partner was held to be inapplicable where the partner to be expelled was the senior one himself6. It is permissible, if impractical, for the clause to empower one of two partners to expel the other7. A defective notice may be adopted by the recipients and the defect waived8. 1 Blisset v Daniel (1853) 10 Hare 493 at 505, or ‘with a measure of strictness’: Hanlon v Brookes (1997) 15 ACLC 1626 (Vic SC CA).

388

Retirement and expulsion 16.42 2 But in Variety Video Pty v Jones [2001] NSWSC 5, Austin J upheld the claim of two partners to expel the other two: this was on the construction of the agreement in the light of the fact that the power was being invoked by the financing partners to expel the working partners. 3 Re a Solicitor’s Arbitration [1962] 1 WLR 353 at 357 per Russell J. 4 See note 2 above. See also Axa Equity & Law Life Assurance Society plc v Wootton [1997] 11 EG 30, noted at para 16.36 above; and Variety Video Pty Ltd v Jones [2001] NSWSC 5. 5 Russell v Clarke [1995] 2 Qd R  310 (Queensland SC); cf Variety Video Pty Ltd v Jones [2001] NSWSC 5. 6 Hitchman v Crouch Butler Savage Associates (1983) 127 Sol Jo 441. 7 Russell v Russell (1880) 14 Ch D 471; Clark v Leach (1862) 32 Beav 14; affd (1863) 1 De GJ & Sm 409. 8 Smith v Mules (1852) 9 Hare 556.

(iii)  Partnerships at will 16.41  The right to expel is not usually inconsistent with the ‘incidents of a partnership at will’1 especially in a large partnership where such a clause is almost essential, so if it is contained in a fixed-term partnership agreement it will remain a provision in the partnership at will that arises after the term date2. 1 Per the Partnership Act 1890, s 27(1), which is printed in Appendix A below and discussed at para 7.10 above. 2 Walters v Bingham [1988] 1 FTLR 260, not following Clark v Leach (1862) 32 Beav 14; affd (1863) 1 De G J & Sm 409 which is to the opposite effect, but which was a firm of two partners where Sir John Romilly MR did not believe that the ‘penal consequences’ were intended to survive the expiration of the original partnership term. See also Neilson v Mossend Iron Co (1886) 11 App Cas 298.

D  Exercise of the right to expel (a)  Duty of good faith 16.42  The power to expel must be exercised in good faith, which means for the benefit of the firm1 and not unfairly or for an ulterior motive2. Contrast a right of dissolution by notice3. The exercise of the power to expel would be bad if the purpose was to procure a purchase of the expelled partner’s share of the partnership on terms unfavourable to him4. The behaviour required of those exercising a power to expel the plaintiff was thus described by Sir George Turner V-C in Blisset v Daniel5: The standard by which parties are tried here, either as trustees or as copartners … is a standard – I am thankful to say so – far higher than the standard of the world; and, tried by that standard, I hold it to be impossible to sanction the removal of this gentleman under these circumstances. The removal of him at a time when he, as well as his co-partners, may be well supposed to have been utterly ignorant of the power of such removal existing – the design of so removing him, or the least approximation to that design, not having been communicated to him – the removal having been to gratify one partner only, and not on the judgment of the other two, the other two

389

16.43  Dissolution, retirement and expulsion without court order having been induced behind his back to concur in and consent to that removal – I say, tried by the standard of this court, such conduct must be considered, in the sense of the Court, to be a fraud upon the Plaintiff.

In more modern terms, the questions are whether the right matters have been taken into account and whether the result was so outrageous that no reasonable decision-maker could have reached the decision6. The complainant partner may lose his right to expel the other if he affirms the partnership or affirms that there was no breach, but a lost right to expel may still leave the complainant the right to seek dissolution; dissolution is discretionary, and may have a more flexible test than the contractual one7. The firm is not obliged to carry out a police-style investigation8. Nor is it wrong for the parties who conducted the investigation into the grounds for expulsion to vote on the expulsion question9. The mere fact that the copartners had been looking for grounds to expel a partner, and had been keen to do so, does not of itself call into question the exercise of the power to expel10.  1 Blisset v Daniel (1853) 10 Hare 493; Beasley v Cadwalader, Wickerham & Toft [1996] WL 438777 (Fla Cir Ct 1996) (USA); Lie v Mohile [2015] EWHC 200 (Ch).  2 Mullins v Laughton [2003] Ch 250 at 274A, Neuberger J.   3 Discussed at para 16.22ff above.   4 Per Cozens-Hardy MR in Green v Howell [1910] 1 Ch 495 at 504.   5 (1853) 10 Hare 493 at 536; Dymoke v Association for Dance Movement Psychotherapy UK Ltd [2019] EWHC 94 (QB) at para 21 and cases there cited. The former case was cited with approval by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 380 and by Lord Hoffmann in O’Neill v Phillips [1999] 1 WLR 1092 at 1100 and Ormiston LJ in Hanlon v Brookes (1997) 15 ACLC 1626.  6 Braganza v BP Shipping Ltd [2015] 1 WLR 1661, SC, citing Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223, but both those cases were on extreme facts.  7 Golstein v Bishop [2014] EWCA Civ 10, followed in Lie v Mohile [2015] EWHC 200 (Ch).  8 J Shergill v NLT Group Ltd [2005] UKEAT 0036_05_1104, an employment case.  9 Ian Barlow v Clifford & Co [2005] UKEAT 0910_04_2809, an employment case. 10 Mullins v Laughton [2003] Ch 250, Neuberger J at 273F, citing Kelly v Denman & Wade (15 May 1996, unreported) discussed at (1996) 11 Comm Lawyer 74.

(b)  The right to be heard: a right to natural justice 16.43  The duty mentioned above usually gives the partner who is to be expelled the right not to have the notice sprung on him1 but to know the reasons for his proposed expulsion2 (if he does not know them already3) and to be heard in his own defence4, though not to go so far as to cross-examine the witnesses against him5. In the words of Proudman J, an expulsion is bad if ‘there is no prior notice or opportunity to make representations’6. The exception is where such a procedure would be pointless if the same outcome would have been inevitable whatever procedure were adopted7, for instance if he can take the charge against him to arbitration where he will be heard8, or if his default is factually incontestable: In Cooper v Page9 the agreement provided that each partner must devote his whole time and attention to the business, and there was a power of expulsion exercisable for breach. One partner entered into quasi-partnership with a musical-instrument maker. Held that this was a breach of a specific

390

Retirement and expulsion 16.43 clause analogous to a covenant in a lease and no opportunity of defence was required to be given him before he was expelled.

The position is more difficult if the power is expressly stated to be exercisable without cause It is clear that if one of two partners has a right to expel the other, he may do it without the other being heard10 because the position is akin to the right of a partner to dissolve, which may be done arbitrarily11. His obligation is merely to exercise the power in good faith12. This means perhaps that it is bad if it is a decision that no reasonable tribunal could reach, but the question in the Wednesbury case13, whether the tribunal has ignored something that it ought to have taken into account or has taken into account something that it ought to have ignored (outside illegality), can hardly arise where no such matters have been prescribed. It is different when there are more than two partners. Although the question is one of construction of the partnership agreement, the more drastic the effect of the power, and the greater the resources of those exercising the power14, the greater the implication that the rules of natural justice will apply to the expulsion15. In the unusual case of a partnership at will where the partner to be expelled could dissolve the firm instantaneously, the expelling partners might be tempted to serve the expulsion notice upon him without warning lest he forestall his expulsion by dissolving the partnership first. But it seems that this approach would be the wrong one: rather they should give him any requisite time to be heard, and can treat as void any dissolution notice that he may serve with the improper motive of overtaking his own expulsion16. It does not seem to have been argued that partners are disqualified from adjudging the issue because they are judges in their own cause17, perhaps because the partner being charged has assented to the procedure.  1 Barnes v Youngs [1898] 1 Ch 414, approved in Green v Howell [1910] 1 Ch 495, CA.   2 See Neuberger LJ in Mullins v Laughton [2003] Ch 250 at 273F, paras 98–101 and Dillon LJ in Kerr v Morris [1987] Ch  90 at 111D and Barnes v Young [1898] 1 Ch  414, ‘an opportunity of meeting the case against him’; Byrne v Kinematograph Reuters Society Ltd [1958] 1 WLR 762 at 784.  3 Wilkie v Wilkie (No 2) (1900) 18 NZLR 734.  4 Steuart v Gladstone (1878) 10 Ch  D  626; Blisset v Daniel (1853) 10 Hare 493; Wood v Woad (1874) LR 9 Exch 190; Peyton v Mindham [1972] 1 WLR 8, and 35 Conv (NS) (1965) 32 B Davies; Marlborough Harbour Board v Goulden [1985] 2 NZLR 378; Re Northwestern Autoservices Ltd [1980] 2  NZLR  302; Dymoke v Association for Dance Movement Psychotherapy UK  Ltd [2019]  EWHC  94 (QB). But Neuberger LJ in Mullins v Laughton [2003] Ch 250 at 273G was of a contrary view: ‘At least in general a partner need not be given an opportunity to explain his conduct or argue his corner before he is expelled’, citing Green v Howell [1910] 1 Ch 495, and see Lord Hoffmann in Re A Company [1999] 1 WLR 1093. A trade union member may not be expelled unheard: Edwards v SOGAT  [1971] Ch  354 at 376F per Lord Denning, following Lord Pearce in Faramus v Film Artistes’ Association [1964]  AC  925 at 947, cf Gover v BLN  Ltd [1973]  IR  388. A mere right of appeal does not make good a breach of the rules of natural justice: Collins v Lane CA (22 June 1999, unreported), NLD.  5 Santamera v Express Cargo Forwarding t/a IEC Ltd [2003] IRLR 273; R (Thompson) v Law Society [2004] 1 WLR 252, a case in the Solicitors’ Disciplinary Tribunal.  6 Eaton v Caulfield [2011] EWHC 173 (Ch).   7 Per Jonathan Parker LJ in Koeller v Coleg Elidyr [2005] EWCA Civ 856; J Shergill v NLT Group Ltd [2005]  UKEAT 0036_05_1104, an employment case, following Polkey v AE  Drayton Services (1987) 137 NLJ 109, but contrast Mullins v Laughton [2003] Ch 250 at 274B.

391

16.44  Dissolution, retirement and expulsion without court order  8 Green v Howell [1910] 1 Ch 495, CA (a case on a two-partner firm) the Court of Appeal regarded expulsion as an administrative rather than a quasi-judicial decision: see also Re Northwestern Autoservices Ltd [1980] 2 NZLR 302 at 308.   9 (1876) 34 LT 90. 10 Russell v Russell (1880) 14 Ch D 471 at 480–481 per Jessel MR: ‘It is a power which he may exercise at his will and pleasure, capriciously or not capriciously, as he thinks fit, and to my mind the cases cited have not any bearing whatever. He need not make any inquiry. He need not call upon the partners for explanation. It is open to him to say “I am not satisfied” and there is an end to it.’ See also Re Wondoflex Textiles Pty Ltd [1951] VLR 458 where a governing director had a power of removal. 11 Green v Howell [1910] 1 Ch 495, CA; Russell v Russell (1880) 14 Ch D 471 per Jessel MR at 480; see para 16.22ff above. 12 See Jessel MR in Russell v Russell (1880) 14 Ch  D  471 at 480; Green v Howell (1910) 1 Ch 495; Lord Hoffmann in O’Neill v Phillips [1999] 1 WLR 1092 at 1100D approves (obiter) the view of Page Wood V-C in Blisset v Daniel (1853) 10 Hare 493 that a right to be heard is not necessary if it is not required by the agreement and the power to expel is being exercised in good faith for the benefit of the partnership as a whole: Hanlon v Brookes (1997) 15 ACLC 1626; Dymoke v Association for Dance Movement Psychotherapy UK Ltd [2019] EWHC 94 (QB). 13 Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223. 14 Braganza v BP Shipping [2015] 1 WLR 1661, SC, at paras 15, 18, 36 and 57. 15 Gaiman v National Association for Mental Health [1971] Ch 317, discussed in Dymoke v Association for Dance Movement Psychotherapy UK Ltd [2019] EWHC 94 (QB). 16 Walters v Bingham [1988] 1  FTLR  260 per Browne-Wilkinson V-C, but the reasoning is unclear and the contrary view must be arguable. 17 Re P (a Barrister) [2005] 1 WLR 3019; Ridge v Baldwin [1964] AC 40 at 132.

(c) Procedure 16.44  It follows from the above that where partners contemplate the expulsion of a partner the following steps should be taken, subject to the precise terms of the partnership agreement: •

• •

•

Legal advice should be taken to ascertain that the proposed expulsion is justified and practicable, and its consequences. Often at this stage partners discover that their agreement contains no expulsion clause, which is fatal to their plans. The partners who are proposing the expulsion should meet privately to agree that they are prepared to go through with it subject to what the partner in question may have to say. The partner in question should be informed in writing of the proposed expulsion and its reasons, if any, and asked to attend a partners’ meeting where he will be given an opportunity to state his case with or without legal representation as he chooses. After he has been heard at the partners’ meeting he should be asked to wait outside so that a resolution on the issue of his expulsion may be taken by the other partners.

(d)  Remedies for wrongful expulsion 16.45  The right of a partner to an injunction is discussed at para  15.31 above and perhaps to claim repudiation and consequential damages is at para 14.11ff above. 392

17 Dissolution by court order Contents

para 1 Dissolution by court order generally A General��������������������������������������������������������������������������������������17.1 B Procedure�����������������������������������������������������������������������������������17.2 2 Grounds for dissolution: mental and other incapacity A Dissolution by the court for incapacity generally������������������������17.8 B Mental incapacity���������������������������������������������������������������������17.10 C Other incapacity�����������������������������������������������������������������������17.13 D The court’s discretion in any case of incapacity������������������������17.15 3 Dissolution for misconduct A Generally����������������������������������������������������������������������������������17.16 B Dishonesty�������������������������������������������������������������������������������17.18 C Adultery�����������������������������������������������������������������������������������17.19 D Other misbehaviour�����������������������������������������������������������������17.20 E Triviality and mere distrust������������������������������������������������������17.21 4 Insolvency and loss-making as a ground for dissolution A Procedure���������������������������������������������������������������������������������17.22 B The grounds for the application�����������������������������������������������17.23 5 Dissolution when just and equitable A The wide jurisdiction����������������������������������������������������������������17.24 B Where the applicant is at fault��������������������������������������������������17.25 C Where there is a breakdown in relations����������������������������������17.26

1 DISSOLUTION BY COURT ORDER GENERALLY A General  17.1 B Procedure  17.2 393

17.1  Dissolution by court order

A General 17.1  The previous chapter discussed dissolution generally, and how it could occur without court order. We are here concerned with the cases in which the court may order1 the dissolution of a partnership on the application of a partner. This may be on any of the grounds which are dealt with in the four sections that follow. The remedy is discretionary. The jurisdiction may not be ousted by the agreement of the partners, but it may be relevant to the discretion that the partners’ agreement has attempted to anticipate the problem2, for instance by containing a withdrawal option for a disgruntled partner3. Dissolution more commonly occurs through the act of the parties than that of the court, as is discussed in Chapter 16; for instance if the partnership is a partnership at will, any partner may dissolve it by notice, so a court order will not be necessary. Or dissolution may occur by order of an arbitrator4, or by the firm becoming illegal5 or (some will say) by a repudiation of the partnership agreement being accepted6. Such cases may lead to a dispute as to whether dissolution has indeed occurred, and if so when, and the court may be required to grant a declaration accordingly7, perhaps in an action which seeks dissolution in the alternative or by counterclaim8. The court will not order dissolution if dissolution has already occurred9 but the question whether a dissolution has occurred is a different one from whether the court will order dissolution, which will be considered now. Statutory winding up under the Insolvency Act 1986 is different again, and is discussed in Chapter 22. The fact that an application might be made for winding up under the Insolvency Act 1986 is not a bar to an application being made for dissolution under the provisions of the Partnership Act 1890 now being considered10.   1 Under the Partnership Act 1890, s 35, which is set out in Appendix A below.  2 Re American Pioneer Leather Co [1918] 1 Ch 556.  3 Ruut v Head (1996) 20 ASCR 160 NSW SC; compare the importance of buyout provisions in the articles in the case of company winding up for minority oppression: O’Neill v Phillips [1999] 1 WLR 1092, HL.   4 See para 15.28ff above.   5 See Chapter 4 and para 16.6ff above.   6 See para 14.11 above.   7 Disputes between partners are considered in Chapter 14.   8 An action may seek rescission for misrepresentation, or dissolution in the alternative: Bagot v Easton (1877) 7 Ch D 1, CA. It is common for dissolution to be ordered with an inquiry as to what the partnership terms were: Thorp v Holdsworth (1876) 3 Ch D 637. In principle all outstanding partnership issues should be disposed of in the one action: Lalbhai Vallabhbhai v Kavasji Nanabhai (1871) 8 Bom OC 209 (India).  9 Smith v Baker [1977] 1 NZLR 511. 10 Schooler v Customs and Excise Comrs [1995] 2 BCLC 610, CA; Clements v Bowes (1852) 17 Sim 167 at 174.

B Procedure (a)  High Court and county court 17.2  An application for an order for dissolution by the court on the application of one or more partners1 may be made in the High Court or the 394

Dissolution by court order generally 17.3

county court2. The judges of the Court of Protection have jurisdiction where a partner lacks capacity to take a decision on his behalf which will have the effect of dissolving a partnership of which he is a member3. In the High Court, the action should be assigned to the Chancery Division4, but this does not make it obligatory that it be allocated or transferred to that division if the action has been commenced in another division5, and accordingly a dissolution order may be made in the Queen’s Bench or Family Divisions6. The application for dissolution is usually heard by a judge although it lies within a master’s jurisdiction. The county court has jurisdiction in any dissolution action by consent of all the partners7 and otherwise where the whole assets of the partnership do not exceed £350,000 in amount or value8, including where the existence of the partnership is in dispute9, and may also have jurisdiction on a transfer from the High Court10.   1 The jurisdiction of the court to dissolve a partnership, with which this section is concerned, is exercisable only on the application of a partner (see para 17.3 below); by contrast outsiders (and in particular creditors) may petition for the winding up of the partnership under the Insolvency Act as discussed in Chapter 22.   2 As to the jurisdiction in partnership cases see para 15.1 above.   3 See the Mental Capacity Act 2005, ss  16 and 18, replacing the Mental Health Act 1983, ss  94(1) and 96(1)(g). Dissolution on the grounds of mental disability is considered at para 17.10ff below.   4 See the Senior Courts Act 1981, s 61 and Sch 1, para 1(f).   5 See the Senior Courts Act 1981, s 61(6).  6 Williams v Williams [1976] Ch 278. In Matz v Matz [1984] Fam Law 178, CA an application to transfer a dissolution action from the Chancery Division because there were proceedings between the same parties pending in the Family Division was refused, but if the partnership issues are straightforward such an application will succeed.   7 See the County Courts Act 1984, s 24(1).   8 See the County Courts Act 1984, s  23(f) and the County Courts Jurisdiction Order 2014, Art 3.   9 See the County Courts Act 1984, s 23(f); R v Judge Lailey, ex p Koffman [1932] 1 KB 568, CA. 10 See para 15.1 above.

(b)  Who may apply 17.3  The application may not be made by an outsider but only by a partner1 or (sometimes) by a person representing his interest such as his assignee, mortgagee or personal representative2. By contrast a creditor and certain other outsiders may petition for statutory winding up of the partnership under the Insolvency Act 1986, but that is another matter3. A person who is not a partner but is merely held out (and therefore liable4) as a partner has no status to apply5. Where a person is a partner but has no interest in the net assets of the firm under the partnership agreement, he has standing to apply for a dissolution order but will be unlikely to be granted it6. 1 Under the Partnership Act 1890, s 35, which is set out in Appendix A below. 2 For the rights of assignees and mortgagees of a partnership share, and of the partners’ personal representatives, see para 10.17ff above. 3 Discussed in Chapter 22.

395

17.4  Dissolution by court order 4 See Chapter 5. 5 Re C & M Ashberg (1990) Times, 17 July; Walker v Hirsch (1884) 27 Ch D 460, CA. 6 Stekel v Ellice [1973] 1 WLR 191.

(c)  Interlocutory application 17.4  An order for dissolution will be made before trial especially if the matter is urgent, for instance by interim application in the Chancery Division. Because this relief is final it is not akin to an interlocutory injunction which is intended to preserve the status quo, so the court will not be concerned with questions of balance of convenience pending trial, and American Cyanamid1 principles will not apply. 1 American Cyanamid Co v Ethicon Ltd [1975] AC 396.

(d)  Where the partnership is in administration 17.5  The court may not order dissolution where an administration order is in force under the Insolvent Partnerships Order 19941. This is curious. The purpose of an administration order is to preserve the business of the firm, but it is hard to see why this should require the partners to lose the right to seek dissolution if (for instance) one of their number is being dishonest. 1 See the Insolvency Act 1986, s  10, as modified by the Insolvent Partnerships Order 1994, Sch 2, and discussed at para 22.41ff below.

(e)  The effect of a court order for dissolution 17.6  As regards outsiders the court order for the dissolution of a partnership takes effect from the time of the order1 but as between the partners it may be earlier as follows: (a) where the partnership is a partnership at will capable of being dissolved by notice, in which case dissolution is said to take place from service of the proceedings2; (b) where a partner’s fraud has been complained of by his partners, dissolution has been ordered to take place as from the date of the complaint rather than the date of the order3, although this is not the usual practice today. The effect of the dissolution order is to put the partners under the same obligation to wind up the partnership affairs as if dissolution had been effected out of court, and is considered in Chapter 18. 1 Besch v Frolich (1842) 1 Ph 172. 2 Besch v Frolich (1842) 1 Ph 172; Unsworth v Jordan [1896]  WN  2; Phillips v Melville [1921]  NZLR  571 (New Zealand); McComb v McCaig [1920] 1  WWR  508 (Canada); ACC Bank v Johnston [2011] IEHC 108 (Ireland). 3 Essell v Hayward (1860) 30 Beav 158; Phillips v Melville [1921] NZLR 571 (New Zealand).

396

Grounds for dissolution: mental and other incapacity 17.8

(f) Costs 17.7  The costs of a partnership dissolution action are at the discretion of the court which must consider the numerous matters set out in CPR, Part 44; usually, however, costs will follow the event of the outcome of the action1. At one time if dissolution could be said to have been caused by act of God, the costs might be ordered to be paid by the partners or out of the partnership assets2. If costs are to be paid out of the assets but the assets prove insufficient, the partners bear the costs in the proportion in which they bear losses, usually the same as their profit share3. Costs in a partnership dispute are considered generally at para 15.19 above. 1 As in Carmichael v Sharp (1882) 1 OR 381 (Canada) and Gay v Perry (1905) 25 NZLR 285 (New Zealand). This was once an unusual order in England but is now the usual one: see para 15.19 above. 2 Rowlands v Evans (1866) 14 WR 882. 3 Curran v Carey (1887) 4 Man LR 450, and the Partnership Act 1890, s 44(a), which is printed in Appendix A below.

2 GROUNDS FOR DISSOLUTION: MENTAL AND OTHER INCAPACITY A Dissolution by the court for incapacity generally   17.8 B Mental incapacity  17.10 C Other incapacity  17.13 D The court’s discretion in any case of incapacity   17.15

A  Dissolution by the court for incapacity generally 17.8  The mental or other incapacity of a partner does not have the immediate effect of dissolving the partnership1 but: (a) mental incapacity may have prevented the formation of a partnership in the first place (which is discussed at para 3.25 above); and (b) any incapacity (whether mental or not) enables an application to be made to the court for an order for dissolution (which will be discussed now). The jurisdiction may be invoked where the applicant is either the incapacitated partner himself, or any of the other members of the firm. It is to be found in sections 16 and 18 of the Mental Capacity Act 2005, the material parts of which are mentioned in para 17.10 below, and in section 35 of the Partnership Act 1890, of which the relevant provisions are these: On the application by a partner the Court may decree a dissolution of the partnership in any of the following cases –

397

17.9  Dissolution by court order (b) When a partner, other than the partner suing, becomes in any other way permanently incapable of performing his part of the partnership contract … (f) Whenever in any case circumstances have arisen, which, in the opinion of the Court, render it just and equitable that the partnership be dissolved. 1 Jones v Lloyd (1874) LR 18 Eq 265; Sayer v Bennet (1784) 1 Cox Eq Cas 107; Wrexham v Hudleston (1734) 1 Swan 514n. See also para 3.27 above.

Date of dissolution 17.9  Save where the partnership agreement specifies otherwise1 the date of dissolution will be the date of the order, and not when the proceedings commence2, unless: (a) the firm is a partnership terminable upon notice, in which case service of the legal process may be construed as a dissolution notice3; (b) where the court orders dissolution to take effect on notice being served, for instance by the Court of Protection deputy on behalf of the protected party4. 1 Bagshaw v Parker (1847) 10 Beav 532. 2 Jones v Welch (1855) 1 K & J 765; Re Coles (1852) 1 De GM & G 417; Sander v Sander (1845) 2 Coll 276; Besch v Frolich (1842) 1 Ph 172. 3 Kirby v Carr (1838) 3 Y & C Ex 184. See para 16.22ff above. 4 Mellersh v Keen (1859) 27 Beav 236; Robertson v Lockie (1846) 15 Sim 285.

B  Mental incapacity 17.10  Before 1959 the law as declared in section 35(a) of the Partnership Act 1890 was that the permanent mental unsoundness of a partner entitled the court to order dissolution on the application of either himself or his partners1. Jurisdiction was exercised either by the High Court or by the Master in Lunacy (later the Court of Protection). But in 1959 section 35(a) was repealed2 and the Court of Protection was given jurisdiction under section  96(1) of the Mental Health Act 1983 to make orders for the dissolution of a partnership of which the protected party is a member. Section 96 of the Mental Health Act 1983 was repealed with effect from 1 October 2007 by the Mental Capacity Act 2005 which gave rather different powers to the Court of Protection3. A person must be assumed to have capacity unless it is established that he lacks capacity4, and he lacks capacity in relation to a matter if he is unable to make a decision for himself in relation to it because of an impairment of or a disturbance in the functions of the mind or brain5. In such a case the court has power under section 18(1)(e) of the 2005 Act to makes orders about ‘the taking of a decision which will have the effect of dissolving …’ his partnership. So the modern Court of Protection does not itself have power to dissolve a partnership, but only to exercise on a 398

Grounds for dissolution: mental and other incapacity 17.12

protected party’s behalf (or to authorise the exercise) a power which he had to bring about a dissolution. The court has power to authorise someone to conduct legal proceedings in the protected party’s name or on his behalf6 and the old rule is preserved that once a person has become a protected party of the Court of Protection no creditor can levy execution against his estate. But subject to being satisfied that adequate means are available for the protected party’s maintenance, the Court of Protection will have regard to the claims of creditors7. The sums that may be due to his former partners after dissolution constitute them his creditors for this purpose8. 1 Authorities on the court’s pre-1959 jurisdiction are Fisher v Melles (1870) 43 LJ Ch 827n; Rowlands v Evans (1861) 30 Beav 302; Besch v Frolich (1842) 1 Ph 172; Re Coles (1851) 1 De GM & G 171 at 174; Jones v Noy (1833) 2 My & K 125 at 129; Crawshay v Maule (1818) 1 Swan 495; Sayer v Bennet (1784) 1 Cox Eq Cas 107 at 109. 2 By the Mental Health Act 1959, s 149(2), Sch 8, Pt I (repealed). 3 Mental Capacity Act 2005, ss 16 and 18. 4 Mental Capacity Act 2005, s 1(2). 5 Mental Capacity Act 2005, ss 2(1) and 3. 6 Mental Capacity Act 2005, s 18(1)(k). 7 Re Seager Hunt [1906] 2 Ch 295. 8 See the Partnership Act 1890, s 43.

(a) Practice 17.11  The jurisdiction of the Court of Protection is exercised by the judges of the Court of Protection, with appeal to the Court of Appeal. The court may act in relation to a protected party’s partnership affairs (for instance, serving a notice of dissolution for him if the firm is dissoluble on notice) by directing that it be done by the Court of Protection deputy. The Court of Protection is reluctant to order dissolution where there has been no such deputy appointed, or where there are disputes as to accounts and in those circumstances the application can be brought in the High Court or county court as described next.

(b)  Jurisdiction in the High Court or county court 17.12  The changes made by the Mental Capacity Act 2005 limit the scope of the Court of Protection to bring about a partnership dissolution to situations where the mentally incapable partner has power to give notice to dissolve the partnership, but lacks the mental capacity to do so, Fortunately, the jurisdiction of the High Court and county court under section 35(f) of the 1890 Act to order a dissolution where ‘just and equitable’ is wide enough to cover mental incapacity cases, and in practice those courts carry on making dissolution orders in mental disability cases. In the now relatively unusual circumstances where proceedings may either be brought in the Court of Protection or in the usual civil courts thought 399

17.13  Dissolution by court order

must be given to the question of costs before a decision is taken as to which forum to choose. When the Court of Protection exercises its jurisdiction it commonly orders the costs of all parties to be paid out of the protected party’s estate1. The costs of a dissolution action in the High Court or county court are discussed at para 17.7 above2. 1 See also Halsbury LC in Re Cathcart [1893] 1 Ch 466. 2 Costs are of course in the court’s discretion, but the old rule that dissolution for insanity will lead to costs being borne by the partnership assets (Jones v Welch (1855) 1 K & J 765) must be viewed with caution today.

C  Other incapacity (a)  Application against an incapable partner 17.13  The other partners may apply to the court for dissolution where one partner becomes incapable in some other way than becoming mentally incapable. Section 35(b) of the Partnership Act 1890 provides: On application by a partner the Court may decree a dissolution of the partnership in any one of the following cases … (b) Where a partner, other than the partner suing, becomes in any other way permanently incapable of performing his part of the partnership contract.

Such incapacity must not be mental incapacity, for this subsection refers to the previous subsection (which deals with mental incapacity, now repealed) and requires incapacity ‘in any other way’.

(b)  Application by an incapable partner 17.14  The Partnership Act 1890 confers on the court no specific power1 to dissolve on the application of a partner relying on his own incapacity2, other than mental incapacity, dealt with above; but it may in those circumstances order dissolution on the ‘just and equitable’ ground (which is discussed at para 17.24ff below) and will follow the old cases mentioned below which deal with both mental and other incapacity. 1 The implication behind s  35(b) is that a partner should not be entitled to assert his own incapacity other than mental capacity which was formerly covered by s  35(a) (repealed). Subsection (b) gives the court jurisdiction for the other partners to seek dissolution where he was disabled ‘in some other way’ than under (a). 2 The specific jurisdiction of the court under the Partnership Act 1890, s 35(a) to dissolve the firm where any partner was found to be ‘of permanently unsound mind’ was abolished in 1959 (see above).

400

Dissolution for misconduct 17.16

D  The court’s discretion in any case of incapacity 17.15  The pre-1959 cases relating to mental incapacity must be treated with caution in the light of the change in the law consequential upon the repeal of section  35(a) mentioned above, but they are followed where an application is made on the ‘just and equitable’ ground1 based upon a partner’s mental incapacity. In cases of either alleged mental or alleged physical incapacity, the court would formerly be cautious in ordering dissolution because section 35(a) and the authorities upon which it was based required proof of ‘permanent’ incapacity. It would adjourn the case when at trial it seemed that the partner’s health was improving or his unsoundness of mind might be temporary2, and would not order dissolution merely because the partner concerned was less capable than he once had been but lacked true insanity3, or merely threatened suicide4. This reflects the 19th-century tendency to put more weight upon a partner’s financial stake in the business than his obligation to work with his partners. Although everything depends upon the nature of the firm’s business, the modern trend is to dissolve the firm if the incapacity is sufficient to prevent a partner from carrying out his partnership duties, even if permanent incapacity is not certain. Ordinary illness if sufficient to prevent the partner performing his duties is grounds for dissolution5. It is also grounds for dissolution that partners find themselves continuing in partnership with a protected party’s deputy6. 1 2 3 4

See the Partnership Act 1890, s 35(f), discussed at para 17.24 below. Whitwell v Arthur (1865) 35 Beav 140; J v S [1894] 3 Ch 72. Sadler v Lee (1843) 6 Beav 324. Re Coles, Leaf v Coles (1851) 1 De GM & G 171. See also Jones v Lloyd (1874) LR 18 Eq 265; Milne v Bartlet (1839) 3 Jur 358; Kirby v Carr (1838) 3 Y & C Ex 184; Patey v Patey (1836) 5 LJ Ch 198; Jones v Noy (1833) 2 My & K 125 at 129; Sayer v Bennet (1784) 1 Cox Eq Cas 107; Pearce v Chamberlain (1750) 2 Ves Sen 33 at 35; Wrexham v Hudleston (1734) 1 Swan 514n. 5 Pelunsky v Pastoll [1920] WLD 32 (South Africa). 6 Rowlands v Evans (1861) 30 Beav 302, a case of a patient’s ‘committee’, ie the person into whose care he had been committed, whose modern equivalent is his deputy.

3  DISSOLUTION FOR MISCONDUCT A Generally  17.16 B Dishonesty  17.18 C Adultery  17.19 D Other misbehaviour  17.20 E Triviality and mere distrust   17.21

A Generally 17.16  If a partnership agreement gives the partners no power to expel a partner for misbehaviour1 and no right to dissolve the partnership2, then their 401

17.17  Dissolution by court order

remedy is to seek an order for dissolution from the court. Examples of this will be given below, but each should be approached with caution, because it is no more than a judgment given on its own facts at its own date. The real question in each case will be whether the misconduct complained of will in all the circumstances justify a winding up which may be either harmless or disastrous for the other members. The complainants will not succeed if they themselves are guilty of misconduct3. As Romilly MR remarked in Harrison v Tennant4: No party is entitled to act improperly and then to say that the conduct of the partners and their feelings towards each other are such that the partnership cannot continue.

This principle is echoed in the cases on ‘just and equitable’ dissolution which are considered in the next section. Subsections 35(c) and (d) of the Partnership Act 1890 provide: On application by a partner the court may decree a dissolution of the partnership in any of the following cases: … (c) When a partner, other than the partner suing, has been guilty of such conduct as, in the opinion of the court, regard being had to the nature of the business, is calculated to prejudicially affect the carrying on of the business; (d) When a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him. 1 Expulsion is discussed at para 16.38ff above. 2 If there is no partnership agreed duration the partnership is a partnership ‘at will’ which may be dissolved on notice by any partner as discussed at para 16.23 above, and a court order for dissolution will not be needed. 3 Ruut v Head (1996) 20 ASCR 160, NSW SC. 4 (1856) 21 Beav 482 at 493–494.

(a)  Dissolution against a single partner 17.17  The court can order general dissolution but it cannot order dissolution against a single partner at fault, in effect expelling him or compelling him to retire. This should be no hardship to complainant partners because after dissolution they can reconstitute the dissolved partnership immediately without the undesirable partner1. But dissolution may have practical consequences which may act as a deterrent to an application for dissolution. The answer to this problem is: (a) the partners should ensure that the partnership agreement contains an expulsion clause; and (b) complainant partners should be brave enough to seek a court dissolution anyway, conscious that any disadvantages of dissolution will bite as hard 402

Dissolution for misconduct 17.19

on the recalcitrant partner as on them, and that he is therefore likely to agree a compromise, if only at the door of the court. 1 Hudgell Yeates & Co v Watson [1978] QB 451.

B Dishonesty 17.18  Dishonesty by a partner to his partners or their clients1 falls squarely within both section  35(c) and 35(d)2 and will justify the court making a dissolution order unless the dishonesty is irrelevant or trivial. Dishonesty towards persons who are neither partners nor clients will usually justify dissolution of a firm3. The position is analogous to the dismissal of an employee for dishonesty to outsiders. 1 Essell v Hayward (1860) 30 Beav 158, a case of a solicitor appropriating clients’ funds. 2 See the Partnership Act 1890, s 35(c) and (d), quoted in para 17.16 above. 3 In Carmichael v Evans [1904] 1 Ch 486 a junior partner in a drapers’ firm was convicted of travelling on a bus without a ticket, and the senior partner exercised a power to expel him for being guilty of ‘any flagrant breach of the duties of a partner’. Byrne J refused to interfere by injunction to restrain the expulsion, but the appeal was settled ([1904] WN 47) by the junior partner buying the whole firm, with no order as to costs.

C Adultery 17.19  Adultery may be grounds to justify dissolution; it has been held that adultery by a banker in Exeter did not1, but did with a partner’s spouse in India2. The question is whether it prejudicially affects the carrying on of the business3 and with whom it is done. Fornication by a doctor with a woman patient fell within the definition of flagrantly immoral behaviour in an expulsion clause4: However much the court may reprove the conduct of a man who is guilty of adultery, that is no reason for turning him out of a common trading partnership. This court is not Censor Morum and it cannot go into those questions. It really deals with property and nothing but property, and it cannot go into the question of the moral conduct of a man unless that moral conduct affects property. There are no doubt various cases in which the moral conduct of a man would affect property, for instance, as the case where a medical man had entered into partnership with another medical man as accoucheurs5, and it was found his conduct was very immoral towards some of his patients, of course that is a ground for putting an end to the partnership, because the immorality affects the very essence of the partnership. But in the case of bankers, how can the court say that a man’s money is less safe because one of the partners commits adultery, or how can the court go into a question of that kind? Suppose a London banker kept a mistress, could the court say that the partnership should be dissolved on the strength of that conduct? I apprehend that is quite impossible …6

403

17.20  Dissolution by court order

Adultery alone is not sufficient to justify dissolution unless it either leads to such a breakdown between two partners that business in common between them is impossible, or if it is professionally improper as with a patient in a medical partnership7. 1 Even with ‘various persons’ in the city: Snow v Milford (1868) 18 LT 142. 2 Abbott v Crump (1870) 5 BLR 109 (India). 3 Anon (1856) 2 K & J 441 at 445. 4 Goodman v Sinclair (1951) Times, 24 January. 5 Ie midwives. 6 Per Lord Romilly in Snow v Milford (1868) 18 LT 142 at 143. 7 Goodman v Sinclair (1951) Times, 24 January.

D  Other misbehaviour 17.20 Negligence1 or breach of the partnership agreement2, including the duty of good faith3 or the unwritten rules implicit from the business arrangement4, will justify dissolution only if it is serious enough to cause a breakdown in trust between the partners, which will usually be the case if he is careless with their money: No circumstance can excuse a partner for forgetting the receipt of money due to the partnership. If it only occurred once, it would be a very serious error on the part of the partner, but when this failure of memory is so frequent as to become almost systematic, it makes it impossible for any person to act with him in confidence as a partner …5.

For a partner to accept business beyond the ambit of the firm, or to refuse to accept business which was within that ambit but wrongly seemed to him not to be profitable, does not justify an application against him for dissolution6; but for him to retain in the management an employee who had been dismissed by a majority of the partners would justify it7. Professional misconduct may justify dissolution depending upon its degree8. To wrongly accuse another partner of professional misconduct or fraud may justify his seeking dissolution9. The question is whether the effect of the misconduct is to prevent10 or imperil11 the continuation of the partnership business, as where ‘such a state of feeling may arise and exist between the partners as to render it impossible that the partnership can continue with advantage to either’12.  1 Hawkins v Parsons (1862) 31 LJ Ch 479; Curtis v Curtis & Beart [1909] TH 141 (South Africa).   2 Such as a partner raising money on the credit of the assets of the firm (Marshall v Colman (1820) 2 Jac & W 266) or failing regularly to account for the firm’s money (Cheesman v Price (1865) 35 Beav 142) or withholding the partnership records (Charlton v Poulter (1753) cited in 19 Ves at 148n).   3 See Neuberger J in Mullins v Laughton [2003] Ch 250 at 276 and Chapter 11.  4 Smith v Jeyes (1841) 4 Beav 503, using partnership money to pay private debts; Cheesman v Price (1865) 35 Beav 142.   5 Per Sir John Romilly in Cheesman v Price (1865) 35 Beav 142.  6 Petit v Cox (1928) 54 NBR 246 (Canada).  7 Newton v Doran (1850) 1 Gr 590 (Canada).

404

Insolvency and loss-making as a ground for dissolution 17.22  8 Clifford v Timms [1908] AC 12, HL, a case on the construction of an expulsion clause.  9 Greenaway v Greenaway (1939) 84 Sol Jo 43; Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426 at 431. 10 Watney v Wells (1861) 30 Beav 56; Baxter v West (1860) 1 Drew & Sm 173; Leary v Shout (1864) 33 Beav 582; Harrison v Tennant (1856) 21 Beav 482. 11 Knight v Bell (1887) 13 VLR 878 (Australia). 12 Per Lord Cairns LC in Atwood v Maude (1868) 3 Ch App 369, a case of a solicitors’ partnership.

E  Triviality and mere distrust 17.21  The court will not intervene where there have only been occasional or trifling1 breaches which cannot be said to prevent continuation of the partners’ relationship2. In Anderson v Anderson3 the partnership agreement prohibited the giving of a guarantee by any partner. Over a period of eight years only one breach of this agreement was proved. Held this was insufficient to justify dissolution.

By contrast 17 small omissions in the accounts, totalling £9 10s, justified dissolving another Victorian partnership4. 1 Goodman v Whitcomb (1820) 1 Jac & W 589. 2 Wray v Hutchinson (1834) 2 My & K 235; Loscombe v Russell (1830) 4 Sim 8. Contrast Cheesman v Price (1865) 35 Beav 142, from which judgment a quotation is given above. 3 (1857) 25 Beav 190, a case in which breach of the relevant provision in the partnership agreement empowered the aggrieved partner to dissolve on notice. 4 Cheesman v Price (1865) 35 Beav 142.

4 INSOLVENCY AND LOSS-MAKING AS A GROUND FOR DISSOLUTION A Procedure  17.22 B The grounds for the application   17.23

A Procedure 17.22  The bankruptcy of a partner dissolves the firm in the absence of any contrary agreement1, but the insolvency of the firm itself, rather than a member, does not do so. If a firm is insolvent but continues trading, the partners are in danger of being criminally liable under section  214 of the Insolvency Act 1986. If the firm is insolvent a partner can petition for its statutory winding up under the Insolvent Partnerships Order 1994 as discussed in Chapter 22, but this procedure is expensive because the consequence will be the appointment of a liquidator whose remuneration will have to be found. The more satisfactory procedure for a partner will be by application under section 35(e) of the Partnership Act 1890 for dissolution, a procedure which will result in 405

17.23  Dissolution by court order

the partners themselves winding up the firm’s affairs after dissolution. This will be not only cheaper but also less likely to lead to any official inquiry into the circumstances of the dissolution. 1 See the Partnership Act 1890, s 33(1), which is printed in Appendix A below and discussed at para 16.29 above.

B  The grounds for the application 17.23  Insolvency itself is not the ground for dissolution; the ground is that the business can only be carried on at a loss1, which is different. Section 35(e) of the Partnership Act 1890 does not apply where a firm with good prospects is temporarily insolvent, but does apply where it is still able to pay its debts but will be unable to do so sometime in the future: On application by a partner the court may decree a dissolution of the partnership in any of the following cases – (e) When the business of the partnership can only be carried on at a loss.

That the business has been making heavy losses is some evidence that it will continue to do so2, but there may be special reasons, so the court cannot always infer it3. For a partner to satisfy the subsection, he must adduce evidence why there is no ‘reasonable prospect of profit’4 in the future5. If he can do this, for instance by showing that the partnership capital has dried up and no partner is obliged or willing to contribute more, then he need not show that the business is yet insolvent6. If he proves that the business can only be carried on at a loss the court will seldom have any scope to refuse (in its discretion) the dissolution sought. The mere fact that dissolution will be prejudicial to another partner, or upset his contractual rights with the firm7, cannot outweigh a likelihood of dissolution. 1 2 3 4

See the Partnership Act 1890, s 35(e), quoted below. Kennedy v Erikson (1910) 13 WLR 602 (Canada). Handyside v Campbell (1901) 17 TLR 623; Baring v Dix (1786) 1 Cox Eq Cas 213. Per Cotten LJ in Wilson v Church (1879) 13 Ch D 1, CA; affd sub nom National Bolivian Navigation Co v Wilson (1880) 5 App Cas 176, HL. 5 Handyside v Campbell (1901) 17 TLR 623; Landford Greens v 746370 Ontario Inc (1994) 12 BLR (2d) 196. 6 Jennings v Baddeley (1856) 3 K & J 78; Re Suburban Hotel Co (1867) 2 Ch App 737. 7 Cowasjee Nanabhoy v Lalbhoy Vullubhoy (1876) ILR 1 Bom 468 (India), where a partner had a contract for management for life.

5 DISSOLUTION WHEN JUST AND EQUITABLE A The wide jurisdiction   17.24 B Where the applicant is at fault   17.25 C Where there is a breakdown in relations   17.26 406

Dissolution when just and equitable 17.25

A  The wide jurisdiction 17.24  The court is given a general jurisdiction to order dissolution where it is just and equitable to do so. The jurisdiction is wide1 but is usually only invoked where relations between the partners have broken down2 or the continuation of the firm has for some other reason become impossible in practice3. Even so, such a breakdown will not necessarily lead to dissolution. A petitioner may well not qualify for relief if he is ‘solely responsible for the situation which has arisen’4. The jurisdiction may not be excluded by the partnership agreement5. Section 35(f) of the Partnership Act 1890 provides: On application by a partner the court may decree a dissolution of the partnership in any of the following cases – (f) Whenever in any case circumstances have arisen, which, in the opinion of the Court, render it just and equitable that the partnership be dissolved.

Because the jurisdiction is so wide, and implicitly only arises where the other grounds for dissolution do not apply, the court exercises it sparingly6. By analogy the Companies Court applies it to ‘quasi-partnership’ companies and LLPs in deadlock under section 994 of the Companies Act 2006, but the analogy must not be pushed too far. Section  35(f) is a sweep-up provision following some specific provisions, in a way that section 994 of the Companies Act 2006 is not. For LLP dissolution see paras 25.41 and 25.90 below. 1 Re Amalgamated Syndicate [1897] 2 Ch  600; Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, HL. 2 Discussed at para 17.26 below. 3 In Baring v Dix (1786) 1 Cox Eq Cas 213 the business could not be carried on ‘according to the true intent and meaning of the articles of co-partnership’; Re Suburban Hotel Co (1867) 2 Ch App 737; Re German Date Coffee Co (1882) 20 Ch D 169; Re Bristol Joint Stock Bank (1890) 44 Ch D 703: Jenkins v Bennett [1965] WAR 42 (Australia). 4 In the Matter of Paramount Powders (UK) Ltd [2019] EWCA Civ 1644. 5 Re American Pioneer Leather Co [1918] 1 Ch 556. 6 Le Roy v Herrenschmidt (1876) 2 VLR (Eq) 189 (Australia).

B  Where the applicant is at fault 17.25  Although section  35(f) does not expressly exclude any application being made by a partner at fault, yet the court will be reluctant to grant dissolution where the plaintiff’s own conduct has been reprehensible1 or where the applicant has an ulterior motive such as to procure for himself an advantage as the landlord of the firm’s farming business2 or he seems to be trying to by-pass the requirement in subsections (c) and (d) of section 353 that the misbehaviour that provokes the application should not be that of the partner suing4. Much will depend upon the other options available to that partner. If he has the chance to retire, even on disadvantageous terms5, the court may refuse him dissolution and simply let him take those terms or stay on in the partnership as he chooses. 407

17.26  Dissolution by court order 1 Although the claimant’s lack of ‘clean hands’ is important, it is not an absolute bar to the grant of a dissolution order: Ruut v Head (1996) 20 ALSR 160, NSW SC. 2 Re J E Cade & Son Ltd [1991] BCC 360, a family company case. 3 Quoted at para 17.16 above. 4 Harrison v Tennant (1856) 21 Beav 482; Re American Pioneer Leather Co [1918] 1 Ch 556. Or if they offer to buy him out: Virdi v Abbey Leisure Ltd [1990] BCLC 342. 5 Ruut v Head (1996) 20 ALSR 160, NSW SC; Warder v Stilwell (1856) 26 LJ Ch 373.

C  Where there is a breakdown in relations 17.26  The jurisdiction under section 35(f) is usually invoked where there has been a complete breakdown in relations between the partners. This may occur if a partner has become mentally incapable1 or is in breach of the partnership agreement2 or has unsuccessfully tried to oust the other3, but is often just the result of a clash of temperament. ‘All that is necessary is to satisfy the court that it is impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it’4. In Harrison v Tennant5 the partners in a firm of solicitors fell out over the manner in which one partner defended litigation against the firm by a former client. Held that although he had not broken any partnership obligations he had caused a breakdown in the partnership relations and the firm should be dissolved: ‘Although the parties to this suit being gentlemen, no outbreak of any sort has occurred between them, yet nevertheless the attempt to compel them to act as partners for the future would, as against them all, be to compel them to inflict irreparable injury upon each other’6.

Dissolution will be ordered if the ordinary management of the firm is in deadlock from equality of votes, even if there is an arbitration provision, because arbitration is impractical for resolving day-to-day questions7. But it will not be ordered in the case of ‘mere partnership squabbles’8 not going ‘to the root of the agreement9, or because the partners cannot agree on restructuring their business10. In Ruut v Head11 trust had broken down but three factors militated against the making of a winding-up order: (a) the claimant’s lack of ‘clean hands’; (b) a withdrawal option in the partnership deed; and (c) a lack of complete deadlock amongst the partners. How great a degree of partnership breakdown will suffice depends upon the nature of the partnership, and the larger and more commercial the concern the less the personalities of the partners will matter. Griffiths JA quoted Callaghan CJ at first instance in PWA Corpn v Gemini Group Automated Distribution Systems Inc12: This is a classic case of a ‘purely commercial’ partnership between sophisticated parties with a corporate relationship in a highly competitive field of endeavour. Deadlock is not established by the mere assertion that a minority interest has been outvoted by a majority. Where a business with unequal control is constituted on the basis that decisions may be taken by

408

Dissolution when just and equitable 17.26 the majority as in this case it would be neither just nor equitable to permit a disgruntled minority or one acting in its own self-interest to be able to dismantle the business and to frustrate the substantial investments of the other partners.

In the same way dissolution will not be ordered simply on the grounds that a partner has assigned his partnership share to an outsider; after all, the assignee will (in the absence of contrary agreement) receive very limited rights13.   1 See para 17.10ff above.   2 As discussed at para 17.21 above, mere breach of the partnership agreement is insufficient to justify dissolution unless it makes it impractical for the business to be carried on with him: see the authorities referred to there.  3 Mullins v Laughton [2003] Ch  250 at 276; DB  Rare Books Ltd v Antiqbooks [1995] 2 BCLC 306; but in the former case Neuberger J observed that ‘the mere fact that the power of expulsion is in some way wrongly exercised does not by any means necessarily justify a dissolution’.   4 Per Cozens-Hardy MR in Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426 at 430, quoting the then edition of Lindley on Partnership; Smith v Jeyes (1841) 4 Beav 503.   5 (1856) 21 Beav 482. See Thomson v Drysdale 1925 SC 311.   6 (1856) 21 Beav 482 at 491 per Sir John Romilly.  7 Yenidje Tobacco Co Ltd [1916] 2 Ch  426 where the Court of Appeal treated a private company as a partnership: the two director-shareholders were refusing to speak to each other. Similarly if the firm could only continue with constant resort to lawyers: Jesner v Jarrad Properties Ltd [1992] BCC 807.  8 Wray v Hutchinson (1834) 2 My & K 235.  9 Harrison v Povey (1956) 168 Estates Gazette 613. 10 PWA  Corpn v Gemini Group Automated Distribution Systems Inc (1993) 103  DLR (4th) 609, Ont CA. 11 (1996) 20 ACSR 160, NSW SC. 12 See note 10 above. 13 See the Partnership Act 1890, s 31 which is printed in Appendix A below and discussed at para 10.10ff above.

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18 The effect of dissolution and retirement Contents

para 1 Management after dissolution or retirement A Management������������������������������������������������������������������������������18.1 B Profits and losses during winding up������������������������������������������18.6 C The effect of dissolution on outsiders���������������������������������������18.21 2 The rights of the parties on a retirement A The effect of dissolution, retirement and pre-emption agreements and options������������������������������������������������������������18.34 B The valuation of the share of an outgoing partner��������������������18.35 C Goodwill, work-in-progress and non-assignable assets�������������18.36 D The departing partner’s indemnity��������������������������������������������18.40 3 The rights of the partners on dissolution: winding up A ‘Application’ of partnership property���������������������������������������18.41 B A sale���������������������������������������������������������������������������������������18.42 C Distribution of net assets����������������������������������������������������������18.52 D Discharge of liabilities and losses���������������������������������������������18.60 E Return of premiums�����������������������������������������������������������������18.62 4 Competition with the firm after retirement or dissolution A The right to compete����������������������������������������������������������������18.63 B Covenants in restraint of trade generally����������������������������������18.67 C What is ‘reasonable’�����������������������������������������������������������������18.72

1 MANAGEMENT AFTER DISSOLUTION OR RETIREMENT A Management  18.1 B Profits and losses during winding up   18.6 C The effect of dissolution on outsiders   18.21 411

18.1  The effect of dissolution and retirement

A Management (a)  Dissolution, winding up and statutory winding up 18.1  After dissolution1 the duty of the partners is to wind up the partnership business in the manner discussed in this chapter. ‘Winding up’ means the process whereby the assets of the firm are realised, its business closed down or sold, its debts paid and the residue distributed amongst the partners. It will involve the preparation of dissolution accounts in accordance with the principles mentioned in this chapter. Responsibility for this rests with the partners. Different rules apply if the firm is statutorily wound up as an insolvent partnership under the provisions of Part V of the Insolvency Act 1986, a subject considered in Chapter 22. 1 Dissolution is discussed in Chapters 16 and 17.

(b)  The powers and duties of the partners during winding up 18.2  Where the partnership is dissolved by notice or by the expiry of the agreed partnership term, it is common enough to find that it continues its activities as if nothing had happened. Where it is dissolved by the death or departure of a partner the position is different because those who are carrying on the business are fewer in number, and some change is inevitable. But in each case it is the duty1 as well as the right of the surviving partners2 to wind up the ‘business and affairs of the firm’3. Those representing a departed partner have no right to interfere in this management4. In Smith v Smith (2017)5 the sole survivor of a farming partnership was given the right to run the business after dissolution on giving certain undertakings, even though the business had hitherto been run by the deceased partner’ s family who now represented his estate.

In the absence of agreement to the contrary between all those interested (including the representatives of any outgoing or dead partner) the authority of the partners continues, but only for the purpose of winding up6. Section 38 of the Partnership Act 1890 provides: After the dissolution of a partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue notwithstanding the dissolution as far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.

A surviving partner therefore has power to complete an existing contract7 such as a share purchase entered into by the firm before dissolution8 and can charge partnership property as security for a debt incurred before dissolution9, or complete any similar partnership transaction10. He can carry on the partnership business11, sell its assets12, issue proceedings in the firm 412

Management after dissolution or retirement 18.2

name13 or bankruptcy proceedings for its debts14 or withdraw money banked in its name15 and bind the firm by admission of liability16. He cannot charge remuneration for this work17. But neither can he compel the representatives of a dead partner to take a valuation for their interest: they are entitled to their due share of profits18: nor can he sell the personal property of another partner such as his performers’ rights19. Lord Reid considered the phrase ‘to complete transactions begun but unfinished’ in IRC v Graham’s Trustees20 and observed: It is clear that surviving partners have no right to bind the assets of the dissolved firm by making new bargains and contracts. Their right and duty is to wind up its affairs. In my view this must mean that the surviving partners have the right and duty to complete all unfinished operations necessary to fulfil contracts of the firm which were still in force when the firm was dissolved.

His statement that they may not make ‘new bargains and contracts’ should not be applied too widely. In the case of many firms, they must make bargains and contracts if doing so is necessary to keep the business going in order to dispose of it in the best way21. As Vaughan Williams LJ said in Re Bourne22: There is an overriding duty to wind up the partnership assets and to do such acts as are necessary for that purpose, and if it is necessary for that winding up either to continue the business or to borrow money … the right and duty are co-extensive.

So the continuing partners may have a duty, as well as a mere right, to continue the business and renew existing contracts23, although Blackburne J has said that for them to be obliged to take on new business may be ‘wholly unrealistic’24. In Boghani v Nathoo25 the issue was as to the manner in which a hotel partnership in dissolution should be managed by the two former partners. The Chancellor ordered a sale and held that section 38 of the 1890 Act does not entitle the surviving partners to engage in new bargains or contracts so as to bind a deceased or former partner; but applies only if and to the extent that the completion of such transactions is necessary to wind up the affairs of the partnership and it confers a power; it does not impose any additional duty26.

The practice of the firm as to how profits are to be computed will continue to apply27. Once the partnership business has ceased the surviving partners have no power to start it up again28. The position of the partners as between themselves is discussed at para 18.4 below, and the position of an outsider dealing with the firm in dissolution is discussed at para 18.21 below.  1 Re Bourne [1906] 2 Ch 427.  2 Chandroutie v Gajadhar [1987] AC 147.   3 See the Partnership Act 1890, s 39, as set out in Appendix A below.  4 Bradford v Gammon [1925] Ch 132, but see this case criticised on other grounds by Goff J in Thomas v Nottingham Incorporated Football Club Ltd [1972] 1 All ER 1176, noted at para 18.40 below.  5 Smith v Smith, Ch D (Birmingham) (Judge Worster) 18/09/2017.

413

18.3  The effect of dissolution and retirement   6 Section  38 reflects the previous law: Lewis v Reilly (1841) 4 Per & Dav 629; Cruikshank v M’Vicar (1844) 8 Beav 106; Booth v Parks (1828) 1 Mol 465; Crawshay v Maule (1818) 1 Swan 495 at 507; Wood v Braddick (1808) 1 Taunt 104 at 105; Beak v Beak (1675) 3 Swan 627.  7 IRC v Graham’s Trustees 1971 SLT 46; Karfoal Pty Ltd v Lorence (2002) NSWSC 284.  8 Butchart v Dresser (1853) 4 De GM & G 542; Re Clough (1885) 31 Ch D 324; Vineberg v Anderson (1890) 6 Man LR 335 (Canada).  9 Re Clough (1885) 31 Ch D 324; Smith v Winter (1838) 4 M & W 454; Re Bourne [1906] 2 Ch 427. 10 Butchart v Dresser (1853) 4 De GM & G 542. 11 Lie v Mohile [2014]  EWHC  3709 (Ch) at para  7, followed in Razaq v Baig (2019) 11  WLUK  513; Re Bourne [1906] 2 Ch  427; Hale v People’s Bank of Halifax (1903) 23  CLT  157 (Canada); Sealy v Stephenson [1923] 3  DLR  18; Re Fuller’s Contract [1933] Ch 652. 12 Lewis v White (1863) 2 New Rep 81; Fraser v Kershaw (1856) 2 K & J 496. 13 Queensland Southern Pty v Ough Pty (2000) 2 Qd 12–172. 14 Re Hill, ex p Holt & Co [1921] 2 KB 831. 15 Dickson v National Bank of Scotland 1917 SC (HL) 50. 16 Brown v Macallum (1848) 10 LTOS 482. 17 Butler’s Trustees v Butler (1896) 29  NSR  (17  R & G) 145; Liggett v Hamilton (1895) 24  SCR  665, both Canadian cases. But remuneration may be authorised by the court: para 18.9 below. 18 McClean v Kennard (1874) 9 Ch App 336. See para 18.7 below. 19 Bourne v Davis [2006] All ER (D) 160 (Jun), Mark Herbert QC. 20 1971 SLT 46 at 48. 21 Lie v Mohile [2014]  EWHC  3709 (Ch) at para  7, followed in Razaq v Baig (2019) 11 WLUK 513; there is a discussion of the question by Lord Reed in the Scottish case Duncan v The MFV Marigold 2007 SCLR 155, para 42ff. 22 [1906] 2 Ch 427 at 430, with whom the other two Lords Justices agreed. 23 Don King Productions Inc v Warren [2000] Ch 291 at para 42, CA, where Morritt LJ held that a partner managing a partnership business in dissolution may be actually under an obligation to renew a management agreement on behalf of the firm. 24 Browell v Goodyear (2000) Times, 14 March. 25 [2011] EWHC 2101 (Ch). 26 As to a duty to continue running a business, contrast the judge’s words here with his words in the Court of Appeal in Don King Productions Inc v Warren in note 23 above. 27 Gow v Forster (1884) 26 Ch D 672; Browne v Collins (1871) LR 12 Eq 586. 28 Myers v Myers (1889) 61 LT 757, but see para 18.41 below.

(c) The partner’s right to announce the dissolution or retirement 18.3  In the absence of contrary agreement1 any partner may announce that the firm has been dissolved2. Section 37 of the Partnership Act 1890 provides: On the dissolution of a partnership or retirement of a partner, any partner may publicly notify the same, and may require the other partner or partners to concur for that purpose in all necessary or proper acts, if any, which cannot be done without his or her concurrence.

It is desirable from the point of view of a partner that the dissolution should be announced, because this ends his liability to its customers or others dealing with the firm, as discussed at paras 16.21 above and 18.21 below. On the other hand, it will be harmful to the firm to announce its dissolution if the members are professional people who want to remain in practice, or if an asset of the firm is a business which is to be sold as a going concern. A conflict may therefore arise between members individually and the firm. One 414

Management after dissolution or retirement 18.4

of the first acts of the members after dissolution should therefore be to try to agree how and when the dissolution should be announced. If agreement cannot be reached, then the right of the partner to notify the dissolution or retirement must be paramount, however damaging this is to the firm, for it is rarely3 a breach of a partner’s duties to his partners to exercise a right given him by statute. On the other hand if he exceeds in the slightest his right to publicise the dissolution or retirement, for instance by canvassing customers for himself4, he may find himself in breach of his duty of good faith to his partners, which still continues notwithstanding dissolution5. Solicitors must notify their clients of the dissolution in a proper manner. The Solicitors Code of Conduct 2011 requires that they must inform personally all clients affected. Restrictions on an ex-partner after dissolution are discussed at para 18.63 below. 1 He will be restrained by injunction from announcing the dissolution in a way that is contrary to what is agreed: Dean v Wilson (1878) 10 Ch D 136. There is further discussion of this at para 16.21 above. 2 Bradbury v Dickens (1859) 27 Beav 53. 3 But see further discussion of this at para 16.21 above. 4 Trego v Hunt [1896] AC 7, HL. 5 See the Partnership Act 1890, s 29(2), considered in Chapter 11.

(d) The position of partners as between one another after dissolution 18.4  Although section 38 (quoted above) limits the authority of the partners to the completion of existing transactions and to the winding up of the partnership business and affairs, they commonly carry on the business (and embark on new transactions) oblivious of this limit upon their authority. The remedy of a partner who wants the winding up to proceed is for him to make an interim application in the Chancery Division for an order for the sale and if necessary for the appointment of a receiver over the business. Until that is done the continuing partners can always argue that they are not actually embarking upon any new transactions but are simply carrying on the old business with a view to its orderly winding up, a contention which is hard to refute1; there is no reported case in which the continuing partners have been ordered to stop carrying on the business2. The courts have tended to treat the partners’ mutual rights as remaining intact notwithstanding dissolution, until sale of the relevant parts of the business puts an end to them. Thus in Harrison-Broadley v Smith3 the defendant was one of two farming partners and was entitled to manage the land and to take nine-tenths of the profits. The land was vested in the other, the second plaintiff. The partnership was dissolved and his licence to occupy was terminated and the land was sold to the other’s son (the first plaintiff) and the plaintiffs claimed possession. The defendant asserted a protected agricultural tenancy and succeeded at first instance but failed in the Court of Appeal, but that court refused to make a possession order against him.

415

18.5  The effect of dissolution and retirement Per Harman LJ4: ‘Ought we then to grant an injunction to treat the defendant as a trespasser and to put him off the land, the partnership being in no way wound up? Not so, I think. He is entitled to nine-tenths of the profits of this business, and until it is wound up I think it would be quite wrong to treat him as a trespasser.’ In Lie v Mohile5 David Richards J said, ‘The partnership business is not terminated by the order for dissolution, but continues, albeit for the purpose of winding up the partnership. In practice, a partnership business is often continued after dissolution for the purpose of preserving its goodwill and thus maximising the prospects of a sale. Even if the business is not continued for that purpose but solely for the purpose of winding it up, the partnership business does not immediately cease. Unless and until the court appoints a receiver on the application of any of the partners, it is the right of each partner to participate in the partnership business which is being wound up. If one takes the example of a partnership business carried on at premises leased from a third party, no partner would be entitled to exclude the other partners from those premises. Similarly, in a case where the premises are owned by one of the partners, the implied licence is not terminated while there remains a partnership business carried on at those premises.’ By contrast in Latchman v Pickard6 a firm of doctors was under a joint contract with a primary care trust to provide medical services, expiring in September 2005. Before then one of them was excluded from the business and the partnership dissolved. She sought access to the surgery so that she could fulfil her contractual duties. Held that the other doctors could perform the contract, and the state of her relations with them was such that her return was undesirable.

The position of a partner who has retired where the partnership is not in general dissolution is discussed further at paras 16.33–16.37 above. He is not a partner with a duty to wind up the partnership affairs but is a creditor of the continuing partners7. As Goff L stated in Sobell v Boston8: … he is merely an unsecured creditor and has no right to interfere or to ask the court to interfere in his debtor’s business … 1 This is discussed by Lord Reid in IRC v Graham’s Trustees 1971 SLT 46 at 48. 2 In Bugden v Voisey (1956) 2 DLR (2d) 427 (Canada) an applicant for an injunction to restrain the surviving partners from carrying on the business except for winding up was refused on the grounds that on the facts the rights of the partners could be protected without an injunction. 3 [1964] 1 WLR 456, CA. 4 [1964] 1 WLR 456 at 465. 5 [2014] EWHC 3709 (Ch) at para 7, followed in Razaq v Baig (2019) 11 WLUK 513. 6 [2005] All ER (D) 169 (May), Warren J. 7 See the Partnership Act 1890, s  43. He ranks in priority after the outside creditors of the firm as discussed in Chapter  23; the debt is not a firm debt at all, but a debt from the continuing partners. 8 [1975] 1 WLR 1587 at 1591.

(e)  Where a partner is bankrupt 18.5  In general the former partners’ rights and obligations continue for the purpose of winding up the firm as is discussed above. But there is an exception 416

Management after dissolution or retirement 18.7

in the case of a partner who is bankrupt: whether or not his bankruptcy has dissolved the firm, he cannot bind the firm. This does not prevent others being liable as a result of being held out as partners of his. The proviso to section 38 of the Partnership Act 1890 (itself quoted earlier in this chapter) is this: Provided that the firm is in no case bound by the acts of a partner who has become bankrupt; but this proviso does not affect the liability of any person who has after the bankruptcy represented himself or knowingly suffered himself to be represented as a partner of the bankrupt.

The rights of a trustee in bankruptcy are discussed at para 22.14 below.

B  Profits and losses during winding up (a)  Capital and income profits and losses 18.6  The assets of the firm must be sold or divided on dissolution as mentioned at para  18.41 below1, subject to any dissolution agreement between the partners. When the business of the firm has been disposed of, its other assets realised and its creditors paid, the firm’s balance sheet and its profit and loss account will look different from what they did (or would have done had they existed) at the date of dissolution. In particular, the assets of the firm will either have increased or fallen in value, resulting in a capital gain or loss, and some trading is likely to have occurred, resulting in trading profits or losses. To ascertain the precise statement of dissolution account between the parties (something rarely achieved in practice) it is necessary to ascertain three figures: (a) the value of each partner’s net interest in the partnership as at the dissolution date – that is, the figure to which he would have been entitled had the full process of winding up then happened instantaneously; upon this figure interest is calculated if the outgoing partner elects for it as discussed at para 18.11 below; (b) the net profit or loss from the date of dissolution until the business ceases; this is the starting-point if the outgoing partner elects for a share of profit as discussed at para 18.15ff below; (c) the net value or sum of money left after the assets have been realised and the debts paid and the winding up with its incidental expenses is concluded; this is what each partner shares in when winding up concludes, and is discussed at para 18.54 below. 1 Gordon v Gonda [1955] 1 WLR 885.

(b) Income profits and losses where all partners continue active 18.7  It often happens that after dissolution occurs by notice or expiration of a fixed partnership term, all the partners continue at work in the business 417

18.8  The effect of dissolution and retirement

rather as if nothing had happened. If they take no immediate steps to wind up the old firm, they will constitute themselves a new partnership at will by operation of law, for section 27 of the Partnership Act 18901 provides: (1) Where a partnership entered into for a fixed term is continued after the term has expired, and without any express new agreement, the rights and duties of the partners remain the same as they were at the expiration of the term, so far as is consistent with the incidents of a partnership at will. (2) A continuance of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is presumed to be a continuance of the partnership.

But they are not all continuing the business for the purpose of this section if there has been a death of an inactive partner and his personal representatives merely continue inactive2. If all the former partners are continuing the business merely for the purpose of winding up the partnership they similarly remain entitled to the same profit shares as they were entitled to before dissolution, unless there is agreement to the contrary, and they are liable for losses in the same proportion. But any right that they may have to interest on their capital accounts will cease3 unless they have agreed to the contrary. 1 See also Re Jones, ex p Harper (1857) 1 De G & J 180, approved by the Privy Council in Watson v Haggitt [1928] AC 127. 2 Hopper v Hopper [2008] EWHC 228 (Ch), Briggs J, at paras 148–150, a case partly reversed in the Court of Appeal on other grounds. 3 See Barfield v Loughborough (1872) 8 Ch App 1, discussed at para 18.57 below.

(c)  Income profits and losses between continuing partners 18.8  Frequently a dissolution is caused or attended by the departure of a partner by death, bankruptcy, old age, mental incapacity or pique. If the business continues at all1, the management then devolves de facto upon the partners that remain. Too often they quietly rejoice in their increased stature. They are wrong to do so. Even if they behave quite properly2 they have liabilities to the departed partner or his representatives, and as against him they are entitled to nothing for managing the firm3 save in the very narrow circumstances described at para 18.9 below. As between themselves and subject to their liability to the outgoing partner, their mutual rights continue as before; the general right of partners to share profits is discussed at para 12.24ff above. 1 Even slight commercial activity will constitute continuation of the business: Pathirana v Pathirana [1967] 1 AC 233. 2 Ahmed Musaji Saleji v Hashim Ebrahim Saleji (1915) LR 42 Ind App 91, PC. 3 Tibbits v Phillips (1853) 10 Hare 355.

(d)  Allowance for management (i)  Allowance in favour of a partner 18.9  An outgoing partner or his representatives must make the continuing partners an allowance for managing the business1, except perhaps where there 418

Management after dissolution or retirement 18.9

are no capital or income profits2 or there has been agreement to the contrary3. In Manley v Sartori4 Romer J accordingly directed an enquiry in these terms5: What would be proper to be allowed to the Plaintiff … in respect of his personal superintendance and management of the business [between the date of dissolution on the plaintiff’s partner’s death, and the date of the sale of the business].

The grant of such an allowance is not mentioned in the Partnership Act at all but is made under the court’s equitable jurisdiction which is preserved by section 466, and the court has a wide jurisdiction to make adjustments of a similar nature where justice requires it. For instance it may give an allowance for improvements that have been made to partnership property by one of the partners after dissolution7. A partner who is appointed receiver and manager of the business will be entitled to an allowance for his work8 even if he is indebted to the firm9. This allowance is to be set against what would otherwise be the other’s share first of revenue and then capital profits, but only in so far as either were attributable to the claimant’s carrying on the partnership business in the postdissolution period10. There will be some difficult questions on the inquiry as to what these sums amount to11. In Emerson v Estate of Emerson12 the survivor of two partners continued to run the partnership farm after dissolution but at a loss. The herd was then culled in the foot and mouth crisis and compensation paid which was a capital profit. The Court of Appeal held that he was entitled to an allowance for the postdissolution cost of keeping the herd until it was culled, and that the measure of the allowance should be the trading loss he incurred during that period.

Where the partnership farmed land owned by the partners as co-owners outside the partnership, the continuing partner may be ordered to pay rent to the estate of the dead partner until sale13.   1 In Blundon v Storm (1972) 20 DLR (3d) 413, a case of a treasure-seeker’s partnership, the partner who found the treasure was allowed 75% of the recovery under the provisions of the Nova Scotia Partnership Act 1954.  2 Re Aldridge [1894] 2 Ch 97; Yates v Finn (1880) 13 Ch D 839; Mellersh v Keen (1859) 27 Beav 236; Brown v De Tastet (1821) Jac 284, but an allowance was made against capital profits when no income profits were made in Emerson v Estate of Emerson [2004] 1 BCLC 575, CA.   3 Agreement excluding a right to an allowance for management was found in Watson v Haggitt [1928] AC 127.   4 [1927] 1 Ch 157.   5 [1927] 1 Ch 157 at 166.   6 See the Partnership Act 1890, set out in Appendix A below.  7 Cameron v Murdoch (1986) 63 ALR 575; Popat v Shonchhatra [1997] 3 All ER 800, CA.  8 Harris v Sleep [1897] 2 Ch 80, CA.  9 Davy v Scarth [1906] 1 Ch 55. See para 15.46ff above. 10 See Nourse LJ in Popat v Shonchhatra [1997] 1 WLR 1367 at 1375A B. 11 In Popat v Shonchhatra [1997] 1 WLR 1367 Master Bowles manfully accepted the challenge and gave a useful judgment which has been copied to me by my friend Mark Warwick. 12 [2004] 1 BCLC 575, CA, in which the court unfortunately used the language of trusteeship but no doubt the conclusion was right. 13 Kingsley v Kingsley [2019]  EWHC  1073 (Ch). In those circumstances the sale would be ordered under the Trusts of Land and Appointment of Trustees Act 1996; contrast a sale on dissolution under the 1890 Act: para 18.42 below.

419

18.10  The effect of dissolution and retirement

(ii)  No allowance in favour of a personal representative 18.10  Where the surviving partner is the personal representative of the departed partner, he is entitled to no allowance unless it is provided for in the will or partnership agreement1. 1 Burden v Burden (1813) 1 Ves & B 170; Stocken v Dawson (1843) 6 Beav 371 at 376 and (1848) 17 LJ Ch 282 at 285.

(e)  Income profits and losses where a partner has left the firm (i) General 18.11  From dissolution until the liquidation of the partnership assets the entitlement to profits of the outgoing partner1 or his representatives is this2: he may either take such profit from the firm as is ‘attributable to his share’3 or (at his election) he may take 5% interest (in lieu of profits) on the value of his share4. If the firm in dissolution is unprofitable, or the profits impossible to ascertain, he will naturally elect to take the 5% interest. Section 42(1) of the Partnership Act 1890 provides: Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or his estate, then, in the absence of any agreement to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since the dissolution as the Court may find to be attributable to the use of his share of the partnership assets, or to interest at the rate of five per cent per annum on the amount of his share of the partnership assets.

These provisions relating to the position after dissolution implicitly override any agreement or convention of the firm that before dissolution a partner is allowed interest on his capital5. His share of profit is reduced as he is repaid his capital6. 1 The Partnership Act 1890, s 42(1) (quoted in the text and further considered below) draws the distinction between the ‘outgoing partner’ and the ‘surviving or continuing partners’ who carry on the business after dissolution. Anyone who is no longer carrying on the business is ‘outgoing’ within the meaning of the section: Hopper v Hopper [2008] EWCA Civ 1417. 2 There does not seem to be much room left for the old view that his misbehaviour will deprive him of his right to profits or interest (O’Lone v O’Lone (1851) 2 Gr 125 (Canada)) but perhaps he may face a counterclaim from the firm if he causes ascertainable loss to it. 3 Discussed below. This choice reflects the earlier law. As to a share of profits, see McClean v Kennard (1874) 9 Ch App 336; Ambler v Bolton (1872) LR 14 Eq 427; Turner v Major (1862) 3 Giff 442; Brown v De Tastet (1819) Jac 284; Featherstonhaugh v Fenwick (1810) 17 Ves 298 at 309; Croft v Pyke (1733) 3 P Wms 180. 4 As before 1890: see Smith v Everett (1859) 27 Beav 446. 5 Watney v Wells (1867) 2 Ch App 250; Barfield v Loughborough (1872) 8 Ch App 1, following Boddam v Riley (1785) 2 Bro CC 2; Parsons v Hayward (1862) 4 De GF & J 474 at 484; Wood v Scoles (1866) 1 Ch App 369 at 378. Compound interest before dissolution will not continue afterwards: Bate v Robins (1863) 32 Beav 73. But specific agreement can make interest payable even after dissolution: Smith v Donaldson (1864) Session 3rd Series, 86. 6 Fry v Oddy [1999] 1 VR 557; De Renzy v De Renzy [1924] NZLR 1065.

420

Management after dissolution or retirement 18.14

18.12  The survivors are not trustees of the profits  The survivors are liable for profits or interest, but their liability is a debt1, and they do not hold the profits as trustees for those representing the outgoing partner, who has ceased to have an interest in their business2. So they may raise a limitation defence: see para 15.52 above. Section  43 of the Partnership Act 1890 is wide enough to cover any dissolution or retirement, regardless of whether the business is continuing3. It provides: Subject to any agreement between the partners, the amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased partner in respect of the outgoing or deceased partner’s share is a debt accruing at the date of the dissolution or death.

So if profits are used to buy property, the continuing partners are not accountable for a gain that may be made in the value of that property4. The section is curious because it envisages that the debt accrues to the outgoing partner at a date which will almost certainly be well before the amount of the debt can be ascertained. But that is what the section means5. 1 Partnership Act 1890, s 43 is set out in Appendix A below. The debt is not a debt of the firm but of the continuing partners: Re Barber (1870) 5 Ch App 687. 2 Beckman v IRC [2000] STC (SCD) 59. 3 Duncan v The MVF Marigold PD 145 (2006) SLT 975 (OH) (Scotland). 4 Cameron v Murdoch (1986) 63 ALR 575, PC (Australia); contrast Gordon v Gonda [1955] 1 WLR 885, CA, and see para 18.41ff below. 5 See the useful discussion of the point by Lord Reed in Purewall v Purewall (2009) SCLR 50 which is a Scottish case but his observations are equally applicable to English law.

18.13  Dissolution of the firm for illegality is no bar on an outgoing partner claiming profits or interest from those who retain the partnership assets1, provided that he is not obliged to assert the illegal matters as part of his claim2. 1 Hugh Stevenson & Sons Ltd v AG für Cartonnagen-Industrie [1917] 1 KB 842 and Gordon v Gonda [1955] 1 WLR 885, CA, both cases concerned with firms dissolved because members included enemy aliens. 2 See Chapter 3.

(ii)  Election between profits and interest 18.14  Each outgoing partner or those representing him have an absolute right to elect between either a share of profits or 5% interest, and need not exercise this right of election until they have received full details of the state of the partnership and its accounts1. Where (as is often the case) they have to bring an action to compel the continuing partners to pay anything at all, the mere fact that they seek a profit and loss account does not mean that they have elected for profit rather than interest; on the contrary, they are in no position to elect at all until they know the exact sum that will be yielded by an election in favour of one rather than the other. 421

18.15  The effect of dissolution and retirement In Barclays Bank v Bluff2 the solicitor for the Bank executor of a deceased partner twice wrote letters to the surviving partner asking for accounts and stating that it would accept interest in lieu of profits. Held this was no election, for four reasons: (1) (2) (3) (4)

to ask for accounts and for interest at the same time made the letters ambiguous; the solicitor had no authority to make the election; patently the option could not be exercised before accounts were produced; subsequent correspondence showed that neither party regarded an election as having taken place.

But if those representing the outgoing partner accept payment on one footing rather than the other they may be treated as having elected; thus where the estate of a dead partner took interest on the value of his share, it could not subsequently claim a share of profits3. They cannot elect to take interest for part of the period and profit for another part4. 1 Barclays Bank Trust Co Ltd v Bluff [1982] Ch 172. 2 See note 1 above, approved by the Privy Council in Chandroutie v Gajadhar [1987] AC 147, but not explicitly on this point. 3 Smith v Everett (1859) 27 Beav 446. 4 Per Behrens CCJ sitting as a High Court judge at Leeds in Hopton v Miller [2010] EWHC 2232 (Ch). This part of his judgment related to costs and has not been reported.

(iii)  Election to take profits; what profit is attributable to a share 18.15  The outgoing partner or his representatives are entitled to elect for the profits of his share: 42(1) … such share of the profits made since the dissolution as the Court may find to be attributable to the use of his share of the partnership assets …

Anyone who is no longer carrying on the business is ‘outgoing’ within the meaning of the section1. 1 Hopper v Hopper [2008] EWCA Civ 1417 at 35–49, reversing Briggs J [2008] EWHC 228 (Ch). But in Scotland the law may be different and he is entitled to his whole profit share: see Sheveleu v Brown and Ducker [2018] CSIH 68.

18.16  The meaning of ‘profits’ Profit may be defined in the partnership agreement, which may go so far as to empower continuing partners to employ profits on improving the business, in which case such profit will not be distributable and will cease to be ‘profit’ for our purposes1. Otherwise ‘profit’ is best defined by the settled practice of the firm2. Post-dissolution ‘profits’ in section 42(1) were described by Hugh Francis QC sitting as a deputy High Court judge in Barclays Bank Trust Co Ltd v Bluff3 as ‘profits which have accrued in the ordinary course of carrying on the partnership business’, and not capital gains. He disagreed with the view of the Irish Supreme Court in Meagher v Meagher4 that in a property development partnership such gains were a part of the profits (but on its facts Meagher may have been right). The point was settled by the Court of Appeal 422

Management after dissolution or retirement 18.17

in Emerson v Estate of Emerson5 and in Sandhu v Gill6 Mummery LJ said7 that the outgoing partner’s claim was for: … a share of the post-dissolution ‘revenue profits’… the section does not apply to the ‘capital profits’ realised by the continuing partner post-dissolution … 1 Straker v Wilson (1871) 6 Ch App 503. 2 Garwood v Garwood (1911) 105  LT  231, CA; Binney v Mutrie (1886) 12 App Cas 160, PC; Gow v Forster (1884) 26 Ch D 672; Browne v Collins (1871) LR 12 Eq 586; Dinham v Bradford (1869) 5 Ch App 519 at 524; Potton Ltd v Yorkclose Ltd [1990] FSR 11. 3 [1982] Ch 172 at 181F, approved in Chandroutie v Gajadhar [1987] AC 147 at 154, PC. 4 [1961] IR 96. 5 [2004] 1 BCLC 575; Rowella Pty Ltd v Abfam Nominees Pty Ltd (1989) 168 CLR 301. 6 Sandhu v Gill (2006) Ch 456 (discussed at para 18.18 below) following Popat v Shonchhatra [1995] 1 WLR 908 (partly reversed [1997] 3 All ER 800, CA where Nourse LJ drew attention to the meaning of ‘capital’ and to Robinson v Ashton (1875) LR 20 Eq 25). 7 At para 102(1).

18.17  What share of profits Section  42(1) refers to profits ‘attributable to the use of his share’; this does not mean that an outgoing partner or his representatives necessarily receive his profit share1. This is only a startingpoint2. They will often receive less but may receive more3. The representatives of the outgoing partner are entitled to what is attributable to the use of the share: in other words, to what may be generated by it4 (or to the part of it as yet unpaid5). They are not entitled to profits attributable simply to good luck or hard work. But the burden of proof is on the continuing partners to show that the continuing partnership profits are not attributable to the share which the former partner owned, and the court may make an assessment if they fail to account properly6. As Romer J stated in Manley v Sartori7: It is for the surviving partners to show, if they can, that the profits have been earned wholly or partly by means other than the utilisation of the partnership assets.

He directed an inquiry (inter alia): ‘What part of such profits was earned otherwise than by the user of the partnership assets including goodwill’. (Goodwill is an asset unless for this specific purpose there is agreement to the contrary8.) Unfortunately his lordship gave no guidance as to how the inquiry was to approach the problem of attributing profit to assets; on the contrary he quoted with approval the statement of Wigram V-C9 to the effect that there is no general rule applicable to the question: I consider myself therefore bound by authority and reason to hold that the nature of the trade, the manner of carrying it on, the capital employed, the state of the account between the partnership and the deceased partner at the time of his death, may materially affect the rights of the parties.

In practice the court will consider whether the business is a capitalintensive trading business10 or a professional practice in which fee-earning is largely generated by human labour, and will attribute profit to the assets proportionately. As James LJ said in Vyse v Foster11, ‘It would be easy to suggest a number of instances in which the profit of a business has no ascertainable reference to the capital – eg solicitors, factors, brokers …’ 423

18.18  The effect of dissolution and retirement In Wedderburn v Wedderburn (No  4)12 the partnership agreement had provided that on a partner’s death, goodwill would accrue to the survivors. They carried on the business, and his children claimed a share in the profits. Held that the business had been insolvent and the subsequent profits were attributable to goodwill and the personal exertions and capital of the surviving partners, and the children’s claim to a share of profits failed.

By contrast if the business is at an end and the assets comprise money and investments, those representing the outgoing partner will be entitled to a full partner’s share in them and the income from them13. But the business is not at an end, even if there are no tangible assets, if there exist contracts or even the likelihood of contracts, which may have value14. The remaining partners are also entitled to an allowance for management in priority to such division of profits, as is discussed in para  18.9 above. An allowance for management for continuing partners, and payment to an outgoing partner for the ‘use’ of his share, are two sides of the same coin15.   1 Such a heresy was disposed of by Wigram V-C in Willett v Blanford (1842) 1 Hare 253: see Romer J in Manley v Sartori [1927] 1 Ch 157.  2 Fry v Oddy [1999] 1 VR 557, Vic SC.  3 Yates v Finn (1880) 13 Ch D 839. See also Popat v Shonchhatra [1997] 1 WLR 1367, esp 1375A C.  4 Featherstonhaugh v Fenwick (1810) 17 Ves 298 at 309.  5 De Renzy v De Renzy [1924] NZLR 1065; Fry v Oddy [1999] 1 VR 557, Vic SC.  6 Pathirana v Pathirana [1967] 1 AC 233 at 239, PC.   7 [1927] 1 Ch 157 at 166.  8 Hordern v Hordern [1910] AC 465, PC. For goodwill see Chapter 8.   9 In Willett v Blanford (1842) 1 Hare 253 at 272, dicta approved by the Court of Appeal in Simpson v Chapman (1853) 4 De GM & G 154; see also Crawshay v Collins (1808) 15 Ves 218 and (1826) 2 Russ 325 at 330; Brown v De Tastet (1821) Jac 284 at 297 and Cook v Collingridge (1823) Jac 607 at 622. 10 Such as in Yates v Finn (1880) 13 Ch D 839. 11 (1872) 9 Ch App 309, in a passage followed by Arden LJ in Murad v Al-Saraj [2005] EWCA Civ 959 at para 86. 12 (1856) 22 Beav 84. See also Yates v Finn (1880) 13 Ch  D  839; Daw v Herring [1892] 1 Ch 284. 13 Watney v Wells (1867) 2 Ch App 250 where each partner was entitled to so much of the fund as represented his share of the capital and accumulations of interest, and any residue was divided equally between them. See also Dinham v Bradford (1869) 5 Ch App 519. 14 Pathirana v Pathirana [1967] 1 AC 233, PC. 15 Fry v Oddy [1999] 1 VR 557, Vic SC.

18.18  What is his share? Section 42(1) refers to profits ‘attributable to the use of his share of the partnership assets.’ This is the share at the date of dissolution1 (or such part of it as remains unpaid2), a sum which is difficult to calculate because of the need for a valuation at the dissolution date of all of the assets including goodwill, unless there is agreement to the contrary. The above view was not accepted by Nourse LJ (obiter) in Popat v Shonchhatra3 or Lightman J (at first instance) in Sandhu v Gill4 but accepted and clarified5 by the Court of Appeal6 in the latter case, where the partners’ profit shares were equal but their capital contributions unequal. Black J said7: The section contemplates that a figure will be ascertained, as at the date of dissolution, for the assets after payment of third party liabilities in accordance

424

Management after dissolution or retirement 18.19 with section 44(b)1 and thereafter a calculation carried out as to what is due to the outgoing partners by way of advances, capital and share in any surplus … [The share is] the proportion that that figure bears to the total of the assets after discharge of third party liabilities …

And Mummery LJ said8: The rules provide that Mr Sandhu’s ‘share’ of the partnership assets is ascertained after taking into account, inter alia, the respective capital contributions of Mr Sandhu and Mr Gill to the partnership. Mr Sandhu’s ‘share’ of the partnership assets is determined on the equal division of the ultimate residue between the partners after all relevant payments have been made out of the assets of the firm, including payments of what is due to each partner in respect of capital.

So Sandhu v Gill confirms that the pre-dissolution regime is different from the post-dissolution regime in the field of a partner’s rights to interest and profit-share. On advances, a partner is entitled to interest pre-dissolution under section  24(3). Post-dissolution he is entitled (at his election, under section 42(1)) to either interest of a profit share, in either case based on the amount of ‘his share of the partnership assets’ which includes any advances that he has made. 1 See the Partnership Act 1890, s 43, and Meagher v Meagher [1961] IR 96; Sobell v Boston [1975] 1 WLR 1587 at 1591; Barclays Bank Trust Co Ltd v Bluff [1982] Ch 172 at 180B; Cameron v Murdoch (1986) 63 ALR 575; Knox v Gye (1872) LR 5 HL 656; Re Bloomfield (1978) 2 TRNZ 597; Smith v Smith [1926] NZLR 311. 2 De Renzy (1924) NZLR 1065. 3 [1997] 3 All ER 800, CA. 4 [2005] 1  WLR  1979; reversed [2006] Ch  456, CA. The decision of the Court of Appeal reflects (without acknowledgment) the decision of Judge Behrens sitting as a High Court judge in Taylor v Grier (12 May 2003, unreported). 5 Clarified except in the Law Reports headnote which in the words ‘in equal shares’ in its last three lines reflects a misunderstanding of the judgment of Mummery LJ and should be ignored: see note 8 below. 6 [2006] Ch 456, CA; see last note. 7 Paragraph 99. 8 Paragraph 102(9). His para 103 is at odds with the other two judgments if it is intended to mean that the ‘share’ means the interest of the partner net of his capital and advances, rather than the interest including them.

(iv)  Election for 5% interest; how interest is calculated 18.19  An outgoing partner or those representing him may elect against a share of profits1, in favour of interest under section 42(1) of the Partnership Act 1890 (quoted earlier): … interest at the rate of five per cent per annum on the amount of his share of the partnership assets …

The statutory right to 5% excludes a claim to any higher rate under section 35A of the Senior Courts Act 19812. The sum upon which this statutory interest is calculated is the same sum as that upon which post-dissolution 425

18.20  The effect of dissolution and retirement

profit share is based as mentioned in para 18.18 above3, which is doubtless the same as the ‘debt’ owed under section 43. If the outgoing partner elects to take interest in lieu of profits, he does not deprive himself of the right to participate in the ultimate division of the net assets of the partnership assets together with the gains that have accrued on their value during the duration of the winding up4; his election only deprives him of a share in ‘profits’ properly so called5. 1 The ascertainment of which is difficult as described above even if the continuing partners are helpful, which is seldom. 2 Williams v Williams [1999] CLY 4095. 3 See Black J in the Court of Appeal in Sandhu v Gill [2006] Ch 456, CA at para 99, discussed at para 18.18 above. 4 Barclays Bank Trust Co Ltd v Bluff [1982] Ch  172, approved on this point by the Privy Council in Chandroutie v Gajadhar [1987] AC 147 at 154. 5 See para 18.16 above.

(f) Profits where the continuing partners exercise an option to buy the share of the outgoing partner 18.20  If the outgoing partners exercise an option in the partnership agreement1 to buy the share of the outgoing partner, the statutory right to post-dissolution profits (and implicitly interest) under section  42(1) of the Partnership Act 1890 (quoted at para 18.11 above) is excluded. Section 42(2) contains this proviso to section 42(1): Provided that where by the partnership contract an option is given to a surviving or continuing partner to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or other share of the profits; but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section.

It has been held in Ireland that the court has no power to allow interest on the option price2. The court will usually substitute its own machinery if the intended machinery of the option breaks down3, but will require strict compliance if the continuing partners are the personal representatives of the departed partner, as Lord Cairns observed in Vyse v Foster4: If I say, in a case of that kind, the surviving partners, or one or more of them, being also executors of the deceased partner, are found not to have pursued exactly the terms of the power or option which has been given, there again the power or option to become purchasers of the interest of the testator after his death falls to the ground, and the partnership remains an unliquidated partnership, to a due share of the profits of which the estate of the testator will continue to be entitled until liquidation actually takes place.

Where continuing partners who are personal representatives of a deceased partner purport to buy his share themselves, the sale is voidable at the 426

Management after dissolution or retirement 18.22

instance of the beneficially interested in his estate unless the beneficiaries have consented or the will or partnership agreement specifically authorises it5. 1 Such options are discussed at para 18.34 below. 2 Williams v Harris (1980) ILRM 237. 3 Dinham v Bradford (1869) 5 Ch App 519 at 523, approved by the Privy Council in Hordern v Hordern [1910] AC 465. The question of a sale of an outgoing partner’s share is considered further at para 18.34 below. 4 (1874) LR 7 HL 318 at 329; Willett v Blanford (1842) 1 Hare 253. 5 Kak Loui Chan v Zacharia (1984) 154 CLR 178, HC of A; Holder v Holder [1968] Ch 353; Beningfield v Baxter (1886) 12 App Cas 167; Cook v Collingridge (1823) Jac 607.

C  The effect of dissolution on outsiders (a) General 18.21  When the firm is dissolved but the business continues, the continuing partners (other than a bankrupt partner) have authority to bind the firm, and their other rights and liabilities continue for the purpose of winding up the affairs of the partnership and completing its transactions but no further1, as discussed in paras 18.2 and 18.4 above. If the firm is insolvent then their powers are further limited2. The present section is concerned with outsiders who deal with a firm in dissolution which is not being wound up as an insolvent firm under the Insolvency Act 19863. 1 See the Partnership Act 1890, s  38, discussed by the Chancellor in Boghani v Nathoo [2011] EWHC 2101 (Ch). 2 The effect of a winding-up order is discussed in Chapter 22. 3 Statutory winding up is considered in Chapter 22.

(b)  The firm’s landlord 18.22  Dissolution of the firm will not directly affect the firm’s landlord because the lease or tenancy of the firm will be in the names of individual partners or trustees for the firm and they will continue to be liable personally to the landlord. If a tenancy is so informal that the identity of the tenant was never clear, only such partners as actually occupied the premises or dealt with the landlord may be liable. In Page v Mann and Gardiner1 two partners occupied premises under an agreement for a lease. The firm was dissolved and one left, and the other paid the rent alone. Held that the jury might find that the relationship of landlord and tenant as regards the former partner had terminated.

The dissolution of the firm may have the consequence that the covenants in the lease against assignment or parting with possession are broken2, a question considered at para 8.45 above. 427

18.23  The effect of dissolution and retirement 1 (1827) 6 LJOSKB 63. 2 In Lam Kee Ying Sdn Bhd v Lam Shes Tong [1975] AC 247, PC a covenant against parting with possession was held to have been broken when the business of the firm at the premises was taken over by a company controlled by the partners.

(c) Employees (i)  Employees generally 18.23  If a person is employed by the firm (which is an artificial concept, since the firm is no more than the sum of its members) and the firm is dissolved and wound up, the question whether he can claim wrongful dismissal depends upon whether the Transfer of Undertakings (Protection of Employment) Regulations 2006 apply. The Regulations will apply wherever the old business is continuing in new hands. The effect of dismissal will not be to entitle him to any substantial damages if continued employment is offered to him by one or more of the former partners1, but it will entitle him to claim that he is released from a restraint of trade clause in his contract2. An employment contract from a partnership ends if the dissolution leads to the winding up of the partnership business. But ‘If notwithstanding the dissolution of the partnership, the parties intend to keep the contract alive and to continue it while steps are being taken … to transfer the practice to another firm as a going concern, there is no reason for the contract of employment to terminate automatically’3. Similarly, the continuity of employment is not broken where there is a change in the partners who are the employers4 including where a partnership of two is continued by a sole principal who had previously been one of the partners5. The new employer (including the partnership differently constituted) can enforce the covenants in an employment contract6. For other contracts of a personal nature see para 18.30 below. 1 Brace v Calder [1895] 2 QB 253, CA; Hobson v Cowley (1858) 27 LJ Ex 205. 2 Briggs v Oates [1991] 1 All ER 407, discussed below. 3 Per Mummery LJ giving the judgment of the court of appeal at para  54 in Rose v Dodd (UKEAT/05/17/04/1LB)).  4 Employment Rights Act 1996, s 218(5). 5 Stevens v Bower [2004] EWCA Civ 496. 6 Morris Angel v Hollande [1993] 3 All ER 569.

(ii)  Transfer of Undertakings Regulations 18.24  Where a business is transferred to another owner the employees’ contracts of employment are not terminated but take effect as if originally made with the transferee. The Transfer of Undertakings (Protection of Employment) Regulations 20061 provide: 3(1) These Regulations apply to: (a) a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another

428

Management after dissolution or retirement 18.25 person where there is a transfer of an economic entity which retains its identity … 4(1) Except where objection is made … a relevant transfer shall not operate so as to terminate the contract of employment of any employee employed by the transferor … but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee … (2) … on the completion of a relevant transfer: (a) all the transferor’s rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this regulation to the transferee …

Consequently the former employer-partners are released from liability2 but there is no dismissal of the employee. Novation takes place by the mere transfer of the trade or business despite any contrary intention by either party or any refusal by the transferee to accept the liability3. The employee retains his old employment rights and may not (for instance) suffer the imposition of new restrictive covenants upon him4. The date of transfer is the date on which responsibility for carrying on the undertaking moves from one employer to another5. Similarly a change in the membership of the employee-partnership is (like a transfer of the undertaking) to be ignored in computing the period of employment for the purposes of the Employment Rights Act 19966. In spite of previous authority to the contrary7, this statutory continuation of the period of employment does apply where the business is transferred from a firm to one of its partners or from an employer to a firm of which he is a member8. 1 2 3 4 5 6 7 8

Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246. Berg and Busschers v Besselsen: Case 144, 145/87 [1988] ECR 2559, ECJ. Rotsart de Hertaing v J Benoit SA: Case C-305/94 [1996] ECR I-5927, ECJ. Credit Suisse v Robert Lister [1999] ICR 794, CA. Celtec Ltd v Astley [2005] All ER (D) 400 (May), ECJ. See the Employment Rights Act 1996, s 218(2) (5). Wynne v Hair Control [1978] ICR 870, EAT. Stevens v Bower (2004) Times, 24 May, CA; Allen & Son v Coventry [1980] ICR 9, EAT; Jeetle v Elster [1985] ICR 389, EAT.

(iii)  Where there is no transfer of the undertaking 18.25  Whether dissolution constitutes wrongful dismissal where there is no transfer of the undertaking depends upon the construction of the contract of employment1. Where the business is wound up or closed, a dismissal occurs. Where the business continues under new management (either some of the old partners, or outsiders) and offers continued employment to the employee, then the dissolution effects a dismissal in only two cases: (a) if the employment contract envisaged employment by the original partners and no others2; or if (b) their personal characteristics or conduct were important3. 429

18.26  The effect of dissolution and retirement

Neither is usually the case; most partnership employment contracts in any but the smallest firms4 envisage that the employment will be for the benefit of whoever may be partners in the firm from time to time. In Rose v Dodd5 the Court of Appeal held: (a) a contract of employment is not necessarily terminated by the dissolution of a partnership on the happening of an event, such as intervention and the suspension of a practising certificate, which makes the carrying on of the business of the partnership unlawful; (b) even if the partnership is dissolved, contracts of employment may continue after the date of dissolution, if the parties so wish, for the limited winding-up purpose of the continuation partnership. If the employee is notionally dismissed on a change of partnership but he continues employment with the business, he waives his right to sue for wrongful dismissal6, and the Transfer of Undertakings Regulations mentioned above will almost certainly apply. 1 In the old Scottish case of Hoey v Macewen and Auld (1867) 5 M (Ct of Sess) 814 it was held that there was no breach of contract when an employment contract was terminated by the dissolution of the employer-partnership on the death of a partner. 2 Brace v Calder [1895] 2 QB 253, CA. 3 Tunstall v Condon [1980] ICR 786, EAT; Phillips v Alhambra Palace Co [1901] 1 KB 59; Tasker v Shepherd (1861) 6 H & N 575; Robson v Drummond (1831) 2 B & Ad 303. 4 Briggs v Oates [1991] 1 All ER 407 at 415–416 where Scott J stated: Unless the terms of the contract, express or implied, otherwise provide, a contract of employment by two or more partners is brought to an end by the retirement of one or more of the partners from the partnership. He followed Brace v Calder [1895] 2  QB  253, CA; see also Tunstall v Condon [1980] ICR 786, EAT but contrast Bovine Ltd v Dent and Wilkinson (1904) 21 TLR 82 and Rose v Dodd [2005] EWCA Civ 957. 5 Rose v Dodd [2005] EWCA Civ 957 at paras 53–4. 6 Hobson v Cowley (1858) 27 LJ Ex 205.

(iv)  Salaried partners as employees 18.26  As discussed at para 12.14 above, a so-called ‘salaried partner’ may be a true partner but is usually not1; if he is not, he is a third party as regards the firm and entitled to the rights of an employee. 1 Stekel v Ellice [1973] 1 All ER 465. As to whether a profit-sharing employee or agent is a partner see para 2.32 above.

(d) Banks 18.27  The firm’s bank mandate will specify which individual partners or employees have authority to draw on partnership bank accounts1. Between themselves, in the absence of contrary agreement, the partners or surviving 430

Management after dissolution or retirement 18.28

partners will have authority to draw on the firm’s bank account after dissolution2, and even to secure the firm’s overdraft with assets of the firm3. The effect of dissolution is to limit the authority of the partners to acts for the purpose of winding up the affairs of the partnership and completing its transactions but no further4, as discussed earlier in this chapter. But in the absence of evidence to the contrary the bank is entitled to assume that any dealings with the account are for the purpose of winding up the partnership and therefore need not enquire into the authority of a partner to sign on the account5. Similarly, it may treat all apparent members of the firm as being members until it has notice of a change in the constitution of the firm6. The bank will be put on notice of a lack of authority if it knows facts which would have led a reasonable and honest banker to consider that there was a real possibility of lack of authority7. If the firm in dissolution therefore wishes to alter its previous banking arrangements (and in particular to remove a departing partner’s powers to sign cheques), it must make this clear to the bank. A firm has no general power to create a floating charge over its assets, but may do so if it is a family or other partnership cultivating an agricultural holding for profit8. Such a charge will crystallise on dissolution9, as discussed at para 8.49 above. 1 Bills of Exchange Act 1882, s  23(2) provides that a signature in the firm name binds all partners. The banking practice of the firm is discussed at para 12.19ff above. 2 Dickson v National Bank of Scotland 1917  SC (HL) 50; Backhouse v Charlton (1878) 8 Ch D 444. 3 Re Bourne [1906] 2 Ch  427, CA. The management powers of partners on dissolution are discussed in the earlier part of this chapter. 4 See the Partnership Act 1890, s 38. 5 Re Bourne [1906] 2 Ch 427, CA. 6 See the Partnership Act 1890, s 36(1), which is set out in Appendix A below. The termination of the liabilities of an individual partner or ex-partner is discussed at para 20.17ff below. 7 Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340, CA, varied on another point [1991] 2 AC 548, HL. 8 See the Agricultural Credits Act 1928, s 5(7) which extends the meaning of ‘agriculture’ to horticulture, bee-keeping etc. 9 See the Agricultural Credits Act 1928, s 7, as amended by the Insolvency Act 1985, s 235(1), Sch 8, para 6.

(e)  Insurance contracts 18.28  If the partnership has a policy of insurance it has a duty to disclose to the insurer all material facts known to the firm and relevant to the insurance1. The test is whether the mind of a prudent insurer would have been affected by knowledge of that fact2. Probably the fact of the dissolution of the firm will be irrelevant when the business continues if (as will be usual) the insurance contract is with the partners in the firm for the time being, but the departure of one or more partners might be relevant to some types of insurance, as will be the claims history of an incoming partner3. Where the business of the firm was transferred to a company without the knowledge or consent of the insurer, the insurance was held to be invalid4, and where the insurance 431

18.29  The effect of dissolution and retirement

is personal to existing partners and non-assignable then the admission of a new partner terminates it5 or (according to its terms) gives cover only to the original partner6. 1 Seaton v Burnand [1900] AC 135, HL. 2 March Cabaret Club and Casino Ltd v London Assurance Ltd [1975] 1 Lloyd’s Rep 169. 3 Marene Knitting Mills Pty Ltd v Greater Pacific General Insurance Ltd [1976] 2 Lloyd’s Rep 631, PC. 4 AG Peuchen Co v City Mutual Fire Insurance Co (1891) 18 AR 446 (Canada). 5 Maxwell v Price [1959] 2 Lloyd’s Rep 352. 6 Jenkins v Deane (1933) 150 LT 314.

(f)  Creditors and contracts with outsiders (i) Creditors 18.29  A creditor of the firm is not prejudiced by its dissolution because he retains intact his right to sue any member or ex-member of the firm for the full amount of his debt1, unless he has agreed to the contrary2. A creditor is not bound by any arrangement between the partners as to how they will pay his debt, even if he has notice of the arrangement3. He will still be able to sue the firm in the firm name as at the date of the accrual of the cause of action4 and can obtain judgment against it, either interim or final5. An ex-partner only has limited power to restrict his own liability as regards debts incurred after his departure or the dissolution6, but his personal security for the firm’s overdraft may not extend to debts incurred after his departure7. 1 See the Partnership Act 1890, s 9. 2 Such agreement, and the question of novation, is discussed below at paras 18.32, 20.15 and 20.21 below. 3 Smith v Jameson (1794) 5 Term Rep 601. 4 See para 21.20 below. 5 Barber v Rasco International Ltd [2012] EWHC 2449 (QB). 6 This is discussed at para 20.17ff below. 7 Royal Bank of Scotland v Christie (1841) 8 Cl & Fin 214, HL; this will be a question of the terms of his guarantee.

(ii)  Continuing contracts and clients 18.30  The power of continuing partners to enter into new contracts on behalf of the firm after dissolution is discussed at the beginning of this chapter. Existing contracts with the firm continue to bind all partners who are still alive1, save where the contracting third party releases a partner2 or where agreement or novation releases the old firm, which is discussed at para 18.32 below. In theory a dissolution terminates a client retainer3 but today most retainers are terminable on notice by either side anyway, or are continued into the new firm by novation. A contract which requires a personal service from the 432

Management after dissolution or retirement 18.32

firm may be breached or terminated by dissolution; it has been held that the arrangement between a firm of dentists and a PCT may be determined by dissolution4, but one made between a firm of doctors and a PCT may not be5: it is a question of the construction of the NHS regulations and of the contract in question. 1 2 3 4 5

IRC v Graham’s Trustees 1971 SLT 46 at 48. The release of a departing partner is discussed at para 20.17ff below. Rawlinson v Moss (1861) 30 LJ Ch 797. Bue v Worcester PCT [2010] EWHC 1123 (Admin). Jones v NHS Commissioning Board [2017] EWHC 3457 (QB).

(iii)  Surviving partners liable at law 18.31  A contract with the firm is a contract with its partners, enforceable at law against such of them as are alive at the date of enforcement1, although its burden will be borne by the firm’s assets as a whole and not just the shares of the active or surviving partners. 1 McClean v Kennard (1874) 9 Ch App 336; Philips v Alhambra Palace Co [1901] 1 KB 59; McCraney v McCool (1890) 19 OR 470; affd (1890) 18 AR 217 (Canada).

(iv)  Novation and release of liability 18.32  Where the business of an old firm is taken over by a new firm (or other person) and a creditor of the former continues to deal with it, there is no presumption that he is releasing his debt due from the old firm1. Still less is there such a presumption if the old firm amalgamates with the new2. The mere fact that the new firm has agreed to take on the liabilities of the old firm is not binding upon him as a creditor3. The old firm is only released if the creditor expressly or impliedly accepts the new firm in its place4, for instance by withdrawing a sum deposited at the bank run by the old firm and depositing it in a different account with the new5. A release may be inferred if the creditor continues to deal with the new firm and to treat it as the contracting party after learning that it has taken on the liabilities of the old firm6 as is often the case where a client or customer who deals with an established firm continues to do so unconcerned about a change in membership; but the effect of the arrangement may be to make the new firm liable without releasing the old7. If the debt is on a running account and the new firm makes payment of part of it, that payment will be appropriated to the early part of the account and so may satisfy the debt8. The gain or loss of liability by an incoming or outgoing partner is considered in paras 20.15 and 20.21 below. 1 Re Smith Knight & Co (1869) 4 Ch App 662; see also Re Head [1894] 2 Ch 236, CA, Rouse v Bradford Banking Co (1894) 2 Ch 32 and Bilborough v Holmes (1876) 5 Ch 426 which are discussed at para 20.21 below. 2 Re Family Endowment Society (1870) 5 Ch App 118.

433

18.33  The effect of dissolution and retirement 3 Alexander v Clark (1862) 24  D  323 (Ct of Sess); Menzies’ Trustees v Blach’s Trustees 1909 SC 239. 4 Chatsworth Investments Ltd v Cussins (Contractors) Ltd [1969] 1 WLR 1, CA; Bilborough v Holmes (1876) 5 Ch 426, but contrast Rouse v Bradford Banking Co (1894) 2 Ch 32; Benson v Hadfield (1844) 4 Hare 32; Harris v Farwell (1851) 15 Beav 31; Thompson v Percival (1834) 5 B & Ad 925. 5 Re Head [1894] 2 Ch 236, CA, discussed at para 20.21 below. 6 Grant v Matsubayashi [1922] 3 WWR 697; Re Guthrie & Co (1884) 2 NZLR (SC) 425. 7 Longmore v Calvert (1859) 32 LTOS 310; Re Starkey and Whiteside, ex p Chuck (1832) 8 Bing 469. 8 Hooper v Keay (1875) 1 QBD 178.

(g) Taxation 18.33  The taxation consequences of dissolution are not as dramatic as they were when the partnership was taxed as a separate entity1. Today income tax liability is not affected by dissolution, but by the question whether the partners ‘carry on’ the trade or whether the firm has ‘permanently ceased to carry it on’2. VAT is charged on the firm as an entity, but the taxable supply occurs when the business is terminated rather than when it is dissolved3. 1 Section 848 of the Income Tax (Trading and Other Income) Act 2005 provides that unless otherwise indicated (expressly or by implication) a firm is not to be regarded for income tax purposes as an entity separate and distinct from its partners. 2 Section 852(4)(b) of the Income Tax (Trading and Other Income) Act 2005. 3 Value Added Tax Act 1994, Sch 4, para 5.

2 THE RIGHTS OF THE PARTIES ON A RETIREMENT A The effect of dissolution, retirement and pre-emption agreements and options  18.34 B The valuation of the share of an outgoing partner   18.35 C Goodwill, work-in-progress and non-assignable assets   18.36 D The departing partner’s indemnity   18.40

A The effect of dissolution, retirement and preemption agreements and options 18.34  If a partner has left the firm but the firm continues without winding up, the implication is that he has retired and that there will be no sale of the partnership assets but he will be paid out at a valuation1. On dissolution it is otherwise (see para 18.41 below). As Goff LJ observed in Sobell v Boston2: 434

The rights of the parties on a retirement 18.34 Given that it is found that a partner has retired I do not see how as a general rule he can be entitled to a sale which is inconsistent with retirement, involving as that does the other partners taking over the business for themselves …

If he had died but the agreement provides that there shall be no dissolution, the position is as discussed at para 10.17ff above. A written partnership agreement will usually provide that on the death3, retirement4 or other departure of a partner, his share in the partnership, or certain of its assets5 will or may be bought out by, or accrue to, the continuing partners6 or some of them7, probably in proportion to their profit share8. This may occur in certain circumstances only, for instance on death or expulsion rather than retirement, or on notice9 or on voluntary retirement only10 or during the original term of the partnership, or on notice being given11. Usually the outgoing partner is allowed what is not a valuation of anything, but simply the sum due to him on his capital and current accounts and for his unpaid profit. Construction of the partnership agreement is considered at para 7.11 above. If such provisions are not contained in the partnership agreement they may be made by agreement after dissolution between all those interested in the winding up.12 They may be enforceable by successors in title of the original partners13. A simple agreement by one partner to ‘withdraw’ may be interpreted as an agreement to retire, which implies the sale of his share to the continuing partners in return for an indemnity from them against future liabilities14. It may be interpreted as excluding him from enforcing an unenforced judgement in favour of the firm15. If the partnership includes land, the agreement will be ineffective unless it satisfies the statutory requirement of writing16, but such writing may be found in a written partnership agreement17. All dissolution agreements are subject to the duty of good faith mentioned in Chapter 11 and may be voidable accordingly18. In the Australian case of Bilioara Pty Ltd v Leisure Investments Pty Ltd19 one partner was entitled to buy out the other if there was ‘irrevocable deadlock’ between them. Held the mere fact that there was such deadlock did not mean that he who claimed to exercise the option was not acting bona fide.

The provisions will also be void if they amount to a fraud on the creditors of the outgoing partner20. The agreement may extend to assets which are then unascertainable. In Hawthorn v Smallcorn21 the outgoing partner agreed his sum for his ‘share of current assets’. Held that he was entitled to a further sum as his share of a VAT repayment which unexpectedly fell in later. In Liddle v Liddle22 the farming partnership provided that an outgoing partner’s share was to be valued and the value paid by instalments which bore interest. Held that the obligation to pay the instalments and interest accrued on the dates specified in the agreement and would not be postponed until the underlying price computation was finalised.

If the agreement is uncertain23 or cannot be carried out literally24, or the anticipated division of assets is impossible25, or the required negotiations break down26, or an option is not exercised even through no fault of the option435

18.34  The effect of dissolution and retirement

holder27, it used to be the case that there would be no specific performance of the dissolution agreement but a sale of the partnership assets would be ordered. However, the tendency of the courts today is to uphold the intention behind a dissolution agreement wherever possible28, and will interpret it not too strictly but by ascertaining ‘the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’29. Where machinery for the ascertainment of a price breaks down, the court will substitute its own machinery30. Sales by personal representatives of a partner to one of themselves are discussed at para 10.19 above.  1 Hawthorn v Smallcorn [1998] STC 591, Laws J; Sobell v Boston [1975] 2 All ER 282. The amount due to him is then a debt due from the continuing or surviving partners (the Partnership Act 1890, s 43) as at the departure date and the limitation period runs from then: Betjemann v Betjemann [1895] 2 Ch 474, CA; and see para 15.50 above for limitation questions. There is a full and historical discussion of the question whether a partner’s entitlement is to be paid out as at dissolution or as at the conclusion of winding up, by Lord Reed in the Scottish case Duncan v The MFV Marigold (2007) SCLR 155, para 21ff.   2 [1975] 1 WLR 1587 at 1591C.   3 The effect of an agreement which takes effect on a partner’s death is discussed at paras 7.11 and 10.19 above, and the rights of his personal representatives if there is no dissolution is considered at para 10.17 above.   4 The right to retire is discussed at para  16.33ff above. The rights of those who represent a partner who has died are discussed at para 10.17ff above.  5 Lingen v Simpson (1824) 1 Sim & St 600, where the court enforced an agreement that on dissolution the partnership books should become the exclusive property of one of the partners, with the other having a right to a copy of it; similarly in Faulks v Faulks [1992] 1 EGLR 9 the farm tenancy reverted to one partner upon dissolution. In New Zealand it has been held that the work in progress of a professional firm is not an asset of the firm, being no more than the probability of future income (Robertson v Brent and Haggitt [1972] NZLR 406) but this is not good law in England.  6 Hordern v Hordern [1910] AC 465.  7 Homfray v Fothergill (1866) LR 1 Eq 567.  8 Robley v Brooke (1833) VI Bli NS 90 at 119.   9 For the difficulty of serving notice on the estate of a dead partner see Moffatt v Longmuir (2001) SC 137 (Scotland). 10 Eason v Miller CA179/15 [2016] CSOH 59. 11 Myers v Myers (1891) 60 LJ Ch 311; Tucker v Tucker [1999] All ER (D) 301 (Parke J) holding that a notice being ‘given’ did not mean ‘received’. The notice was required to be given within one month of death in Fullston v Dignan (1999) 75 SASR 367. 12 Goodchild v Taylor [2018] EWHC 2946 (Ch). 13 Stewart v Stuart (1823) 1 LJOS Ch 61. 14 Gray v Smith (1890) 43 Ch D 208 at 213; Sobell v Boston [1975] 1 WLR 1587 at 1591. 15 Ang Tin Yong v Ang Boon Chye [2012] 1 SLR 447. 16 See the Law of Property (Miscellaneous Provisions) Act 1989, s 2(1), discussed at para 8.30 above; contrast Baloglow v Konstantinidis [2001] NSWCA 451. 17 Spiro v Glencrown Properties [1991] Ch 537. 18 Blay v Pollard and Morris [1930] 1 KB 628, CA. 19 (2001) 11 NTLR 148. 20 Collins v Barker [1893] 1 Ch 578; and see Voaden v Voaden [1997] CLY 3873 for rescission. 21 [1998] STC 591 (Laws J). 22 [2017] EWHC 2261 (Ch). 23 Rigden v Pierce (1822) 6 Madd 353. 24 Cook v Collingridge (1823) Jac 607; Wedderburn v Wedderburn (1838) 4 My & Cr 41; De Cordova v De Cordova (1879) 4 App Cas 692; Chapple v Cadell (1822) Jac 537, but see Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 and Dinham v Bradford (1869) 5 Ch App 519 at 523 mentioned below.

436

The rights of the parties on a retirement 18.35 25 Taylor v Neate (1888) 39 Ch D 538; compare Cook v Collingridge (1823) Jac 607. 26 Turner v Major (1862) 3 Giff 442; Hudson v Hudson (1860) 1 LT 433. 27 Dibbins v Dibbins [1896] 2 Ch 348; Downs v Collins (1848) 6 Hare 418; Rowlands v Evans (1861) 30 Beav 302; contrast Hill v Hill [1947] Ch 231, CA where the option period was extended by agreement and Kelsey v Kelsey (1922) 91 LJ Ch 382 where an option exercisable by service of notice on the personal representatives of the dead partner was held to have been validly served upon his executors although they had not obtained probate. 28 In the matter of an Arbitration between Rosemary Finnegan and Patrick McAreavey (2002)  NI QB  24, where Carswell LCJ rejected the suggestion that he should adopt an ‘equitable’ approach rather than an interpretation of the dissolution agreement. 29 Per Lord Hoffmann in Investors’ Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 at 912H. 30 Sudbrook Trading Ltd v Eggleton [1983] AC 444.

B  The valuation of the share of an outgoing partner 18.35  The agreement may refer the valuation to an accountant or other expert to ascertain all or some part of the price1. If an auditor’s certificate is given on a mistaken interpretation of a written instrument, it is not binding2. Often the valuation will be fixed wholly or partly by reference to the agreed figures in the partnership account or balance sheet3. A reference to the ‘last’ balance sheet is a reference to the last one that ought to have been prepared even though such preparation is not complete4 or has been completed in the wrong way5. A departing partner may be as much bound by such accounts as a continuing one6. The accounting principles to be applied in valuations may be gathered from the conduct of the parties7. But it is fallacious to suppose that because an asset has been given a certain value in the agreed annual accounts, the value is binding on the partners in a retirement or dissolution agreement: How could there be a practice … to pay a deceased partner’s share on the footing of book values and not of fair values, where no partner had died before …8?

The disadvantage of the balance sheet values of the firm’s assets is that they are rarely accurate; but on the other hand the intention in a family partnership may be that an outgoing partner should receive less than his share of the full value of the assets9. Where an agreement provided that the share of a dead partner should be ascertained by reference to the assets shown in the last annual account, it was a question of construction whether they should be taken at their fair (or some other) value then and not at their book value10, and a distinction may be drawn between agreements which require a new account to be taken on the partner’s departure and those which merely refer to existing accounts11. Where the share was to be valued as the net sum shown in such accounts, that sum was binding even though it included nothing for goodwill12. Where the valuation only fails because of the obstruction or inactivity of a partner, the court will substitute its own machinery for valuation and will not order a sale13: If the valuation cannot be made modo et forma, the court will substitute itself for the arbitrators14.

437

18.36  The effect of dissolution and retirement

Construction of the partnership agreement is considered further in para 7.11 above. A  valuation buy-out after dissolution (as opposed to retirement) is considered at para 18.51 below. The rights of a retiring partner to continuing profits are discussed at para 18.11ff above and are discussed more generally at para 16.37 above.  1 Ham v Ham [2013] EWCA Civ 1301 discussed at para 7.11 above.   2 Per Goulding J in Smith v Gale [1974] 1 All ER 401, following Frank H Wright (Constructions) Ltd v Frodoor [1967] 1 All ER 433.  3 Re White, White v Minnis [2001] Ch 393, CA; Ham v Ham [2013] EWCA Civ 1301; Drake v Harvey [2011] EWCA Civ 838. Hunter v Dowling [1893] 1 Ch 391; affd [1893] 3 Ch 212, CA; Re Barber, ex p Barber (1870) 5 Ch App 687; Thom’s Executrix v Russell and Aitken 1983 SLT 335.  4 Re White [2001] Ch  393, CA, following Hunter v Dowling [1893] 3 Ch  212, CA, and followed in Drake v Harvey [2011] EWCA Civ 838. Ham v Ham [2013] EWCA Civ 1301; discussed at para 7.11 above.  5 Gadd v Gadd [2002] EWHC 107 (Ch); Cruikshank v Sutherland [1922] All ER Rep 716, HL.  6 Hammonds v Jones [2009] EWCA Civ 1400.  7 Per Lord Jauncey in Thom’s Executive v Russel 1983  SLT  335; Champion v Workman [2001] All ER (D) 212 (Jun) (Laurence Collins J); Beaver v Cohen [2006] EWHC 199 (Ch) (Michael Furness QC).   8 Per Lord Wrenbury in Cruikshank v Sutherland [1922] All ER Rep 716, HL distinguished in Re White [2001] Ch 393, CA, where Scottish cases which had suggested a presumption in favour of a market value rather than a book value were also distinguished: Clark v Watson 1982 SLT 450; Noble v Noble 1965 SLT 415; Shaw v Shaw 1968 SLT (Notes) 94; Thom’s Executrix v Russell and Aitken 1983 SLT 335; Wilson v Dunbar 1988 SLT 93.  9 A-G  v Boden [1912] 1  KB  539 discussed by Peter Gibson LJ in Re White [2001] Ch  393 at 417D. 10 Ham v Ham [2013] EWCA Civ 1301, Champion v Workman [2001] All ER (D) 212 (Jun) (Laurence Collins J); Re White, White v Minnis [2001] Ch 393, distinguishing Cruikshank v Sutherland [1922]  All ER  Rep 716; Noble v Noble 1965  SLT  415; Clark v Watson 1982 SLT 450; Wilson v Dunbar 1988 SLT 93; Davidson v Wayman [1984] 2 NZLR 115, NZCA where Cooke J pointed out that the right of an ex-partner to compete had a serious effect on the value of goodwill. 11 Gadd v Gadd [2002] EWHC 107 (Ch). 12 Scott v Scott (1903) 89 LT 582. 13 Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444, overruling Agar v Macklew (1825) 2 Sim & St 418 and Vickers v Vickers (1867) LR 4 Eq 529 in which valuation machinery had been agreed but the purchaser changed his mind and would not allow the valuation to proceed, and Sir William Page Wood V-C refused to order specific performance against him. 14 Per Lord Hatherley in Dinham v Bradford (1869) 5 Ch App 519 at 523, approved by the Privy Council in Hordern v Hordern [1910]  AC  465; see Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 and contrast Collins v Collins (1858) 26 Beav 306 and Chapple v Cadell (1822) Jac 537. If requisite accounts are unavailable or unsatisfactory the court will not bind the partners to the strict terms of the option agreement: Hunter v Dowling [1893] 3 Ch 212, but contrast Lawes v Lawes (1878) 9 Ch D 98.

C Goodwill, work-in-progress and non-assignable assets 18.36  Unless otherwise agreed, all unsaleable assets which are retained must be valued, and not merely retained at book value1. 1 Davidson v Wayman (1984) 2 NZLR 115, and see para 18.35 above.

438

The rights of the parties on a retirement 18.38

(a) Goodwill 18.37  The goodwill and firm name are valued on the basis that the partners are in general at liberty to compete with the business1. This creates a valuation problem because there is almost no market in practices sold on such terms2. In David and Matthews3 a coal-merchant’s partnership agreement provided that on the death of one partner a ‘general account’ should be taken and his estate paid its share accordingly. Held that the valuation of the goodwill of the business should be on the basis of its sale to a hypothetical outsider on the basis that the vendors might carry on business in competition but not use the old firm name or represent that they carried on its business or actively solicit its customers.

Because of these valuation difficulties, the court leans towards enforcing any machinery that has been agreed between the partners for the ascertainment of the goodwill value, however artificial it may seem, and whether or not the machinery itself poses questions of construction4. Whether subsequent events can be taken into account as affecting the assumption on which a valuation is based was considered in the Supreme Court of Victoria in Fagenblat v Feingold5. 1 A simple valuation of the goodwill of a firm must proceed on the basis that the partners will be able to compete: Hall v Barrows (1863) 4 De GJ & Sm 150; Reynolds v Bullock (1878) 47  LJ  Ch  773 Davidson v Wayman (1984) 2  NZLR  115; A partner may still be liable if after dissolution he misappropriates the goodwill for himself: Avis v Balfour (26 July 1999, unreported), Ch D, Mackie QC. 2 At a well-attended workshop of the Association of Partnership Practitioners held on 26 September 2006, the assembled professionals were asked to put a value on the goodwill of a certain specified business whose details they were given. The valuations varied from £nil to £7m. 3 Re David and Matthews [1899] 1 Ch 378; Owen v Rayner (1905) 25 NZLR 168. 4 In the matter of an arbitration between Rosemary Finnegan and Patrick McAreavey (2002) NI QB 24; Avis v Balfour (26 July 1999, unreported), Ch D, Mackie QC. 5 (17 December 2001, unreported), BC 200/08013.

(b)  Work in progress 18.38  Work in progress can be given almost its entire book value if the client can either be billed for the work done to date or billed by the continuing partners when the work has been complete1. It must be valued even though it may already have been brought into the profit and loss account2 and should include the value of the partners’ own work. In this regard it is treated in a different way from the way it is treated for tax purposes as discussed in para 12.27 above. 1 Champion v Workman [2001] All ER (D) 212 (Jun) (Laurence Collins J). 2 See para 12.27 above.

439

18.39  The effect of dissolution and retirement

(c)  Other valuations 18.39  The dissolution or retirement agreement may require or imply some artificial basis of valuation such as the value specified in the annual accounts1. A continuing but non-assignable contract can be valued according to its profitability2. A non-assignable partnership tenancy will not have a capital value attributed to it (if the evidence is that the landlord would not consent to its assignment) beyond the value it may give to the business if the rent is below market level; the actual landlord is not to be treated as a ‘notional’ landlord who might pay more for the release of the tenancy, if the evidence shows he would not in fact have done so3. 1 Champion v Workman [2001]  All ER (D) 212 (Jun) (Laurence Collins J). This will not prevent payment to the outgoing partner in respect of work in progress being an income rather than a capital payment, at least in Australia: Crommelin v Deputy Comr of Taxation (1998) 39 ATR 377 (Fed Ct of Australia). 2 See para 18.50 below, and how Blackburne J valued outstanding contingency fees in Browell v Goodyear (2000) Times, 24 October, discussed at para 8.10 above. 3 Walton’s Executors v IRC [1996] 1 EGLR 159. Approved by the CA in Greenbanks v Pickles [2001] 1 EGLR 1.

D  The departing partner’s indemnity 18.40  A partner’s right to an indemnity from his firm as an implied term of his partnership is considered at para 12.33ff above, and as term of his retirement it is considered at para  16.37 above. It is a matter of the construction of the indemnity clause whether it extends to unforeseen liabilities1. The clause should not release an outgoing partner from the consequences of his own default, or indemnify him against the result. This might vitiate their own insurance cover which otherwise protects them from their vicarious liability for his default2. An outgoing partner who has paid a partnership debt (whether voluntarily or not) can claim repayment from his former partners3. Or he can obtain a declaration that he has an indemnity from his former partners, with liberty to apply to the court to enforce it should the firm fail to discharge the liability4. In some circumstances he can insist upon the firm paying off the debt before he himself has discharged it5. This is when ‘there is an actual accrued debt’6 or ‘his obligation has become absolute’7 as opposed to where there is ‘no accrued liability on the surety which could be enforced by the court’8. It has been held in the case of a departing company director who has guaranteed the company’s overdraft, that he is entitled to require the company to pay off the debt to exonerate him from liability, even though the overdraft was only payable on demand, and no demand had been made or threatened9: A surety is entitled to come into Equity to compel the principal debtor to pay what is due from him, to the intent that the surety may be relieved10.

440

The rights of the parties on a retirement 18.40

But in a partnership case the law has been held to the contrary11 and to the effect that the ex-partner has no right to insist upon the firm paying off its overdraft before the overdraft is called in or demand made on him for it: Does the ordinary covenant … to indemnify the outgoing partner … entitle the retiring partner to insist upon the immediate payment of debts for which no demand for payment has been made? I do not think it does. So long as the covenantee is kept indemnified he cannot in my opinion insist upon the covenantor discharging debts for which no demand has been made; the obligation to make good the indemnity by payment and the right to enforce the covenant arises when the demand is made and not before12.

Indeed it would be strange if an outgoing partner, the day he left, could require the firm to pay off every one of its existing creditors, relying on the fact that as an original debtor no demand upon him by the creditor is required to make him liable13. The correct approach is one of construction of the retirement agreement (express or implied) and the court should only consider ordering the firm to pay off the liability where the outgoing partner faces an immediate threat from the creditor, or where necessity otherwise demands it.  1 Amaca Pty Ltd v CSR Ltd [2001] NSWSC 324; Berghoff Trading v Swinbrook Developments [2009] EWCA Civ 413.   2 See John Machell Vicarious Liability for Equitable Wrongs (2003) NLJ Vil 153, 405.  3 Stimpson v Smith [1999] Ch 340, CA.  4 Watt v Mortlock [1964] Ch  84, following Earl Ranelaugh v Hayes (1683) 1 Vern 189 notwithstanding that Fry J in Lloyd v Dimmack (1877) 7 Ch D 398 declined to follow the latter case, saying, at 401, it ‘had never actually been followed’. But Fry J was concerned with future liabilities under a very long lease.  5 Wolmerhausen v Gullick [1893] 2 Ch 514 cited with approval in Stimpson v Smith [1999] Ch 340, CA. In such circumstances the sum may be required to be set aside by the firm for the purpose of meeting the debt: per Sir George Jessell MR in Lacey v Hill (1874) LR 18 Eq 182 at 191, cited in Re Richardson, ex p Governors of St Thomas’ Hospital [1911] 2 KB 705, CA.  6 Mathews v Saurin (1893) 31 LR Ir 181.   7 Per Willes J in Bechervaise v Lewis (1872) LR 7 CP 372, cited in Alcoy & Gandia Rly and Harbour Co v Greenhill (1897) 76 LT 542 at 553.   8 Per Eve J in Re Ledgard [1922] WN 105. Whether an executor of a shareholder, entitled to an indemnity from a co-shareholder against calls, might succeed before the calls were actually made, was decided in different ways in Hughes-Hallett v Indian Mannoth Gold Mines (1882) 22 Ch D 561 and Hobbs v Wayet (1887) 36 Ch D 256, according to the imminence of the calls. The old law is discussed by Wright J in Wolmershausen v Gullick [1893] 2 Ch 514.  9 Thomas v Nottingham Incorporated Football Club Ltd [1972] 1 All ER 1176, criticising and distinguishing Bradford v Gammon [1925] Ch 132, and following Ascherson v Tredegar Dry Dock [1909] 2 Ch 401, with reliance upon the explanation of the latter case given by Sargant LJ in Re Anderson-Berry [1928] Ch 290. To similar effect are Moulton v Roberts [1977] Qd R 135, Tate v Crewdson [1938] Ch 869 and Wooldridge v Norris (1868) LR 6 Eq 410. 10 Per Swinfen Eady J in Ascherson v Tredegar Dry Dock [1909] 2 Ch 401 at 406, a case which must be read together with the observations on it of Sargant LJ (who had been counsel in it) in Re Anderson-Berry [1928] Ch 290 at 308. 11 Bradford v Gammon [1925] Ch 132 (Eve J), a case unconvincingly distinguished by Goff J in Thomas v Nottingham Incorporated Football Club Ltd [1972] 1 All ER 1176, and following Morrison v Barking Chemicals Co Ltd [1919] 2 Ch 325. 12 Per Eve J in Bradford v Gammon [1925] Ch 132 at 139. 13 Per Morton J in Tate v Crewdson [1938] Ch 869 at 881, contrasting the position of a surety who is not liable before demand: Re J Brown’s Estate [1893] 2 Ch 300 at 304; Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833 at 848.

441

18.41  The effect of dissolution and retirement

3 THE RIGHTS OF THE PARTNERS ON DISSOLUTION: WINDING UP A ‘Application’ of partnership property   18.41 B A sale  18.42 C Distribution of net assets   18.52 D Discharge of liabilities and losses   18.60 E Return of premiums   18.62

A  ‘Application’ of partnership property 18.41  When a partnership is dissolved generally, or dissolved as against one partner only where his departure is permitted or agreed1, the firm’s management remains in the hands of the partners or continuing partners as described in the last section, unless a petition has been presented against it as an insolvent partnership under the statutory winding up procedure which is dealt with in Chapter  22. Winding up rather than dissolution brings the partnership to an end. Until winding up is concluded after payment of all debts, the partnership is still ‘carrying on business’ even though its trade has ceased2. Accounts are taken to the conclusion of the winding up3. If there is a general dissolution, the duty of the partners is to wind up the business of the firm and to realise its assets so that its creditors can be paid and any surplus distributed under the rules laid down in the next division of this chapter. As regards assets retained in the firm, he may share in their value when they are sold later4. The immediate obligation of the partners is therefore to realise the partnership assets. Section 39 of the Partnership Act 1890 provides: On the dissolution of a partnership every partner is entitled, as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm; and for that purpose any partner or his representatives may on the termination of the partnership apply to the Court to wind up the business and affairs of the firm.

The section requires partnership property to be ‘applied’ for the requisite purposes rather than ‘sold’ as such, so it may be divided5. But often (as will be seen below) every partner will be able to insist upon a sale because there will be no other way to achieve a fair ‘application’ of the assets. If the business of the partnership is sold as a going concern, either to a partner or to an outsider, care must be taken that the sale agreement specifies exactly what assets (such as contents of a current bank account) and what liabilities (such as book debts or liabilities on a lease) are to pass on a sale and which are to remain behind as assets or liabilities in the winding up. 442

The rights of the partners on dissolution: winding up 18.41

The rule that the assets must be ‘applied’ for the purposes mentioned by the section extends to all assets of the firm including intangible assets such as choses in action, debts6, goodwill7 and the firm name, save where there is agreement to the contrary8, and to the extent that these have any value at all9. Goodwill and the firm name will have small value if any partner intends to carry on alone a business similar to that carried on by the firm after winding up is concluded10. The business of the firm in dissolution is usually continued by some of the partners and the court will not object to this because it is the best way of preserving the value of the firm name and goodwill. But if they wish to retain the business they are accountable to the firm for its value, which must be computed as the highest sum that an outsider or any partner would pay11. In the meantime partners may retain assets but not appropriate them; so a partner may be ordered to return client files which he has taken where the client has not given instructions that he should act for him12. If the continuing partners do not want to pay out the outgoing partner they can require that the business and assets are sold. They cannot be compelled to buy out his share at a valuation, unless they have expressly or impliedly agreed that he is retiring, in which case the different retirement rules apply as explained in para 18.34ff above or if they had wrongly misappropriated it13. Whether or not a sale is ordered (see para 18.42 below) is an administrative decision. As Lord Atkinson said in Hugh Stevenson & Sons Ltd v AG für Cartonnagen-Industrie14: The realisation of the assets and their distribution … is a proceeding of an administrative character in which, or two or modes of procedure, all legitimate, that one may be chosen which is best suited to the special circumstances of the case.

During this time, the partners who remain in possession of partnership property hold it as fiduciaries15.   1 For retirement see paras 16.33ff and 18.34ff above.  2 Theophile v Solicitor-General [1950] AC 186, HL.  3 Lam Tai Kwan v Lo Wai Kit (2007) HKLRD 365.  4 Barclays Bank Trust Co Ltd v Bluff [1982] Ch 172 which was approved by the Privy Council in Chandroutrie v Gajandhar [1987] AC 147, 154, although it accords ill with the Partnership Act 1890, s 43, which is discussed at para 18.12 above.  5 Rodway v Landy [2001] EWCA Civ 471; Campbell v Campbell [2017] EWHC 182 (Ch).  6 Johnson v Helleley (1864) 34 Beav 63; affd (1897) 11 LT 581, CA.  7 Pawsey v Armstrong (1881) 18 Ch D 698; Hill v Fearis [1905] 1 Ch 466; Page v Ratcliffe (1897) 76 LT 63, CA and see the discussion of goodwill at paras 8.52ff and 18.37 above.  8 Hordern v Hordern [1910] AC 465. Agreement is implied where the partnership agreement provides that the outgoing partner is to be paid out at balance sheet value and the balance sheet gives no value to goodwill: Smith v Nelson (1905) 92  LT  313; Scott v Scott (1903) 89 LT 582.  9 Re David and Matthews [1899] 1 Ch  378; Jennings v Jennings [1898] 1 Ch  378; Pawsey v Armstrong (1881) 18 Ch  D  698, not following old cases such as Hammond v Douglas (1800) 5 Ves 539 and Arundell v Bell (1883) 52 LJ Ch 537. See para 18.63ff below for the right of an ex-partner to compete with the firm and para 18.44 below for his right to bid for partnership assets. 10 See paras 8.53ff above and 18.66 below. 11 Goodchild v Taylor [2018] EWHC 2946 (Ch).

443

18.42  The effect of dissolution and retirement 12 Ingram v Keeling [2006] All ER (D) 253 (Oct), Ch D (Launcelot Henderson QC). 13 Avis v Balfour (26 July 1999, unreported), Ch D, Mackie QC. 14 [1918] AC 239 at 255. 15 Williams v Harris (1980) ILRM 237.

B  A sale (a)  The right to a sale 18.42  The realisation of the assets is a proceeding of an administrative nature and the court has a discretion as to how it should be done1. So partners may not insist upon their ‘share’ in the partnership business remaining unsold for them2, nor that their share is bought out by the other partners: the court may require them to offer their share to a continuing partner, but cannot compel the latter to buy it3 unless he has appropriated the business without the others’ consent and the consequence has been that a fair valuation or sale is no longer possible. The general rule is that upon a dissolution a departing partner or the personal representatives of a dead partner after dissolution4 may insist upon all partnership assets being sold: In the absence of a special agreement to the contrary, the general rule is that on the dissolution of a partnership all the property belonging to the partnership shall be converted into money by a sale, even though a sale may not be necessary for the payment of debts5.

So a partner can usually require that the value of all partnership interests be determined by a sale6. But this is not an absolute rule, as explained below. In the case of heavy losses a sale may be ordered before dissolution7. If a partner continues the business after dissolution as if it were his own and it loses value and is then sold, it may be treated as having been misappropriated by him at the dissolution date, and he will be debited with its value at that date8. 1 Per Lord Atkinson in Hugh Stevenson & Sons Ltd v AG für Cartonnagen-Industrie [1918] AC 239 at 255, HL, cited with approval by Evans LJ in Toker v Akgul (2 November 1995, unreported), CA. 2 Green v Frew [2016]  EWHC  1521 (Ch); Darby v Darby (1856) 3 Drew 495, following Crawshay v Collins (1808) 15 Ves 218 and Featherstonhaugh v Fenwick (1810) 17 Ves 298. In Gifford v Nash (9 June 2009, unreported) (Master Price) the firm name was owned partly by the firm and partly by an individual partner and the court ordered its sale in spite of his opposition. 3 Sir Nathaniel Lindley Treatise on the Law of Partnership (1885) (the last edition edited by Lindley), p 557, and see the form of order in Syers v Syers (1876) 1 App Cas 174; Latcham v Martin (1984) 134 NLJ 745, PC. 4 McClean v Kennard (1874) 9 Ch App 336. They need not accept the survivor’s valuation: Duncan v The MFV Marigold 2007 SCLR 155. 5 Per Swinfen Eady LJ in Hugh Stevenson & Sons Ltd v AG für Cartonnagen-Industrie [1917] 1 KB 842 at 846, CA; affd [1918] AC 239, HL, overruling Atkin J on the point that a partner was not entitled merely to offer a valuation: [1916] 1  KB  763. See also Featherstonhaugh v Fenwick (1810) 17 Ves 298; Steward v Blakeway (1869) 4 Ch App 603 at 609; Burdon v Barkus (1861) 3 Giff 412; on appeal (1862) 4 De GF & J 42; Metlej v Kavanagh [1981] 2 NSWLR 339; Green v Frew [2016] EWHC 1521 (Ch).

444

The rights of the partners on dissolution: winding up 18.43 6 Burdon v Barkus (1862) 4 De GF & J 42; Ellery v Imhof [1904] TH 170 (South Africa), but in Hammond v Brearley (10 December 1992, unreported), CA, Hoffmann LJ pointed out that nothing in the Act ‘positively requires that the winding up of a partnership shall be effected by a sale. It is true that a sale by auction is the normal way of realising the assets…’ and he cited Syers v Syers (1876) 1 App Cas 174, HL, which is discussed below. 7 Heath v Fisher (1868) 38 LJ Ch 14. 8 Latchan v Martin (1984) 134 NLJ 745.

(b)  The manner of sale 18.43  How partnership property is to be sold is a matter within the ordinary discretion of the continuing partners who are winding up the firm. But if a sale has been compelled by court order, the court may (in the absence of agreement) appoint a receiver1 to arrange the sale, or direct the manner of sale according to the nature of the property2, with the benefit of expert evidence where necessary. ‘The mode of sale in these cases adopted by the court is that which is most beneficial to the parties’3. It is important that it is clear (both to the partners and the purchaser) what is being sold and what retained. A commercial partnership selling its business will usually sell its premises, fixed assets, goodwill and stock, and will retain its book debts and cash and its liability to creditors and HMRC. What the nature of the saleable goodwill and non-assigned assets may be is considered in para 18.36ff above. If the court orders a sale then its conduct will usually be given by the court to the receiver if there is one, or to an independent solicitor4, or to the claimant’s solicitors5, in which case the ordinary rights of the partners to interfere in a sale are suspended, as in Dean v Wilson6: In a partnership action the sale of partnership property was ordered, and conduct of the sale was given to an independent solicitor, both partners having liberty to bid. The plaintiff issued and circulated advertisements that the sale was about to take place. He was restrained by injunction.

Where land belongs to the partners as individuals and not as partners, the sale will be made under the Trusts of Land and Appointment of Trustees Act 1996 and not under the 1890 Act, and the occupying partner may be ordered to pay rent for occupancy for any period between dissolution and sale7. 1 For the appointment of receivers see para 15.38 above. 2 The Master or District Judge will direct whether (for instance) land should be sold by private treaty or at auction, and the manner in which the partners may bid. The modern practice dates back to Class v Marshall (1885) 33 WR 409 and Page v Slade (1885) 54 LJ Ch 1131. A business will where possible be sold as a going concern, as in Taylor v Neate (1888) 39 Ch  D  538. A receiver need not accept the higher offer of a tardy and vacillating bidder: Procopi v Moschakis (1969) 211 Estates Gazette 31. 3 Per Chitty J in Taylor v Neate (1888) 39 Ch D 538 at 541. 4 Kotak v Kotak [2014] EWHC 3121 (Ch). 5 This is the modern practice but dates back to Dale v Hamilton (1853) 10 Hare 7. 6 (1878) 10 Ch D 136. 7 Kingsley v Kingsley [2019] EWHC 1073 (Ch).

445

18.44  The effect of dissolution and retirement

(c)  A partner’s right to buy or bid 18.44  When a solvent firm’s assets are being sold by order of the court it is the usual practice to allow1 any partner to bid for them2. Under paras 2 and 3 of CPR PD 40D the court may in an extreme case approve an immediate sale to a partner3. In the 19th century it was felt by the judges that if conduct of the sale was given to a party then he should not be allowed to bid4, so where all partners were bidding an independent firm of solicitors was directed to conduct the sale. But the modern practice is not so strict, and the claimant’s solicitors are usually given conduct of the sale unless there is already a receiver in office to do so5. 1 See Halsbury’s Laws of England (4th edn, 1981), para 197, n 3, under the title ‘Partnership’. A direction to this effect is advisable lest it is said that the purchasing partner is accountable for any profit that he may be making under the principles of Denison v Fawcett (1958) 12 DLR (2d) 537 and Dunne v English (1874) LR 18 Eq 524 discussed in Chapter 11. 2 See the orders made in Choudri v Palta [1994] 1 BCLC 184, CA and also in Quinton v Smith 17 June 1938 and Richardson v Finer 14 March 1947 (both unreported but cited in Atkins Court Forms (2nd edn) (2004 Edn) vol 30(2) para 238); Dean v Wilson (1878) 10 Ch D 136; Rowlands v Evans (1861) 30 Beav 302; Wilson v Greenwood (1819) 10 Sim 101n. 3 Kotak v Kotak [2014] EWHC 3121 (Ch). 4 Pawsey v Armstrong (1881) 18 Ch D 698, 710. 5 Wedge v Wedge (1995) 12  WAR  489 (W  Australia SC). So in Sandhu v Gill the Court of Appeal ([2006] Ch 456) had ruled that the interest of the claimant in the net partnership assets was considerably smaller than that of the defendant, and Master Bowles on 30 June 2006 (unreported) ordered a sale of the partnership property and business in the following terms: IT IS ORDERED that the property and business known as the Mountdale Nursing Home shall be sold by auction as a going concern by Messrs Christie & Co or such other selling agents as the parties may agree (‘the Agents’) after such marketing as the Agents may advise with each party being at liberty to bid. (2) The contract shall be subject to such terms as the Agents may advise save that the deposit payable by the purchaser shall be not less than 5 per cent. (3) The conduct of the sale shall be in the hands of the Defendant’s solicitors Messrs S K Thobhani who shall agree the terms of engagement of the Agents. (4) Each party shall sign all such documents as may be required for effecting such sale and shall remove any caution or other encumbrance that they may have on the property. (5) If the Claimant is the purchaser then on completion the said property and business shall be transferred to him subject to the claim of the Defendant in the action being secured in the following manner: (a) the sum of £500,000 of the purchase price shall be held by the Defendant’s solicitors Messrs S K Thobhani in an escrow account to abide agreement between the parties or further order; and (b) the Claimant shall charge the property by way of second charge to an unlimited amount ranking behind the interest of any first chargee bank. (6) If the Defendant is the purchaser then on completion the said property and business shall be transferred to him subject to the claim of the Claimant in this action being secured in the following manner: (a) the sum of £100,000 of the purchase price shall be held by the Defendant’s solicitors Messrs S K Thobhani in an escrow account to abide agreement between the parties or further order; and (b) the Defendant shall charge the property by way of second charge to an unlimited amount ranking behind the interest of any chargee bank. (7) If a third party is the purchaser, then the net proceeds of sale (after discharge of any sale costs and other sums due to third parties by the partnership) shall be held by the Defendant’s solicitors Messrs S K Thobhani in an escrow account to abide agreement between the parties or further order.

446

The rights of the partners on dissolution: winding up 18.46

(d) When a partner’s demand for a sale will fail: partition and buying-out (i) Generally 18.45  The reason why the court will as a rule direct a sale of every partnership asset is that this is the best way of ensuring that the creditors are paid and any surplus is divided fairly between the members in accordance with the rather complicated rules discussed below. Where the creditors have been provided for, however, circumstances often make it unjust for the partnership assets to be sold on the open market rather than divided between the partners at a valuation. The matter is discretionary, and the court’s winding-up jurisdiction under the Partnership Act is wide enough to empower it to impose a partition on reluctant partners,1 although the power to partition land is limited under section  7 of the Trusts of Land and Appointment of Trustees Act 1996 to cases where adult beneficiaries consent2. In Campbell v Campbell3 Murray Rosen QC sitting as a deputy High Court Judge ordered the various businesses of a partnership between two brothers to be divided between the two brothers in specie. 1 Rodway v Landy [2001] Ch 703; Campbell v Campbell [2017] EWHC 182 (Ch) (discussed below). In Pick v Pick [2007] All ER (D) 318 (Jun), Lindsay J held that Master Price had been wrong to state that in the absence of agreement between the partners, a sale of the assets of a firm in dissolution was inevitable, whereas he ought to have borne in mind his discretion to partition the assets. The decision may or may not be the stronger from the judge having heard the present writer’s contrary submissions. 2 Section  7(3). This specific requirement of consent could arguably be circumvented by the general power in the court under s 14(2) to dispense with the consent of ‘any person’, but if so the circumstances would have to be exceptional. Nothing in these provisions, however, would seem to derogate from the court’s discretion under the Partnership Act 1890, s 39 in winding up the affairs of a firm, including ordering partition. 3 [2017] EWHC 182 (Ch).

(ii)  Where the other partners offer to buy him out: a Syers v Syers order 18.46  The courts have become more inclined than formerly to allow that an outgoing partner is paid out at a valuation1 on the grounds that the art of valuation has improved. Unfortunately this reason is not always a good one: valuations of the goodwill of a professional practice are often wildly high2. If the court accepts that there should be no open market sale of the business, it gives the continuing partners the option to buy out the partnership share of the outgoing partners3. It does not order that they do so if they would rather abandon the business and see it sold4, or if the nature of the best form of sale is uncertain, or a proper price unclear5. The court cannot compel them to acquire the business if they do not wish to do so, nor can it compel one to sell his interest, but it can order the property to be sold with any partner having a right to bid6. The particular cases where a demand for a sale will fail are considered next below. 447

18.47  The effect of dissolution and retirement

The terms of a buy-out agreement will be construed strictly if they are clear and unambiguous, but if unworkable they will be qualified by implication, as where they apparently require a purchase price to be paid before it has been ascertained7. 1 Toker v Akgul (2 November 1995, unreported), CA, and see the comments of Neuberger J on this in Mullins v Laughton [2003] Ch 250 at 277 and on the Trusts of Land and Appointment of Trustees Act 1996, s 14 in Mortgage Corpn Ltd v Shaire [2001] Ch 743. 2 The reason is that the right of outgoing partners to compete with the business is often forgotten: see para 18.63 below. 3 The order in Syers v Syers (1876) 1 App Cas 174 was not that the minority partner should be bought out, but that the continuing partner was at liberty to buy him out, if he did not do so then the business would be sold. Some observations by Neuberger J in Mullins v Laughton [2003] Ch 250 at paras 109 and 122 suggest that the court may ‘order’ a purchase unconditionally, but that was a case where the continuing partners were content to buy out the claimant and so the issue did not arise. On a retirement (as opposed to a dissolution) the continuing partners may be required to pay out the retiring partner’s share. 4 See Sir Nathaniel Lindley’s Treatise of the Law of Partnership (5th edn, 1888) (the last edition edited by himself), p 556. 5 Benge v Benge & Anor [2017] EWHC 2124 (Ch). 6 Bagum v Hafiz [2015] EWCA Civ 801. 7 Liddle v Liddle [2019] EWCA Civ 346.

(iii)  If the share of the partner demanding a sale is a small one 18.47  Where the share of the partner seeking a sale is a small one (such as one-eighth, against a seven-eighths majority offering to buy him out1) or his share is in the minor assets and not in the goodwill and business itself2, then the court may in its discretion order him to be bought out at a valuation which will reflect the net value of the share as if a sale of the assets on the open market had taken place3. 1 Syers v Syers (1876) 1 App Cas 174. 2 Hammond v Brearley (10 December 1992, unreported), Hoffmann LJ. 3 See note 2 above.

(iv) If the nature of the asset is such that an open market sale would be damaging to its value 18.48  Certain forms of property, including many businesses, may depend for their value upon public confidence in the business continuing to run as a going concern; the House of Lords has taken this into account in refusing to order the public sale of a music-hall business at the instigation of a minority partner1 where the majority are prepared to buy him out. 1 Syers v Syers (1876) 1 App Cas 174.

(v)  If the partner seeking sale is guilty of delay 18.49  So in Toker v Akgul1 the Court of Appeal indicated opposition to an order for sale at the instance of a claimant who had walked out of a two-man 448

The rights of the partners on dissolution: winding up 18.50

partnership in October 1991 leaving the defendant to bear all the partnership liabilities and had not issued proceedings until August 1993. 1 (2 November 1995, unreported), CA and to similar effect is Patel v Shah [2005] EWCA Civ 157. See ‘Laches’ at para 15.61 above.

(vi)  Where the asset cannot easily be sold 18.50  Where a partnership asset is unsaleable but must remain vested in a partner after dissolution, such as a remunerative personal appointment or office or a non-assignable tenancy1, which cannot prudently be released or surrendered, he must give credit for its value in the partnership accounts if he wishes to continue to have the benefit of its use2. The effect is that he is buying out the interest of the outgoing partners. So in Ambler v Bolton3 two partners had a non-assignable contract from the Postmaster-General for carrying the mails. The contract was in the name of one of them; after the other died he carried on the business. Held he was liable to the executors for its fair value less an allowance for his services.

A non-assignable tenancy will have to be surrendered on the best terms available4. Where the asset can only be sold with difficulty, the court may refuse a Syers v Syers order5 but has jurisdiction to give directions for the best manner of ascertaining the parties’ rights. In McClean v Kennard6 five partners obtained a contract to build the harbour at Alexandria at a cost of about £2,000,000. Before it was completed, one died. His executors were offered his share of the value of the contract. Held the contract should not be sold or valued but run its course and the profits be ascertained then. In Mullins v Laughton7 Neuberger J surmised ‘that it would be an uncertain, difficult and unsatisfactory exercise for a professional insolvency practice to be sold, especially where that practice had different offices in many different cities’.

Because the goodwill of an NHS medical practice cannot be sold8 the court may order the division of partnership premises under the Trusts of Land and Appointment of Trustees Act 19969. 1 But the value of a non-assignable tenancy will often be nil: Walton’s Executors v IRC [1996] 1 EGLR 159. For the value of work in progress see para 8.10 above. 2 Smith v Mules (1852) 9 Hare 556 and 573. 3 (1872) LR 14 Eq 427; contrast McClean v Kennard (1874) 9 Ch App 336. 4 A single partner can determine a periodic tenancy which is vested in all the partners by a tenant’s notice to quit: Hammersmith and Fulham London Borough Council v Monk [1992] 1 AC 478, HL considered at para 8.46 above. 5 Benge v Benge & Anor [2017] EWHC 2124 (Ch). 6 (1874) 9 Ch App 336 at 339. 7 [2003] Ch 250 at 277. 8 See para 8.54 above. 9 Rodway v Landy [2001]  EWCA  Civ 471, [2001] Ch  703; contrast Redwood v Redwood (1908) 28 NZLR 260; note the Law of Property Act 1925, s 188.

449

18.51  The effect of dissolution and retirement

(vii) Where the partners have agreed on a division or valuation rather than a sale 18.51  A well-drawn partnership agreement will provide for the share of a partner to be bought out at the option of the continuing partners if he dies, retires or is expelled. It may also provide that upon a general dissolution some partners may buy out the interest of others in the business1. Such agreement may in terms preclude any partner insisting upon a sale of the partnership assets2 and is enforceable subject to the rights of the creditors. So is an agreement between the partners reached not when they originally became partners but at the time of dissolution itself? An agreement that the partner can retire, without provision as to dissolution, implies that he waives any right to a sale of the assets. He will be bought out at a valuation: see para  18.34 above. The valuation will include goodwill, which must be valued on the open market, but on the basis that all partners are potential purchasers3, and that the surviving partners are at liberty to carry on the business in competition with it if it is sold4. Retirement agreements will be viewed critically if they look unfair as discussed in para 18.34 above. 1 2 3 4

See para 18.34 above. See para 18.42ff above. Per Cooke J in the New Zealand Court of Appeal in Davidson v Wayman [1984] 2 NZLR 115. David v Matthews [1899] 1 Ch  378; Burchell v Wilde (1900) 1 Ch  551, CA; Johnson v Helleley (1864) 34 Beav 63 (affirmed with immaterial variation 46 ER 484); Smith v Everett (1859) 27 Beav 446. Retirement is considered generally at para 16.33ff above.

C  Distribution of net assets (a)  Dissolution accounting 18.52  Where the firm is insolvent on a dissolution, in the sense that it is unable to pay all its outside creditors in full, it is wound up in the manner discussed in Chapter  22. We are now concerned with winding up where those insolvency rules do not apply, and where no specific agreement in the partnership agreement overrides the common law and statutory rules that are now considered. Although the partnership is solvent there will be complexity in ascertaining what share of the remaining assets will go to each of the surviving partners or to the assignee, mortgagee, trustee in bankruptcy or personal representative who may represent a partner. The difficulty will arise because each partner may have a claim against the partnership assets (for instance) for: (a) (b) (c) (d) (e) (f)

his legal costs in a partnership dispute; payments that he may have made on behalf of the firm; loans that he may have made to the firm or the other partners; return of his partnership capital; underpayment of his profit share; non-payment by another partner of what he owes. 450

The rights of the partners on dissolution: winding up 18.53

How the net assets meet these liabilities is explained in the following paragraphs.

(b)  The claim is for an account 18.53  After dissolution an outgoing partner or the representatives of a dead partner may claim the amount due from the surviving or continuing partners as a debt1, but only after the accounts have been settled by agreement or litigation so as to conclude what is due2. No partner can sue his partners for (say) a ‘loan’ that he has made to the firm until after the accounts have been settled, even if the partnership agreement says that he may do exactly that3: If money is lent or advanced to a partnership of which the person advancing the money is a partner, he is advancing some of that money to himself, and the only way in which that money can be recovered is by taking the accounts of the partnership4.

Even if the partnership business is to continue but accounts are being taken to ascertain the value of the share of an outgoing partner, they must be drawn on the same basis as on a general dissolution, with all items properly valued where on a general dissolution they would usually have been sold. Final accounts cannot be taken until this has been done and the debts and outgoings paid or ascertained, because only then will it be certain what money is available for distribution. Accounts are taken to the conclusion of the winding up5. In Manning v English6 one partner in a dissolved partnership, whose accounts were never settled, paid a premium for run-off insurance for the firm, and more than six years after dissolution he sued the other for half the sum. Held that such a sum could only be recovered in taking of the partnership accounts, which it was now too late to do.

The annual profits and losses of the firm in dissolution were considered at paras 18.6–18.20 above. We are now concerned with the net assets of the firm as shown on the final balance sheet. For taxation purposes a part of such assets, such as work in progress, may be assessable to tax as income7. Before it is ascertained each partner is entitled to his share of profit on the annual profit and loss account, or liable to make payment to the firm on that account if he was overdrawn. This is a different matter from his state of account as against the other partners on the final balance sheet after dissolution. 1 See the Partnership Act 1890, s 43, which is printed in Appendix A below. 2 Public Trustee v Elder [1926] Ch 266; Bennett v Goude (1853) 21 LTOS 237. For actions for an account between partners, see para 14.18ff above. 3 Green v Hertzog [1954] 1 WLR 1309, CA; Richardson v Bank of England (1838) 4 My & Cr 165; Holdgate v Holdgate [2002] 3 NZLR 609, CA. 4 Per Lord Goddard CJ in Green v Hertzog [1954] 1 WLR 1309 at 1311–1312. 5 Lam Tai Kwan v Lo Wai Kit (2007) HKLRD 365. 6 Manning v English [2010] EWHC 153 (Ch). 7 Crommelin v Deputy Comr of Taxation (1998) 39 ATR 377.

451

18.54  The effect of dissolution and retirement

(c)  Distribution generally 18.54  The provisions of the Partnership Act 1890 relating to the payment of liabilities are difficult to understand unless those relating to assets are discussed first. The available net assets (after payment of outside creditors) must be pooled and each partner must pay what he owes to the firm in overdrawings1 and the outside creditors paid off. Unless there is a buy-out2, the available net assets must be distributed as follows: firstly to reimburse any advances that the individual partners have made to the firm (including unpaid profit or post-dissolution income/interest under section 42(1)3; secondly to repay their capital (without interest4); and thirdly to the partners in proportion to their profit shares. This ‘proportion’ is the ultimate profit share after any ordinary salary to a partner is ignored. If the partnership shares are determined at the discretion of a remuneration committee so no partner can claim an ultimate fixed share, then the shares will be treated as equal for present purposes5. Section 44(b) of the Partnership Act 1890 provides: In settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed: … (b) The assets of the firm, including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order: 1 2 3 4

In paying the debts and liabilities of the firm to persons who are not partners therein; In paying to each partner rateably what is due from the firm to him for advances as distinguished from capital; In paying to each partner rateably what is due from the firm to him in respect of capital; The ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible.

Each member of the four numbered categories of claimant ranks equally with the others within his category and takes priority over every member of the next category, so the available funds may be sufficient to reimburse the partners for their ‘advances’ in category two, but insufficient to give them anything towards their capital in category three. The consequential ‘deficiencies of capital’ are important because they have to be made up by the partners as discussed at para 18.60 below. 1 See para 18.46 above. 2 Ross v White [1894] 3 Ch 326, CA. Overdrawing can be viewed as a debt from the outgoing partner to the firm (analogous to the converse position envisaged by s 43) but strictly it is just an item in the account between the partners: per Hoffmann LJ in Hornabrook v Parsons (1995) CA transcript 3 February, following Richardson v Bank of England (1838) 4 My & Cr 165. 3 See para 18.11ff above. 4 Watney v Wells (1867) 2 Ch App 250, unless there is contrary agreement. 5 Hitchins v Hitchins (1998) 47 NSWR 35.

452

The rights of the partners on dissolution: winding up 18.58

(d)  Repayment of a partner’s capital 18.55  If it is the practice of the firm to treat the shares of annual profits as accretions to the shares of capital, then capital as at the date of dissolution is computed accordingly1. But ‘capital’ does not include sums which a partner ought to have contributed but never did2. Nor does it include the firm’s capital profits or capital gains: see ‘ultimate residue’ below. Partnership capital is explained at para 9.1ff above. 1 Binney v Mutrie (1886) 12 App Cas 160 which at 165 contains a useful example of the order that should be made in such a case. 2 Re Ward [1985] 2 NZLR 352, NZCA.

(e)  Repayment of advances 18.56  The word ‘advances’ in section 44(b)2 of the Partnership Act 1890 (quoted above) is for present purposes interpreted broadly1. It includes any extra money brought into the firm2 and a loan or ‘equivalent of a loan … say, if he has really found moneys to be brought in as capital or to pay off a partnership debt … The court ought not to be dainty in considering whether a sum due to a partner is strictly a debt or not’3. It will include his undrawn profit share or current account. 1 Contrast the narrow meaning of ‘advances’ in s 24(1), discussed at para 12.23 above, and contrast Dinham v Bradford (1869) 5 Ch App Cas 519. 2 Wood v Scoles (1866) 1 Ch App 369. 3 Per Kekewich J in Ross v White [1894] 3 Ch 326 at 331, citing Chitty J in Rosher v Crannis (1890) 63 LT 272.

(f) Interest 18.57  After dissolution partners are not entitled to interest on their capital accounts without special agreement, even if they were entitled to this under the partnership agreement before dissolution1. In the unlikely event that they have agreed between themselves an entitlement to interest on capital accounts after dissolution, such interest ranks immediately before the repayment of the capital2. An outgoing partner is entitled to elect for interest on his share as discussed at para 18.6ff above. 1 Watney v Wells (1867) 2 Ch App 250. 2 Barfield v Loughborough (1872) 8 Ch App 1.

(g) Costs 18.58  There will be no order as to the costs of taking dissolution accounts if there is no fault on either side1. 453

18.59  The effect of dissolution and retirement

The costs of realising any partnership asset will be a charge on that asset and paid before any question of distribution of the proceeds will arise. The legal costs of litigation with outsiders will be a debt of the firm of a similar nature. In either case any insufficiency of assets to cover these must be made up by the partners in proportion to their profit shares2. Where costs of a partnership action (that is, a dispute between the partners)3 have been ordered to be paid out of partnership assets, those costs rank (as between the partners) after payment of the firm’s debts and after settlement of the partners’ advances to the firm4 and capital accounts5. 1 Ma’Har v O’Keeffe (2014) 26/11/14 CA. 2 Per Kekewich J in Ross v White [1894] 3 Ch 326 at 331. 3 But a winding-up petitioner’s costs are given greater priority: see Re Bear [1915] WN 211 and para 23.20ff below. 4 Austin v Jackson (1879) 11 Ch D 942n; Potter v Jackson (1880) 13 Ch D 845. 5 Ross v White [1894] 3 Ch 326, CA upholding Kekewich J who had followed Rosher v Crannis (1890) 63 LT 272 and Potter v Jackson (1880) 13 Ch D 845 and considered Hamer v Giles (1879) 11 Ch D 942.

(h)  Ultimate residue 18.59  After payment of advances from partners, and their capital accounts, the ‘ultimate residue’ is divided between them in their profit shares, and not their capital shares, a matter often confused1. The point was usefully discussed by the High Court of Australia in Rowella Pty v Abfam Nominees Pty2: In Rowella Pty v Abfam Nominees Pty, Rowella had contributed no capital to the partnership but was entitled to 40 per cent of its profits3. On dissolution its right to share in the surplus assets of the firm was challenged. Held that what the Acts4 provided for was for the distribution of any ‘ultimate residue’ in profit shares and not in proportion to capital shares, because for partnership dissolution purposes all surplus was ‘profit’ and not ‘capital’ even if it would have been regarded as ‘capital’ for taxation purposes. In the judgment of the court, ‘The ultimate residue is profit, but it is not capital … The ultimate residue to which para (d) relates5 is the surplus remaining after external creditors have been paid (para (a)) and the parties have received out of the assets of the partnership a return of the advances they have made and of the capital they contributed (para (b) and para (c)). The ultimate residue therefore does not include the capital of the partnership. Nor is it necessarily derived from the outlay of the capital contributed by the parties. Nor does it necessarily represent capital profits in the sense of profit derived on capital account, for the surplus assets may represent profits on capital account or profits on revenue account or profits of both kinds. Section 47 is not concerned with the distinction, familiar in taxation law, between assets acquired or disposed of on capital account and assets acquired or disposed of on revenue account. The ultimate residue is not relevantly to be described as capital profits of the partnership and, in the absence of contrary agreement, the Partnership Acts do not direct its distribution in accordance with the partners’ capital contribution. The rule for

454

The rights of the partners on dissolution: winding up 18.60 distribution of the ultimate residue presented by para (d) “subject to any agreement” is that it is divided among the partners in the proportion in which profits are divisible.’

Accounts must be taken to the conclusion of the winding up. Until that time a partner may be ordered6 (but has any absolute right to) an interim payment7. After final distribution and winding up, a partner who continues the business is no longer accountable for benefits which were unascertained and unascertainable8. In Nilsen v Murcott9 a fishing partnership had dissolved and its assets distributed by agreement. One partner acquired its fishing quota. Ten years later that quota increased in value because the spiny dogfish was brought within the quota system which it had not previously been, and the other partner claimed an account of this. Held that when partners had resolved all matters known to them or which could have been known to them at the dissolution date, their rights and obligations finished after the partnership affairs were wound up. Matters that could not have been in the contemplation of the parties could not have been part of the affairs of the partnership. 1 Compare Popat v Shonchhatra [1995] 1 WLR 908 at first instance and on appeal [1997] 3 All ER 800, CA. 2 Rowella Pty Ltd v Abfam Nominees Pty Ltd (1989) 168  CLR  301, explaining Griffith v Paget (1877) 6 Ch D 511, and following Kekewich J in Bishop v Smyrna and Cassaba Rly Co [1895] 2 Ch 265 at 269; Robinson v Ashton (1875) LR 20 Eq 25 and Binney v Mutrie (1886) 12 App Cas 160, PC; Krizaic v Ravinder Rohini Pty Ltd (1990) 102 FLR 8, and see to similar effect Ham v Ham [2013] EWCA Civ 1301. 3 Rowella was the general partner and the partnership a limited partnership, but nothing turns on that. 4 Ie the Queensland Partnership Acts 1891–1965, s  47, following the wording of the UK Partnership Act 1890, s 44. 5 Ie under the Queensland Partnership Acts, s 47(d), the equivalent of s 44(b)(4) of the UK Act. 6 Van Heeren v Kidd (2016) NZCA 401. 7 Badyal v Badyal [2019] EWHC 3423 (Ch). 8 Nilsen v Murcott (2007) 2 NZLR 750, following Hoy v Sew Hoy (2001) 1 NZLR 391 (CA). 9 (2007) 2 NZLR 750.

D  Discharge of liabilities and losses (a)  The partners share the shortfall 18.60  Whether or not the firm is solvent, the outside creditors must be paid off first out of the available assets. Any balance of those assets then goes towards the various claims of the partners against the firm as explained above. In so far as these claims cannot be met, the shortfall must be made up by the partners in proportion to their profit share if the firm’s assets are inadequate. Unless otherwise agreed, a partner whose capital cannot be repaid because the firm’s net assets are insufficient must be reimbursed (without interest unless agreed)1 by all the partners in proportion to how they share profits. With almost excessive conciseness section 44 of the Partnership Act 1890 provides: In settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed:

455

18.61  The effect of dissolution and retirement (a) Losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits.

So anything ‘due’ from the firm to a partner after the taking of the accounts must be found by the partners as a whole, in proportion to their profit shares unless otherwise agreed2. For example, Smith, Jones and Brown are partners sharing profits equally, but their entitlement from the firm after dissolution for repayment of advances and capital is £5,000, £3,000 and £2,000, totalling £10,000. The available assets are only £1,000. Distribution: the deficit is £9,000 which is borne in profit shares, so each contributes £3,000 before he receives back his capital; Smith therefore receives a net sum of £2,000, Jones nil and Brown pays £1,000. 1 Watney v Wells (1867) 2 Ch App 250. 2 In Binnie v Mutrie (1886) 12 App Cas 160, PC; the form of order is at 165.

(b)  Default by a partner 18.61  The difficulty is what happens if any partner is unable1 to pay his share. This is answered by the rule in Garner v Murray2, which provides that the other partners are under no obligation to make up the loss; it simply remains unpaid, and so there is a smaller fund from which payments are made towards the partners’ capital. Garner v Murray was a case in which capital was owned unequally by the three partners but profits were shared equally, so there was an equal liability on the partners to make up the losses on the partners’ unequal capital accounts. One was unable to pay his share; the others were not held to be liable to make it up for him, so there was deficiency which had to be borne by the capital accounts rateably in accordance with section 44(b). The assets must be applied in paying to each partner rateably what is due from the firm to him in respect of capital, account being taken of the equal contributions to be made by him towards the deficiency of capital3.

To return to the above example: As before, Smith, Jones and Brown are partners sharing profits equally, and their entitlement from the firm after dissolution is £5,000, £3,000 and £2,000, totalling £10,000. The available assets are only £1,000, so the deficit is £9,000 which is borne in profit shares, so each should contribute £3,000. If Brown defaults, the contributions from the other two bring available assets up to only £7,000, which is divided between Smith and Jones in the proportion 5:3 as £4,375 and £2,625. So Smith receives net £1,375 and Jones contributes £375. 1 Including where he is a minor so need not contribute: Wright v Tanner (1869) 20 LT 427, and see Chapter 3. 2 [1904] 1 Ch 57. 3 Garner v Murray [1904] 1 Ch 57 per Joyce J at 60.

456

The rights of the partners on dissolution: winding up 18.62

E  Return of premiums 18.62  At one time it was common for a partner to be required to pay to the other partners a ‘premium’ on entering the partnership, as a purchase price for the interest that he was acquiring. It was quite distinct from any capital that he might be required to pay into the firm. Where the partnership was a fixed-term one1 which was determined prematurely other than by death2, equity would allow the partner or his representatives reimbursement of the premium, or part of it, if there was no agreement to the contrary3. Section 40 of the Partnership Act 1890 provides: Where one partner has paid a premium to another on entering into a partnership for a fixed term, and the partnership is dissolved before the expiration of the term otherwise than by the death of a partner, the court may order the repayment of the premium, or of such part thereof as it thinks just, having regard to the terms of the partnership contract and to the length of time during which the partnership has continued; unless – (a) the dissolution is, in the judgment of the court, wholly or chiefly due to the misconduct of the partner who paid the premium, or (b) the partnership has been dissolved by an agreement containing no provision for a return of any part of the premium.

The premium may be repayable where the partnership is dissolved by bankruptcy4, or by the court for breakdown in mutual confidence5, but not where the partners agreed a dissolution between themselves unconditionally without mentioning it6, and agreement not to seek repayment may be inferred from repudiatory conduct7. Where partners are equally guilty, repayment will be ordered8. To deprive a partner of his proportionate part of the premium he must be guilty of serious misconduct9 amounting to repudiation, as when a partner badly neglected the business10, and in that case he may not only be refused repayment but ordered to pay any balance of the premium still unpaid11. The amount repayable will generally correspond to the actual duration of the partnership as against its intended term12, but allowance can be made for extraneous benefits that the ex-partner seeking the repayment may have acquired as a partner13. The order for repayment is discretionary14. It should be sought in the partnership dissolution action if there is one, and not left until after winding up has concluded15. A widely drawn arbitration clause will empower an arbitrator to order its return16.   1 Cf Bond v Milbourn (1871) 20 WR 197, where the partnership was dissolved by notice under the partnership agreement and so the premium was not repayable even though the merits might seem to require it.  2 Ferns v Carr (1885) 28 Ch D 409.  3 Featherstonhaugh v Turner (1858) 25 Beav 382; Bullock v Crockett (1862) 3 Giff 507.  4 Hamil v Stokes (1817) Dan 20, Ex Ch.  5 Atwood v Maude (1868) 3 Ch App 369.  6 Handyside v Campbell (1901) 17 TLR 623; Lee v Page (1861) 30 LJ Ch 857.  7 Wilson v Johnstone (1873) LR 16 Eq 606.  8 Astle v Wright (1856) 23 Beav 77; Brewer v Yorke (1882) 46 LT 289, CA.  9 Wilson v Johnstone (1873) LR 16 Eq 606.

457

18.63  The effect of dissolution and retirement 10 Yates v Cousins (1889) 60 LT 535. 11 Bluck v Capstick (1879) 12 Ch D 863. 12 Rooke v Nisbet (1881) 50 LJ Ch 588; Atwood v Maude (1868) 3 Ch App 369; Pease v Hewitt (1862) 31 Beav 22; Bury v Allen (1845) 1 Coll 589. 13 Brewer v Yorke (1882) 46 LT 289, CA; Jauncey v Knowles (1859) 29 LJ Ch 95. 14 Lyon v Tweddell (1881) 17 Ch D 529, CA. 15 Edmonds v Robinson (1885) 29 Ch D 170. 16 Belfield v Bourne [1894] 1 Ch 521; contrast Tattersall v Groote (1800) 2 Bos & P 131.

4 COMPETITION WITH THE FIRM AFTER RETIREMENT OR DISSOLUTION A The right to compete   18.63 B Covenants in restraint of trade generally   18.67 C What is ‘reasonable’   18.72

A  The right to compete 18.63  The following paragraphs are concerned with the so-called covenant1 or other agreement requiring a former partner not to compete against the continuing business of the firm2. Injunctions to restrain a continuing partner from competing with the firm whilst he is still a partner are considered at para 15.32 above. The enforcement by or against the firm of covenants with its employees (including most salaried partners) or other outsiders needs no special discussion in this book. A partnership business usually has some goodwill3 but this will be of little value either to the firm or to a purchaser of the business unless it is protected by agreement restraining former partners from competing with that business4. When a partner leaves a firm or it is dissolved he has the right to set up in competition with its business unless restrained by covenant5. There are three qualifications to this which are outlined below. 1 Strictly a ‘covenant’ is an agreement contained in a deed, and many partnership agreements are not by deed, but the relevant provisions tend to be called ‘covenants’ nonetheless. 2 Such a covenant or agreement not to use the firm name will not require him to remove the name if it is cut in stone over the premises, provided that he undertakes not to use it as a trading name in any other way: Townsend v Jarman (1900) 2 Ch 699. 3 A term discussed further at paras 8.52ff and 18.36 above. 4 A simple valuation of the goodwill of a firm must proceed on the basis that the partners will be able to compete: Hall v Barrows (1863) 4 De GJ & Sm 150; Reynolds v Bullock (1878) 47 LJ Ch 773; Re David and Matthews (1899) 1 Ch 378; Davidson v Wayman (1984) 2 NZLR 115, esp Cooke J at 118. But they must not actually misappropriate the goodwill: Avis v Balfour (26 July 1999, unreported), Ch D, Mackie QC. 5 Johnson v Helleley (1864) 34 Beav 63 (affirmed with immaterial variation 46 ER 484; Burchell v Wilde [1900] 1 Ch 551 where Lindley MR said (at 563) that where the goodwill was not to be sold, ‘Each partner could use the name of the old firm. They had become tenants in common of that asset, and each partner was entitled to enjoy that asset.’ The effect of this on the value of goodwill is discussed at para 18.36 above; Rosher v Young (1901) 17 TLR 347.

458

Competition with the firm after retirement or dissolution 18.66

(a)  Passing off 18.64  If the goods or services of the firm have goodwill or reputation in the market and are known by name or some other distinguishing feature, the ex-partner must not (intentionally or unintentionally) mislead the public into believing that his own goods or services are those of his former firm1. Conversely the firm should consider the dangers of passing off before it continues to use his name2. 1 Reckitt & Colman Products Ltd v Borden Inc [1990] 1 WLR 491, HL where the necessary elements of the tort were defined by Lord Oliver at 499 and Lord Jauncey at 510; Burchell v Wilde [1900] 1 Ch 551, CA, where the court held the risk to be insubstantial; Townsend v Jarman [1900] 2 Ch 698; Chappell v Griffith (1885) 53 LT 459. J H Coles Pty Ltd v J F Need [1934] AC 82, PC on appeal from the High Court of Australia. 2 Or it might impose liability upon him by holding out; Chatteris v Isaacson (1887) 57 LT 177; Rosher v Young (1901) 17 TLR 347; contrast Burchell v Wilde [1900] 1 Ch 551, CA; Gray v Smith (1889) 43 Ch D 208; Scott v Rowland (1872) 26 LT 391. Holding out is discussed in Chapter 5.

(b)  Winding up 18.65  While the firm’s business is being continued after dissolution for the purpose of winding up, his duties of good faith to his partner remain intact1, and the court will prevent him from breaching those duties by competing with the firm or undermining the value of the business to be sold2. As Romer J stated in Re David and Matthews3: He … would be restrained by the Court, pending the sale of the goodwill for the benefit of the partnership, from doing any act in excess of his rights which, if not stopped, would enable him to obtain the goodwill or any part of it … For example, though a surviving partner is within his rights in carrying on a similar or rival business, he could, in my opinion, be restrained from carrying on that rival business in the name of the partnership firm so as to lead to the belief that he was carrying on the partnership business. 1 See para 11.12 above. 2 Pathirana v Pathirana [1967] 1 AC 233, PC; Turner v Major (1874) 5 AJR 61; Gray v Sladden and Stewart [1935] NZLR 35. 3 [1899] 1 Ch  378 at 383 following Turner v Major (1862) 3 Giff 442. Romer J seemed to postulate that there might be circumstances in which an ex-partner might compete with the firm without appropriating the firm’s goodwill but that will not usually be the case during winding up.

(c)  When he has sold the goodwill 18.66  If the firm has sold the goodwill1 then the right of the partner to compete is to some extent restricted2. If he has accepted a provision that he may take certain clients ‘as part payment of his share of goodwill’ then implicitly he may not solicit the remaining partners’ clients3. 459

18.66  The effect of dissolution and retirement In Newman (IN) Ltd v Richard T Adlem4 a vendor sold the business that he had run in his own name, and covenanted not to compete for five years. After that time he reopened a business in the same name and registered the name as a trade mark. The Court of Appeal Held that irrespective of the restrictive covenant, once he had assigned the goodwill of the business, he was passing off if he set up a fresh business under the same name unless he made it clear that the two businesses were distinct, and his trade mark was consequently invalid.

The firm name and goodwill are part of its assets and should be the subject of sale or agreement between the outgoing partners like any other partnership property5. Where the goodwill of the business of a firm is sold6 or voluntarily transferred to the continuing partners when a partner retires7, an outgoing partner is still at liberty to set up a competing business, to advertise it, and may state that he is a former partner, but must not canvass the old customers or use lists of their names8 or represent that he is continuing9, or has succeeded to10, the firm’s business11, nor may he use its name12 (if that name differs from his own)13, nor restrain the use of his own name by the purchaser14. There is nothing deceitful in goodwill or a firm name being sold or licensed to another who can then represent himself as continuing a business with which in fact he had no previous connection15. The old cases provide that where he has lost his interest in the firm involuntarily, by his own bankruptcy16, or has left17 or been expelled under a provision that merely allows him the return of his capital, he has not transferred his interest in goodwill so he will be able to solicit old customers and compete more generally with the old business18. It is questionable whether this is still good law. Upon a dissolution of a firm without any sale or agreement as to the goodwill19 of the business or the use of the firm name, or when the future of the firm name is undecided, each of the partners is entitled to carry on business using the firm name20 provided that there is no risk of passing off as mentioned in para 18.64 above, and subject to the right of any partner to require it to be sold. On dissolution the court cannot impose covenants against competition on the outgoing partners without their agreement, because they have an absolute right to ‘carry on a like business’21.   1 Goodwill as an asset of the firm is discussed at para 8.52ff above and its sale at 18.36 above.  2 Townsend v Jarman [1900] 2 Ch 698; Jennings v Jennings [1898] 1 Ch 378.  3 Darby v Meehan (1998) Times, 25 November.   4 [2005] EWCA Civ 741; Tuckey and Jacob LLJ, Arden LJ dissenting.  5 Banks v Gibson (1865) 34 Beav 566.   6 On the sale of a business the transfer of the goodwill as an asset of that business is implied: Shipwright v Clements (1871) 19 WR 599; ‘Assets’ includes goodwill: Jennings v Jennings [1898] 1 Ch  378; Townsend v Jarman [1900] 2 Ch  698. Where a partner granted to his attorney a power to sell his interest subject to such conditions as the attorney might approve, it was implicit that the attorney could impose a restrictive covenant on the partner: Hawkesley v Outram [1892] 3 Ch 359, CA.  7 Darby v Meeham (22 October 1998, unreported), QBD (S Tomlinson QC); Jennings v Jennings [1898] 1 Ch 378; Gray v Smith (1889) 43 Ch D 208 at 221 per Cotton LJ distinguishing Levy v Walker (1879) 10 Ch D 436, CA.  8 Trego v Hunt [1896] AC 7, HL; Boorne v Wicker [1927] 1 Ch 667; Leggott v Barrett (1880) 15 Ch  D  306. He may not even solicit where his agreement envisages that he may run a competing business (Gillingham v Beddow [1900] 2 Ch 242) nor may he solicit customers of

460

Competition with the firm after retirement or dissolution 18.67 the old firm who have become his own customers: Curl Bros Ltd v Webster [1904] 1 Ch 685, nor appropriate legal aid files: Archibald Finlayson v Turnbull 1997 SLT 613, OH.  9 Boome v Wicker [1927] 1 Ch  667; Mogford v Courtenay (1881) 45  LT  303; Hookham v Pottage (1872) 8 Ch App 91: then the offensive words, painted over the door of the new premises, were, ‘Pottage, from Hookham and Pottage’. See Thorley’s Cattle Food Co v Massam (1880) 14 Ch D 763, CA and contrast Matthews v Hodgson (1886) 2 TLR 899, CA. 10 Mogford v Courtenay (1881) 45 LT 303. 11 Churton v Douglas (1859) John 174. 12 Re David and Matthews [1899] 1 Ch 378; Levy v Walker (1879) 10 Ch D 436, CA; Lewis v Langdon (1835) 7 Sim 421. 13 Re David and Matthews [1899] 1 Ch 378 per Romer J at 385. 14 Tottey v Kemp (1970) 215 Estates Gazette 1021. 15 JH  Coles Pty Ltd v Need [1934]  AC  82 at 88, PC; Kingston Miller & Co Ltd v Thomas Kingston & Co Ltd [1912] 1 Ch 575 at 581; contrast if goods are sold which are falsely said to have been manufactured or discovered by a certain person: [1934] AC 82 at 88, contrasting Bile Bean Manufacturing Co Ltd v Davidson (1905) 22 RPC 553 with Ford v Foster (1872) 7 Ch App 611. 16 Farey v Cooper [1927] 2 KB 384, CA; similarly where the interest is assigned involuntarily under a deed for the benefit of creditors: Green & Sons (Northampton) Ltd v Morris [1914] 1 Ch 562. 17 Banks v Gibson (1865) 34 Beav 566; Chapell v Griffith (1885) 53 LT 459; Burchell v Wilde [1900] 1 Ch 551, CA. 18 Dawson v Beeson (1882) 22 Ch D 504, CA following Walker v Mottram (1881) 19 Ch D 355, CA; Horst v Horst (1901) 45 Sol Jo 754. 19 See paras 8.52ff and 18.36 above. 20 Burchell v Wilde [1900] 1 Ch 551, CA; Tottey v Kemp (1970) 215 Estates Gazette 1021; Banks v Gibson (1865) 34 Beav 566 where the assets of the former firm had been divided between the partners on dissolution; Morgan v Forster (1976) 69  DLR (3d) 28 (Canada). By contrast in Gray v Smith (1889) 43 Ch D 208 continued use of an ex-partner’s name by those running the business without an assignment of the goodwill from him was restrained, the reason being that continued use of his name might impose liability upon him; see also Jennings v Jennings [1898] 1 Ch 378. 21 Johnson v Helleley (1864) 34 Beav 63 (affirmed with immaterial variation 46 ER 484) and see para  18.36 above; see discussion in Hawksley v Outram [1892] 3 Ch  359, CA as to whether a vendor of a partnership share acting under a power of attorney has power to bind his principal not to carry on a competing business. The partnership agreement often specifies the restraints that will be binding on a dissolution: Kennedy v Lee (1817) 3 Mer 441.

B  Covenants in restraint of trade generally (a) Enforceability 18.67  Covenants and stipulations restricting competition which are made in partnership agreements are made for good consideration1. They were once interpreted restrictively; thus a covenant preventing a solicitor from ‘practising’ in a certain place was not construed as preventing him from being employed as a solicitor’s clerk2. They are now interpreted purposively3, according to the background knowledge of the partners4. It has once been said that wide words may be limited as to their meaning by the court so as to make the clause reasonable and therefore enforceable5. But more recently the rules as to its construction were held by the Court of Appeal in Clarke v Newland6 to be these: 461

18.68  The effect of dissolution and retirement

(a) questions of construction should be approached in the first instance without regard to the question of legality; (b) a clause should be construed with reference to the object sought to be obtained, which is to restrain rivalry in trade7; (c) the clause should be construed in its context in the light of the facts at the time when it was made. A covenant will only be enforced if reasonable, as discussed below. If its valid part may be severed from its invalid part then the valid part may be enforced8. An interlocutory injunction will usually be granted to restrain a breach of a valid covenant9 unless there is an equitable defence, or if there is a doubt as to the value of the undertaking in damages given by the claimant10. An injunction against a person restraining him from soliciting will be broken if one of his salesmen is soliciting11.  1 Leighton v Wales (1838) 3 M & W 545; and in a retirement agreement, Austen v Boys (1858) 2 De G & J 626 at 637.  2 Way v Bishop [1928] Ch 647, CA, contrasting Palmer v Mallett (1887) 36 Ch D 411, CA and Robertson v Willmott (1909) 25 TLR 681. The word ‘practice’ in the case of a medical partnership was construed in Clarke v Newland [1991] 1 All ER 397, CA.  3 Beckett Investment Management Group v Hall [2007] EWCA Civ 613, CA following Lindley MR in Haynes v Doman [1899] 2 Ch 13 at 25.  4 Investors’ Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, HL.   5 See Lord Denning MR in Littlewoods Organisation Ltd v Harris [1978] 1  All ER  1026 at 1035.   6 [1991] 1 All ER 397 at 402f per Neill LJ.  7 Beckett Investment Management Group v Hall [2007] EWCA Civ 613, CA.  8 T Lucas v Mitchell [1974] Ch 129.   9 See Landmark Brickwork Ltd v Sutcliffe [2011] EWHC 1239 (QB) and paras 15.32–15.34 above. 10 Scott v Scott [2012] EWHC 4186 (Ch). 11 Back Office v James Percival [2013] EWHC 1385 (QB).

(b) Damages 18.68  Damages may be ordered1 for breach of such covenants, which will be measured as the firm’s loss or (in exceptional circumstances such as where the firm has itself suffered no ascertainable loss) may be computed as a reasonable sum for releasing the covenants2: In Experience Hendrix LLC  v PPX  Enterprises3 the defendants issued unlicensed recordings of the music of Jimi Hendrix. His estate sued. The Court of Appeal (distinguishing A-G v Blake because the breaches took place in a commercial context) refused an account of profit but ordered that the defendants should pay such a sum as might reasonably have been demanded for the licences. In Pell Frischmann Engineering v Bow Valley Iran4 the claimant had been negotiating for a contract and entered into a consortium with the defendant for that purpose and the defendant covenanted that it would not approach the third party and would keep confidential all information it obtained from the claimant. It broke both covenants. The Privy Council upheld an award

462

Competition with the firm after retirement or dissolution 18.70 of damages computed as damages in lieu of an injunction, based upon the notional sum that might have been payable by the defendant for the release of the covenants, and to compute this it was relevant to look at the terms of the negotiations that had taken place between the parties.

So an account of profits may be ordered either as damages in lieu of an injunction under Lord Cairns’ Act5 or merely because common law damages will not do justice and the court recognises the need to compensate the claimant in circumstances where he cannot demonstrate identifiable financial loss’6. The court has a general discretion to award damages in lieu of an injunction7 and the notion that damages should only be awarded in exceptional cases is wrong in law8. The court will look favourably at a clause in a partnership agreement which pre-estimates the value of the damages that may be suffered, but an estimate which is excessive (such as twice the firm’s last two years’ receipts from the client in question) will be unenforceable as an unlawful penalty9. 1 Damages as between continuing partners is discussed in Chapters 11 and 14. 2 A-G v Blake [2001] 1 AC 268; Jaggard v Sawyer [1995] 1 WLR 269 at 282; and Wrotham Park Estate Co v Parkside Homes Ltd [1974] 1  WLR  798, followed in Pell Frischmann Engineering v Bow Valley Iran [2009] UKPC 45. The Court of Appeal agreed in WWF World Wide Fund for Nature v World Wrestling Foundation [2008] 1 WLR 445 esp per Chadwick LJ at para 58 following those authorities and Experience Hendrix LLC v PPX Enterprises [2003] EWCA Civ 323. 3 [2003] EWCA Civ 323, esp Mance LJ. 4 [2009] UKPC 45. 5 See the Senior Courts Act 1981, s  50, following s  2 of Lord Cairns’s Act (the Chancery Amendment Act 1858) and see Pell Frischmann Engineering v Bow Valley Iran [2009] UKPC 45. 6 WWF World Wide Fund for Nature v World Wrestling Foundation [2008] 1 WLR 445 esp per Chadwick LJ at para 59; LC Services v Brown [2003] EWHC 3024 (QB), Stanley Burton QC; Dean v Macdowell (1878) 8 Ch D 345, CA. 7 Coventry v Lawrence [2014] EWCA Civ 26 UKSC per Lord Neuberger at p 119, following Jaggard v Sawyer [1995] 1 WLR 269. 8 Coventry v Lawrence [2014] EWCA Civ 26 UKSC per Lord Neuberger at p 120 disapproving Regan v Paul Properties [2007] Ch 135 and Watson v Croft Promosport [2009] 3 All ER 249. 9 Taylor Stuart & Co v Croft (7 May 1997, unreported), Ch D, Stanley Burton QC.

(c) Costs 18.69  Where an action against a departing partner succeeds and he has been financed in his defence by the firm that he is joining, that firm may be ordered to contribute to the former firm’s costs even though it is not a party to the action1. 1 SBJ Stephenson Ltd v Mandy [1999] EWCA Civ 1720, Bell J.

(d)  Who can enforce covenants 18.70  If valid they are enforceable against the partner by the continuing partners or their assignees of the business who took the benefit of the covenants1 463

18.71  The effect of dissolution and retirement

and their personal representatives and (by implication)2 subsequent owners of the goodwill3. This assumes that the business survives. If there is a general dissolution without assignment of the benefit of the covenants, they lapse4. And they are not enforceable against successors in title of the ex-partner5. Nor can they be assigned ‘in gross’ apart from any business or goodwill, for then they would be unreasonable and void6. Nor does a covenant restraining dealings with clients of the firm’s business extend to clients of a previous vendor of that business7. 1 Wessex Dairies Ltd v Smith [1935] 2 KB 80, CA; Townsend v Jarman [1900] 2 Ch 698 following Jacoby v Whitmore (1883) 49 LT 335, CA, except in the unusual case of the covenant being personal: Davies v Davies (1887) 36 Ch D 359 at 388. Morris Angel & Son Ltd v Hollande [1993]  ICR  71, CA concerns the effect of the Transfer of Undertakings Regulations 2001 (replaced by the Transfer of Undertakings (Protection of Employment) Regulations 2006). 2 The benefit of the covenant passes by assignment of the goodwill: Dunwoody Sports Marketing v Prescott [2007] 1 WLR 2343 following Townsend v Jarman [1900] 2 Ch 698; Jennings v Jennings [1898] 1 Ch 378. 3 For goodwill see para 8.52ff above. 4 Brace v Calder [1895] 2 QB 253. Or on repudiation: Rock Refrigeration Ltd v Jones [1997] 1 All ER 1, CA. 5 Cooke v Colcraft (1773) 2 Wm Bl 856. 6 Per Farwell J in Townsend v Jarman [1900] 2 Ch 698 at 702; the question of a covenant being unreasonable and hence void is considered in para 18.72 below. 7 Dunwoody Sports Marketing v Prescott [2007] EWCA Civ 461.

(e)  Inducing breach of contract 18.71  An outsider (for instance a rival firm) who induces a partner to break his partnership obligations by leaving prematurely1 or breaking his covenants2 may itself become liable for the tort of inducing breach of covenant3, and may be injuncted accordingly4 but only if it knows of the relevant contractual term or covenant and intends to induce the breach5. 1 Larkin v Long [1915] AC 814, HL. 2 Deacons v White & Case (2003) 3 HKLRD 670. 3 LC Services v Brown [2003] EWHC 3024 (QB), Stanley Burnton QC, a case concerning a sales director. 4 USB Wealth Management v Vestra Wealth [2008] IRLR 965. 5 OBG v Allan [2008] AC 1; Timeplan Education Group Ltd v NUT [1997] IRLR 457, CA.

C  What is ‘reasonable’ 18.72  Covenants are unenforceable unless those seeking to enforce them show that they are reasonable as between the parties, and that they have or have had some business that can be said to need protection1. They may also be unenforceable as being against the public interest2. ‘Enforceable’ usually means enforceable by injunction but may mean enforceable by the threat of damages or loss of a financial entitlement3. The principle is the same: by none of these methods can a covenant be enforced if it is invalid. ‘Reasonable’ means reasonable for the purpose of protecting the business of the firm and any continuation or anticipated expansion of it4 against rivalry5. 464

Competition with the firm after retirement or dissolution 18.72 For a restraint to be reasonable in the interests of the parties it must afford no more than adequate protection to the party in whose favour it is imposed6.

If on its face it is wider than this it is wholly unenforceable rather than partly enforceable to the extent that it is reasonable7. But part of the covenant is good if it is a severable part of a wider covenant8, and a covenant may be valid if its true construction gives a narrower meaning than might at first appear9. What is ‘reasonable’ in a standard covenant is not tested according to whether the covenant would be generally reasonable, but whether it is reasonable for the particular partner10. Restrictions in covenants given by employees11 or ‘salaried partners’12 are less likely to be held reasonable13 than in covenants given by the vendors of businesses, but covenants by partners do not conform exactly to either type so should not be categorised with either14. The courts tend towards upholding as reasonable a covenant that restricts retiring partners from competing with the firm, because: (a) it is usually ‘mutual’ in the sense that ‘the covenant is entered into by each of the partners and may become binding on any of them, depending upon the events which happen’15; (b) it is usually entered into between parties of equal bargaining power: ‘Where a commercial bargain had been struck between business people of broadly equal bargaining power, the general principle of law was that they must be treated as the best judges of what was reasonable’16. Whether a covenant is reasonable for the protection of the firm’s business depends upon the nature of the business and its competition and its customers, and it is relevant whether the restriction is usual in the trade and how narrow and technical is the market17. It will not be unreasonable if it protects trade secrets18. The validity of the covenant and not the culpability of the breach must be tested, and tested according to the circumstances prevailing when the covenant was made19. It must be construed first, to ascertain its width at face value, although it will not be held unreasonable merely because it might prohibit a person doing something in circumstances which are highly unlikely20. On the other hand the court will not impose an artificial construction upon a covenant in order to preserve its validity21. Frequently the enforceability of the covenant has to be decided on the interim application for an injunction22.  1 Rayner v Pegler (1964) 189 Estates Gazette 967; Shell (UK) Ltd v Lostock Garages Ltd [1976] 1 WLR 1187, CA.   2 See note 1 above. For instance if they create a local monopoly (see Lindley LJ in E Underwood & Son Ltd v Barker [1899] 1 Ch 300 at 305), but this would probably be unlawful anyway under Art 81 EC (formerly Arts 85 or 86 of the Treaty of Rome), the Competition Act 1998 or at common law: North-Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1913] 3 KB 422, CA; on appeal [1914] AC 461, HL.   3 A fixed financial sanction may not be a genuine pre-estimate of the loss to the firm that will be suffered by the breach of covenant, so will be void as an unlawful penalty.  4 Lyne-Pirkis v Jones [1969] 1 WLR 1293, CA. There is no free-standing principle that the covenant is only enforceable as long as the firm has a business: Towry EJ Ltd v Bennett [2012] EWHC 224 (QB) paras 405–415 considering Herbert Morris Ltd v Saxelby [1916] 1 AC 688.  5 Clarke v Newland [1991] 1 All ER 397, CA.   6 Per Lord Parker in Herbert Morris Ltd v Saxelby [1916] 1  AC  688 at 707, quoted (with emphasis added) by Lord Fraser of Tullybelton in Bridge v Deacons [1984] AC 705 at 713; Rogers v Maddocks [1892] 3 Ch 346 at 355; see Epsley v Williams [1997] 1 EGLR 9, CA.

465

18.73  The effect of dissolution and retirement  7 Peyton v Mindham [1971] 3 All ER 1215. See para 18.67 above.  8 Routh v Jones [1947] 1 All ER 758 at 762 per Greene MR.  9 Clarke v Newland [1991] 1 All ER 397, CA. 10 Countryside Assured Financial Services v Smart [2004] EWHC 1214 (Ch). 11 Thomas v Farr [2007] EWCA Civ 118. 12 Kao Lee & Yip v Edwards [1993] 1 HKC 314. 13 Whitehill v Bradford [1952] Ch  236 at 246; Office Angels Ltd v Rainer-Thomas [1991] IRLR 214, CA; Craig v Cole [1964] WAR 257. 14 Per Lord Fraser of Tullybelton in Bridge v Deacons [1984] AC 705, PC. 15 Per Mason J in Geraghty v Minter (1979) 142 CLR 177 at 198 cited with approval by Lord Fraser of Tullybelton in Bridge v Deacons [1984] AC 705, PC. 16 Dawnay, Day & Co Ltd v de Braconier d’Alphen [1997] IRLR 285, upheld [1997] IRLR 442, CA; Lyne-Pirkis v Jones [1969] 1 WLR 1293 at 1301G, CA; Lawrence v Farndon (23 January 1998, unreported), Ch D. 17 Sir W C Leng & Co Ltd v Andrews [1909] 1 Ch 763, CA; Beckett Investment Management Group v Hall [2007] EWCA Civ 613, CA. 18 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535, HL. 19 Putsman v Taylor [1927] 1 KB 637 cited with approval by Edmund Davies LJ in Lyne-Pirkis v Jones [1969] 1 WLR 1293 at 1301G, CA; Clarke v Newland [1991] 1 All ER 397 at 402, CA, but this does not mean that a covenant will be enforced if it has ceased to be of value to the firm, or if it has otherwise become unreasonable to enforce: Shell UK Ltd v Lostock Garage Ltd [1976] 1 WLR 1187, CA. 20 Per Dillon LJ in Edwards v Worboys [1984] AC 724n at 728A citing Salmon and Cross LJJ in Home Counties Dairies Ltd v Skilton [1970] 1 WLR 526; see also Clarke v Newland [1991] 1 All ER 397, CA; and Haynes v Doman [1899] 2 Ch 13 at 24, CA. 21 Kao, Lee & Yip v Edwards [1993] 1 HKC 314 (HKCA) and for questions of construction see para 18.67 above. 22 Or if there is a triable issue an interlocutory order may be made and a speedy trial directed: Edwards v Worboys [1984] AC 724n, CA.

(a)  Geographical extent and duration of the restriction 18.73  Older covenants were usually framed by reference to competition over a geographical area, but improved communications have lessened the importance of the firm’s physical place of business, and modern covenants rightly concern themselves more with restriction upon trade with identifiable clients. The question is always whether the covenant does more than protect the business of the firm, so a ten-mile radius is excessive if the firm’s practice only extends over a five-mile radius1. But a two-year restriction upon a doctor practising within two miles of the firm’s surgery at Brightlingsea in Essex was held reasonable in Kerr v Morris2, as was a ten-mile limit in a rural area for 21 years in Whitehill v Bradford3: … a life banishment from the area concerned. But … the partnership … was intended to continue for a long period. A man like [the defendant] is a relatively mobile person and the whole of the rest of the United Kingdom is open …4

Mere length of time will seldom invalidate a covenant that is otherwise reasonable5, and a covenant restraining use of a certain name may be reasonable even though unlimited in geographical extent6. A five-year restriction upon a solicitor acting for anyone who had been a client of the firm during the previous three years has been held to be reasonable7, as has a restriction upon a solicitor practising within five miles of a suburban firm’s offices8, but this extent might be excessive in London9. 466

Competition with the firm after retirement or dissolution 18.74 1 Lyne-Pirkis v Jones [1969] 1  WLR  1293, CA; Tim Russ & Co (A  Firm) v (1) Simon Robertson (2) Andrea Mayo (3) Robertsons Estate Agents Ltd [2011] EWHC 3470 (Ch) (an employment case). 2 [1987] Ch 90, CA. Similarly on an estate agent: Epsley v Williams [1997] 1 EGLR 9, CA. 3 [1952] Ch 236, CA. 4 Per Evershed MR at [1952] Ch 236 at 251. 5 Connors Bros Ltd v Connors [1940] 4  All ER  179 at 195, PC. In Fitch v Dewes [1921] 2 AC 158 the House of Lords upheld a restriction that was unlimited in time. 6 Vernon v Hallam (1886) 34 Ch D 748 at 751. In Emersub XXXVI Inc v Wheatley (14 July 1998, unreported) Wright J upheld a covenant restraining the former chairman of a company from competing with it anywhere in the world for a period of four years. 7 Bridge v Deacons [1984]  AC  705, PC; similarly in Stenhouse Australia Ltd v Phillips [1974] AC 391. 8 Edwards v Worboys [1984] AC 724n, CA. 9 D Bates & Co v Dale [1937] 3 All ER 650.

(b)  Restrictions relating to clients or employees 18.74  A covenant will be unenforceable if it restricts the ex-partner from an activity which is wider than that of the firm1, but not if it restricts him from using a particular name2 or trading with or soliciting staff from3 a particular rival4 or restricts a solicitor from dealing with previous clients of the firm5 even if his own department in the firm had no dealing with those clients6. In Bridge v Deacon7 the Privy Council upheld a restriction upon an ex-partner acting for five years for any person who had been a client of the partnership during the previous three years, even though this extended to all the firm’s clients and not just those for whom the defendant or his department had acted.

Indeed a restriction upon working for ex-clients is probably the most reasonable of covenants8 and it is essential if it is part of an agreement for the sale of the goodwill or business as mentioned in para  18.56 above. A covenant will be unenforceable if it purports to prevent the retiring partner from employing ex-employees of the firm9. 1 Lyne-Pirkis v Jones [1969] 1 WLR 1293, CA. 2 Vernon v Hallam (1886) 34 Ch D 748. 3 Deacons v White & Case (2003) 3 HKLRD 670, where there is discussion of the law relating to the meaning of ‘solicitation’ of staff, and the torts of inducement to break contracts and unlawful interference, in the context of a non-recruitment agreement. 4 Howard v Danner (1901) 17 TLR 548. 5 Nicholls v Stretton (1847) 10 QB 346; aliter for a covenant restricting him from dealing with those who might in the future become clients of the firm, although in Konski v Peet [1915] 1 Ch  530 such a restriction was upheld. In Dawnay Day & Co v de Braconier d’Alphen [1997] IRLR 285 a two-year restriction in a company manager’s service contract was upheld which prevented him from being concerned with any business that competed with the plaintiff, and from canvassing its clients. 6 Bridge v Deacons [1984] AC 705, PC. 7 [1984] AC 705, PC. 8 Thurston Hoskin & Partnership v Jewill Hill & Bennett (5 February 2002, unreported), CA. 9 Attwood v Lamont [1920] 3  KB  571, CA; Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd [1959] Ch 108, CA; Dawnay, Day & Co Ltd v de Braconier d’Alphen [1997] IRLR 285.

467

18.75  The effect of dissolution and retirement

(c)  A covenant part of a wider agreement 18.75  A covenant may be unenforceable even though it is part of a wider dissolution or retirement agreement which is itself enforceable1. Only if the void restraint of trade clause is the real or main consideration for the contract (which will be unusual) will the whole agreement fail2. A contract is not prevented from being upheld merely because the parties would not have agreed it without the inclusion of the restraint3. 1 Marshall v NM Financial Management Ltd [1997] IRLR 449, CA. 2 Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1975] AC 561, PC. 3 Alec Lobb (Garages) Ltd v Total Oil GB Ltd [1985] 1 All ER 303, CA.

(d)  Solicitor-client relations 18.76  There is no rule that a covenant is bad merely because it prevents a client from instructing the solicitor of his choice1. The right of an outgoing partner to inform his clients of his departure is discussed at para 16.21 above. 1 Fitch v Dewes [1921] 2 AC 158 HL; Edwards v Worboys [1984] AC 724n, CA; Bridge v Deacons [1984] AC 705 at 719, PC dissenting from dicta to the contrary in Oswald Hickson Collier & Co v Carter-Ruck [1984] AC 720n, CA.

(e)  National Health Service practitioners 18.77  The meaning of ‘practice’ in the case of a medical partnership was considered in Clarke v Newland1. A covenant in favour of a general practice will be unreasonable if it can be construed to prohibit an ex-partner from practising as a consultant rather than a general practitioner, and even if he has no intention of doing so2. Nothing in the National Health Service Act 2006 invalidates a covenant by a practitioner merely because it prevents his giving certain patients medical care3. In Kaliszer v Ashley4 the court noted that the General Medical Council regarded as an acceptable maximum a restriction which prevents a doctor from engaging in any NHS practice within a radius of two miles for a period of two years. It was held reasonable for a partner to be restrained for one year from practising within three miles on any person who was a patient of the practice when he left it. But the sale of the goodwill of a medical practice is prohibited under the Act as discussed at para 8.54 above. 1 [1991] 1 All ER 397, CA. 2 Lyne-Pirkis v Jones [1969] 1 WLR 1293, CA. 3 Kerr v Morris [1987] Ch 90, CA (a case on the provisions of the National Health Service Act 1977), overruling Hensman v Traill (1980) 124 Sol Jo 776. 4 (14 June 2001, unreported), Ch D (Judge Reid QC).

468

19 The firm and outsiders Contents

para 1 The authority of a partner to bind the firm A The express and implied authority of a partner��������������������������19.1 B Matters within the business of the firm��������������������������������������19.8 2 The liability of the firm for a partner’s wrongs and omissions A Wrongful acts and omissions generally�������������������������������������19.44 B Negligence��������������������������������������������������������������������������������19.48 C Breach of contract��������������������������������������������������������������������19.49 D Crime���������������������������������������������������������������������������������������19.50 E Fraud���������������������������������������������������������������������������������������19.51 F Misrepresentation��������������������������������������������������������������������19.52 G Constructive trusteeship or accountability in equity�����������������19.53 H Other torts and wrongs������������������������������������������������������������19.54 I Where the partners in the firm change��������������������������������������19.56 J Liability of a successor practice on a professional indemnity claim����������������������������������������������������������������������������������������19.57 3 Breach of trust and misappropriation A The principles���������������������������������������������������������������������������19.58 B Where the partner in default is acting within his authority as a partner����������������������������������������������������������������������������������19.60 C Where the partner in default is acting outside his authority as a partner����������������������������������������������������������������������������������19.62 D What the firm may be liable for������������������������������������������������19.70 E Breach of solicitors’ undertakings���������������������������������������������19.72 F A trustee-partner’s right to fees������������������������������������������������19.74 4 Clients’ confidential information and conflicts of interest���������������19.75

469

19.1  The firm and outsiders

1 THE AUTHORITY OF A PARTNER TO BIND THE FIRM A The express and implied authority of a partner   19.1 B Matters within the business of the firm   19.8

A  The express and implied authority of a partner (a)  Express authority 19.1  A firm is not a legal entity capable of committing a wrong or entering into a contract; any contract is made with its members1. It therefore acts only through its members who are to this extent agents for it and one another2: All the partners are to answer to strangers for the acts of any one of them3.

Where a partner makes an agreement or does some other act with the express authority of the firm, the partners (including any sleeping4 or limited partners5) are liable to an outsider who is affected on ordinary principles of vicarious liability or agency6. Section 6 of the Partnership Act 1890 provides: An act or instrument relating to the business of the firm done or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person thereto authorised, whether a partner or not, is binding on the firm and all the partners.

The authority must be given by the firm; the partner cannot find it in himself7. If it is a clear representation that the partner has authority then the person relying upon it has no duty to investigate if it is true8. If the partner once had authority but the firm cancelled it, the question will be when notice of the cancellation reached the person dealing with him9. Similarly if his authority is discharged by his death10. If he has authority from the firm to borrow but he borrows the money in his own name11, or the firm is an undisclosed principal12, the firm is still liable. If he has no authority at all then he does not bind the firm but he himself is liable13. If a written draft agreement envisages signature by all partners but is in fact signed by only one, the partnership will still be bound, if the single partner who signs has actual or ostensible authority to bind the firm14.  1 New Hampshire Insurance Co v MGN Ltd [1997] LRLR 24, CA.  2 British Homes Assurance Corpn Ltd v Paterson [1902] 2 Ch 404.   3 Per Lord Nottingham in Mascall & Smith (1676) 79 Seld Soc 464.  4 Beckham v Drake (1841) 9 M & W 79; revsd sub nom Drake v Beckham (1843) 11 M & W 315, Ex Ch.   5 Limited partnership is discussed in Chapter 24.   6 The circumstances in which the acts of an individual are attributed to a company are discussed by Lord Hoffmann in Meridian Global Funds Management Asia Ltd v Securities Commission [1996] 2 AC 500, PC.

470

The authority of a partner to bind the firm 19.3   7 Per Lord Donaldson in United Bank of Kuwait v Hammoud [1988] 1 WLR 1051 at 1066H; Ex p Agace (1792) 2 Cox Eq Cas 312.  8 Thanaknan Kasikorn v Akai Holdings (No 2) (2010) 13 HKCFAR 479.  9 Smith v Ure (1833) 2 Knapp 188. 10 Usher v Dauncey (1814) 4 Camp 97. The beginning and end of a partner’s liability is discussed at para 20.13ff below. 11 McIntyre and Edwards, ex p Gillard (1895) 13 NZLR 735. 12 Karmali Abdulla Allarakhia v Vora Karimji Jiwanji (1914)  LR  42 Ind App 48; Finny v Bergum [1926] 3 DLR 798; Cameron v Young (1871) 9 M 786, Ct of Sess. As to the right of the outsider to elect to treat the contract as that of the partner where he did not know of the partnership, compare Robson v Drummond (1831) 2 B & Ad 303 and Stevens v Benning (1854) 1 K & J 168; affd (1855) 6 De GM & G 223. 13 Fortune v Young 1918 SC 1. But see paras 19.3–19.7 below. 14 Kotak v Kotak [2017] EWHC 1821 (Ch).

(b)  Implied authority 19.2  The firm is also liable in the more common case where the authority is not express but is implied by reason of the fact that the act is done within the scope of the business of the firm1. The scope is that of the firm in question and may be determined by its particular practice2 or that of businesses of its kind3, and is considered within the next section of this chapter: ‘The business of the firm’. Section 5 of the Partnership Act 1890 commences: Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership …. 1 Cox v Hickman (1860) 8 HL Cas 268; Bank of Australasia v Breillat (1847) 6 Moo PCC 152; Sims, Executors of Abernethie v Brutton and Clipperton (1850) 5 Exch 802. 2 Hasleham v Young (1844) 5 QB 833. 3 Nicholson v Ricketts (1860) 2 E & E 497; Stephens v Reynolds (1860) 5 H & N 513 at 517; Forbes v Marshall (1855) 11 Exch 166; cf Rhodes v Moules [1895] 1 Ch 236, CA.

(c)  Apparent or ostensible authority 19.3  The firm will be liable if the partner was not acting within the scope of the business but reasonably appeared to the honest outsider to be so because he was acting as if he were1, for instance from previous usage2. Then he is said to have ‘usual’ or ‘apparent’ authority, and the firm is bound even if the other partners do not know of it3 or even if he is in fact defrauding it4. Section 5 of the Partnership Act 1890 continues: … and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners …

This requires investigation of what business is ‘the kind carried on by the firm’5, and also whether the act in question is ‘for carrying on in the usual way’ that business. If affirmatively answered then the partner: 471

19.3  The firm and outsiders … has ostensible authority to bind the firm in relation to acts which appear to be for the purpose of the business of the partnership because they are acts which could be done in the carrying on in the usual way business of the kind carried on by the firm6.

Partners in trading firms have wider ostensible authority than those acting in non-trading firms; a partner in a law firm will not usually have ostensible authority to borrow money on behalf of the firm7. Often partners try to restrict the acts that a partner may perform or the agreements that he may enter into on behalf of the firm, and if the partner exceeds their restrictions then he will be liable to the firm as discussed in Chapter 14. But usually the outsider will be unaware of those restrictions, and if so the firm may be bound8, because the outsider is entitled to assume the transaction is for partnership purposes unless there are circumstances which put him on inquiry9. Section 8 of the Partnership Act 1890 further provides: If it has been agreed between the partners that any restriction shall be placed on the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement.

The public have a right to assume that every partner has authority from his co-partners to bind the whole firm in contracts made according to the ordinary usages of trade10. If a firm’s business extends to a certain area in which a certain act is necessary, then a partner becomes ostensibly authorised to do that act. In Bank of Scotland v Henry Butcher & Co11 the partnership agreement of the defendant firm provided that partners could not give guarantees on behalf of the firm. The firm (under the signature of some of the partners only) then entered into a consultancy agreement with another firm and in that agreement purportedly gave a guarantee, as an integral part of the agreement. The issue was whether the guarantee was binding. The Court of Appeal held yes. Munby J12 said that once a partnership has treated a particular transaction as part of its business then, whether or not that transaction is part of the ‘business of the kind carried on by the firm’, the transaction becomes part of the partnership business and the partnership is bound by any liabilities ‘connected with’ or ‘an integral part of’ the transaction.

But for the act to be ‘usual’ in a particular kind of business, it has to be reasonably necessary and not just convenient for the carrying on of that type of business, and it does not become so by the partner saying that it is13. The liability of the firm for the partner’s wrongs is dealt with in para 19.44ff below.   1 See First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194, CA and Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103 discussed at para 19.8ff below. He will not bind the firm by a guarantee apparently unconnected with the firm: Hasleham v Young (1844) 5 QB 833; Duncan v Lowndes and Bateman (1813) 3 Camp 478.  2 Brettel v Williams (1849) 4 Exch 623 at 629; SEB Trygg Liv v Manches [2006] 1 WLR 2276, CA. Apparent authority of company agents is discussed by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480 at 505.

472

The authority of a partner to bind the firm 19.4   3 Per Munby J in Bank of Scotland v Henry Butcher [2003] 1 BCLC 575, CA at para 36.  4 Bond v Gibson (1808) 1 Camp 185; Armagas Ltd v Mundogas SA, The Ocean Frost [1986] AC 717; Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, CA, a case of a company director’s ostensible authority.  5 Lederberger v Mediterranean Olives Pty [2012] 38  VR  509; Lim Hsi-Wei Marc v Orix Capital [2010] 3 SLR 1189.   6 Per Chadwick LJ in Bank of Scotland v Henry Butcher [2003] 1 BCLC 575 at para 89.  7 Lim His-Wei-Marc v Orix Capital (2011) 3 LRC 695 (HK C of A).  8 Hawken v Bourne (1841) 8 M & W 703. He may have been specifically prohibited by his partners: Hallett v Dowdall (1852) 18 QB 2; Forbes v Marshall (1855) 11 Exch 166.  9 Okell v Eaton and Okell (1874) 31 LT 330; Loyd v Freshfield and Kaye (1826) 2 C & P 325; Reid v Hollinshead (1825) 7 Dow & Ry KB 444. 10 Per Lord Cranworth in Cox v Hickman (1860) 8 HL Cas 268. To similar effect per Steyn LJ in First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194 at 196: ‘The reasonable expectations of honest men must be protected.’ 11 [2003] 1  BCLC  575, but contrast Lim Hsi-Wei-Marc v Orix Capital (2011) 3  LRC  695 (HK C of A). 12 Giving the lead judgment, para 43, approving and following Sandilands and Marsh (1819) 2 B & Ald 673, 106 ER 511. 13 Lim His-Wei-Marc v Orix Capital (2011) 3 LRC 695 (HK C of A).

(d)  Apparently no authority 19.4  If the outsider does not believe that the partner is a partner at all1, or has notice2 that he is exceeding his actual authority3, or knows that he is not acting in the capacity of a partner4, then the firm will not be bound, whether the act in question would seem to be within the scope of the business of the firm or not5. If a person dealing with a partner knows that the transaction is contrary to the commercial interests of the partnership, it will be difficult for him to assert with credibility that he believed that the partner had actual authority6. A partner’s authority may be expressly limited, for instance if the public is notified that he has no authority to make any representation or warranty7. An attempt by a partner to charge partnership assets to secure his private debt will give no security to a lender who knows that they are partnership assets8, but will give security to one who does not know it9. Section 5 of the Partnership Act 1890 quoted above continues: … the acts … bind the firm … unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner.

Similarly if the partner purports to make a purchase on behalf of the firm where he has no authority to do so and no apparent authority because the purchase is apparently unconnected with the firm’s ordinary course of business, the firm will not be liable to the vendor (unless the firm adopts the goods and so ratifies the contract subsequently)10, but the vendor’s claim against the partner still remains intact. Section 7 of the Partnership Act 1890 provides: Where one partner pledges the credit of the firm for a purpose apparently not connected with the firm’s ordinary course of business, the firm is not bound, unless he is in fact specially authorised by the other partners: but this section does not affect any personal liability incurred by an individual partner.

473

19.5  The firm and outsiders  1 Lloyds Bank Ltd v Swiss Bankverein (1912) 107 LT 309; Alderson v Pope (1808) 1 Camp 404n.  2 Lord Gallway v Mathew and Smithson (1808) 10 East 264; see s 8 quoted in para 19.3 above; the outsider will have notice if the partner is obviously using partnership money for his private purposes: Kendal v Wood (1870) LR 6 Exch 243; A L Underwood Ltd v Bank of Liverpool (1924) 1 KB 77. A contention that purchase documentation put a purchaser on notice of the vendor’s employee’s lack of notice was rejected by the Court of Appeal in Pharmed Medical v Univar [2002] EWCA Civ 1569.   3 Contrast Edmunds v Bushell and Jones (1865) LR 1 QB 97 and Hambro v Burnand [1904] 2 KB 10, CA.  4 Chittick v Maxwell (1993) 18 ALR 728.  5 Hogarth v Latham & Co (1878) 3 QBD 643, CA; Heilbut v Nevill (1869) LR 4 CP 354; affd (1870) LR 5 CP 478, Ex Ch.   6 Per Lord Scott in Criterion Properties v Stratford UL Properties [2004] 1 WLR 1846, HL at para 31, with which judgment the others agreed.   7 Per Brightman J in Overbrook Estates Ltd v Glencombe Properties [1974] 3  All ER  511. During the trial of the Tichborne claimant at the Common Pleas in 1872, Bovill CJ allowed one member of the firm acting as the claimant’s solicitors to withdraw from the record although the other members of the firm continued to act: Andrew St George A History of Norton Rose (1995), p 133.  8 Wilkinson v Eykyn (1866) 14 WR 470.  9 Raba v Ryland (1819) Gow 132; Tupper v Haythorne (1815) Gow 135n. 10 Willis v Dyson (1816) 1 Stark 164; for ratification, see para 19.5 below.

(e)  Ratification or adoption 19.5  A person (whether a partner or not) may bind the firm by his unauthorised acts if the acts are subsequently ratified by the firm1. Thus an excessive use of a partner’s power to act for the firm may be ratified. Ratification must be of the entire act or transaction2 and is retrospective in effect3. To constitute a binding adoption two conditions must exist4: (a) the original act must have been purportedly done on behalf of the firm or in the name of the firm5; and (b) the firm must either ratify it with full knowledge of what the act is, or must have asserted that the firm will hold itself responsible for the act whatever its true nature was6, but this principle does not derogate from the separate principle of section 5 which gives ostensible authority to the partner in the circumstances set out in it7. Ratification can be express or implied from conduct such as where the firm sues on an unauthorised contract entered into by a partner8. But a time may come when an act is too late to ratify: (a) a person cannot effectually ratify an act at a time when he could not do the act himself9; (b) if a time is fixed for doing an act, whether by statute or agreement, the doctrine of ratification cannot be allowed to apply if it would have the effect of extending the time10; (c) in certain other cases ratification may be too late but ‘where the line is drawn is not easy to discern’11.  1 Willis v Dyson (1816) 1 Stark 164.   2 In Commercial Banking Co of Sydney Ltd v Mann [1961] AC 1, PC a solicitor signed firm cheques dishonestly and in breach of his authority from his partner. A claim by his partner

474

The authority of a partner to bind the firm 19.6 against the paying bank in conversion did not succeed, for the partner could only make the cheques his own by ratifying the transaction which would thereby ratify the payment itself. The decision is considered in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, HL.  3 Presentaciones Musicales SA v Secunda [1994] Ch 271, CA, following Bird v Brown (1850) 4 Exch 786 and Union Bank of Australia Ltd v McClintock & Co [1922] 1 AC 240, PC.   4 Per Lord Russell of Killowen CJ in Marsh v Joseph [1897] 1 Ch  213 at 246, where his Lordship also made the useful statement: ‘We are not called upon to act in business as if every man with whom we come into relations is a thief, and therefore men’s actions are not to be judged by a standard of unbelief in professional honesty’. The principle was approved by Lord Oaksey in Briess v Woolley [1954] AC 333.  5 Deveney v Crampsey [1969] SCR 267 (Canada SC).  6 Eastern Construction Co v National Trust Co Ltd [1914] AC 197 at 213; J C Houghton v Nithard, Lowe and Wills (1928) AC 1 at 14 and London International Trust v Barclays Bank (1980) 1 LIR 241 at 250.   7 See para 19.3 above and Munby J in giving the lead judgment in Bank of Scotland v Henry Butcher [2003] 1 BCLC 575 at para 43.  8 Lacey v Walrond (1837) 6 LJCP 290 at 298.   9 Per Brett J in Ainsworth v Creeke (1868) LR 4 CP 476 at 487, cited with approval by Dillon LJ in Presentaciones Musicales SA v Secunda [1994] Ch 271, CA. 10 Bird v Brown (1850) 4 Exch 786; Holland v King (1848) 6 CB 727 at 740; Bolton Partners v Lambert (1889) 41 Ch D 295; Dibbins v Dibbins [1896] 2 Ch 348; Presentaciones Musicales SA v Secunda [1994] Ch 271, CA. 11 Per Dillon LJ in Presentaciones Musicales SA v Secunda [1994] Ch 271.

(f)  Implied ratification; acquiescence 19.6  An act may be adopted by the firm even if it is not expressly ratified1. Thus where a partner enters into a contract outside the ambit of the business of the firm and outside his authority, but the contract is then carried on with the knowledge of his other partners, the firm will be bound2. Similarly the firm will be bound if it takes part in an arbitration that a partner has submitted to in excess of his authority3. Where a partner in a farming partnership executed in the firm name a contract for sale of wheat, the other partner, though dissatisfied, was held to be bound by his non-repudiation and his knowledge of the contract4. In Sharp v Milligan5 a partner without authority had signed a contract for a 21year term of the premises which the firm occupied. Possession was continued by the firm and the rent paid by it. Held that specific performance of the lease agreement should be granted against the firm because of its acquiescence. 1 Crawford v Stirling (1802) 4 Esp 207, 170 ER 693. In Commercial Banking Co of Sydney Ltd v Mann [1961] AC 1 the Privy Council noted the argument of counsel that ratification had been effected by the issue of the writ in the action, and observed (at 11) that ‘it remains obscure what acts the issue of the writ was intended to ratify’. 2 Brogden v Metropolitan Rly Co (1877) 2 App Cas 666, HL; Sandilands v Marsh (1819) 2 B & Ald 673, 106 ER 511; Cragg v Ford (1842) 1 Y & C Ch Cas 280, 62 ER 889; cf Brettel v Williams (1849) 4 Exch 623; Bishop v Countess of Jersey (1854) 2 Drew 143; Bourdillon v Roche (1858) 27 LJ Ch 681. In Bank of Scotland v Henry Butcher [2003] 1 BCLC 575 at para 39 Munby J cited with approval the first edition of the present book and stated that on this point Sandilands and Brettel had ‘never been doubted’. 3 Thomas v Atherton (1877) 10 Ch D 185, CA. 4 Canadian Grain Co v Mitten [1921] 1 WWR 829, 57 DLR 464. 5 (1856) 22 Beav 606, 52 ER 1242.

475

19.7  The firm and outsiders

(g)  The firm’s knowledge 19.7  Ratification or acquiescence both depend upon the firm having knowledge of the act in question1 and its implications2. Actual knowledge by a competent employee or agent3 will be constructive notice to the firm4. Knowledge by the partner whose unauthorised act is in question is not the knowledge of the firm5, but otherwise a partner’s knowledge is imputed to the firm by section 16 of the Partnership Act 1890, as discussed at para 20.32ff below. 1 Forman & Co Pty v The Liddesdale [1900] AC 190, PC. 2 Abbatt v Treasury Solicitor [1969] 1  WLR  1575; Deveney v Crampsey [1969]  SCR  267 (Canada SC). 3 Morison v London County and Westminster Bank Ltd [1914] 3  KB  356, CA: actual knowledge of accountants. 4 Lacey v Hill (1876) 4 Ch D 537 (affirmed, but this point not discussed, sub nom Read v Bailey (1877) 3 App Cas 94), per Jessel MR at 549. 5 Williamson v Barbour (1877) 9 Ch  D  529 (the appeal from which was compromised), in which Jessel MR at 536 discussed the case of a partner’s knowledge acquired before he became a partner: see J C Houghton & Co v Nothard, Lowe & Wills Ltd [1928] AC 1 at 15, a case distinguished in Bank of Scotland v Henry Butcher [2003] 1 BCLC 575 (discussed at para 16.3 above) by Munby J giving the lead judgment at para 43, approving and following Sandilands and Marsh (1819) 2 B & Ald 673, 106 ER 511.

B  Matters within the business of the firm (a)  The importance of the meaning of ‘the business’ 19.8  There is no partnership without some sort of ‘business’1. The scope of that business is important because a partner’s liability to outsiders is defined by reference to it in sections 52, 63, 74, 105, 11(b)6, 14(2)7, 138, 159, and 1610, of the Partnership Act 1890. If the partnership is not a ‘general’ one but a partnership for a specific venture only, the question will then be what is the nature of the particular venture11.   1 See para 2.12ff above.   2 See para 19.2ff above.   3 See para 19.1ff above.   4 See below in this chapter.   5 See para 19.44 below.   6 See para 19.58ff below.   7 See Chapter 5.   8 See para 19.58 below.   9 See para 21.20ff below. 10 See para 20.32ff below. 11 J & J Cunningham v Lucas [1957] 1 Lloyd’s Rep 416.

(i)  The usual or ordinary business 19.9  The nature of a firm’s business is a question of fact in every case1, and old authorities which purport to lay down what acts are within the business of, 476

The authority of a partner to bind the firm 19.9

say, a firm of solicitors2, must be regarded with caution; times have changed3. In 1853 it was held4 that receipt by a solicitor of client money for the purpose of investing it when he found a good security was not receipt by him within his apparent authority as a member of his firm; but this might not be followed today5. The question what falls within the ordinary business of a law firm ‘is a factual one and turns on an assessment of the specific transaction in issue’6. It is irrelevant whether the partner entering into the transaction has declared that it was done in the ordinary course of the business7. The question is one of mixed fact and law8. Even an unprecedented or exceptional transaction can sometimes be regarded as in the ordinary course of the business9, as can a transaction liable to be avoided as a wrongful preference of one creditor over others10, or one made in breach of fiduciary duty11. As Munby J observed in Bank of Scotland v Henry Butcher12: Where a contract entered into by a partnership for the purpose of its business requires an act to be done, that act (when done) is itself to be regarded as done for the purpose of the partnership business notwithstanding that (absent the contract) the act would have been outside the usual business of the partnership.   1 Per Lord Millett in Dubai Aluminium Co v Salaam [2003] 2 AC 366 at para 112 and see paras 19.24 and 19.45 below.   2 See Munby J in Bank of Scotland v Henry Butcher [2003] 1  BCLC  575 at paras 20–22, agreeing with the text in the first edition of this book.   3 See discussion by Lord Nicholls at para 40 and Lord Millett in 120–143 in Dubai Aluminium Co v Salaam [2003] 2 AC 366, especially in relation to Mara v Browne [1896] 1 Ch 199, CA, in which a unanimous Court of Appeal held that it is not within the scope of an implied authority of a solicitor carrying on business in partnership to constitute himself a constructive trustee. Aldous LJ in Dubai Aluminium Co v Salaam [2001]  QB  113 at 143 emphatically disagreed, as did Lord Nicholls (more gently) in the House of Lords at [2003] 2 AC 366 paras 40–42. This is discussed further in relation to the firm’s liability for a partner in breach of trust at para 19.58ff below. Following Re Fryer (1857) 3 K & J 317 Vinelott J in Re Bell’s Indenture [1980] 1 WLR 1217 expressed the view, at 1230, that a solicitor in the ordinary course of his practice has no implied authority to accept office as a trustee, but he was overruled in Dubai Aluminium Co v Salaam [2003] 2  AC  366. Contrast Tipping J (see Estate Realities Ltd v Wignall [1991] 3 NZLR 482 (New Zealand)), following National Commercial Banking Corp of Australia v Batty (1986) 60 ALJR 379, HC of A.  4 Harman v Johnson (1853) 2 E & B 61; and to similar effect in Plumer v Gregory (1874) LR 18 Eq 621 but contrast Earl Dundonald v Masterman (1869) LR 7 Eq 504 where the money was received by the partner in the course of the management and settlement of the affairs of a client of the firm, and Rhodes v Moules [1895] 1 Ch 236 where bearer shares were given to a partner by one who was told by the partner that his mortgagees wanted them as further security; in each case the firm was held liable.  5 McDowie v Hetherington (1997) 142  DLR (4th) 648 (Canada), following Thompson v Robinson (1889) 16 OAR 175, CA; Moore v Knight [1891] 1 Ch 547 and Public Trustee v Mortimer (1985) 49 OR (2d) 741 and not following Harman v Johnson (1853) 2 E & B 61.   6 Per Doherty J giving the judgment of the Court of Appeal in McDowie v Hetherington (1997) 142 DLR (4th) 648; JJ Coughlan Ltd v Ruparelia [2003] EWCA Civ 1057, followed in Kotak v Kotak [2017] EWHC 1821 (Ch).  7 Hirst v Etherington [1999] Lloyd’s Rep PN 938, CA.  8 Ashborder BV v Green Gas Power Ltd [2004] EWHC 1517 (Ch) (Etherton J).  9 Bank of Scotland v Henry Butcher [2003] 1 BCLC 575. 10 Ashborder BV  v Green Gas Power Ltd [2004]  EWHC  1517 (Ch) (Etherton J) following Willmott v London Celluloid Co [1887] LR 34 Ch D 147. 11 Ashborder BV  v Green Gas Power Ltd [2004]  EWHC  1517 (Ch) (Etherton J) following Liquidator of West Mercia Safetyware v Dodd [1988] 4 BCC 30; Reynolds Bros (Motors) Pty

477

19.10  The firm and outsiders Ltd v Esanda Ltd [1983] 8 ACLR 422; Julius Harper Ltd v F W Hagedorn & Sons Ltd [1991] 1 NZLR 530 and Countrywide Banking Corporation v Brian Norman Dean as Liquidator of C B Sizzlers Ltd (In Liquidation) [1998] 2 WLR 441. 12 [2003] 1 BCLC 575, CA at para 41.

(b)  The business as it appears to outsiders to be 19.10  Liability depends upon the usual scope of the particular business in question, not that of similar businesses1. The partners should define the business as between themselves in their partnership agreement, especially if it is not simply the practice of a certain profession. Such agreement will be binding between the partners and will regulate, for instance, the rights of a partner to run a rival business2. But as regards an outsider, whatever a partner may say3 or may have agreed with his partners, liability is attracted to the firm according to what the business is as it appears not to the partners but to the outsider4. The question is what is the substance of the transaction and whether it could fairly be regarded as one which formed part of the ordinary business of the firm5. Thus in Mercantile Credit Co Ltd v Garrod6 the partners agreed that their business was that of car repairing and not of dealing in cars. One partner secretly sold cars to the plaintiff finance company. He sold one he had no title to; the finance company sued the firm, believing that the firm dealt in cars and that the transaction was made in the course of that business. The claim succeeded. In Allied Pharmaceutical Distributors Ltd v Walsh7 an accounting firm gave investment advice to clients. One of the partners took deposits from the clients in the name of his company, which became insolvent. Held the partners were liable for the losses because the deposits were taken by the partner in his position as an investment adviser. By contrast in National Commercial Banking Corpn of Australia Ltd v Batty8, Batty was a partner in a firm of accountants and was also a director of a client company. He put two cheques payable to the company into his firm’s trust account, and stole the proceeds. The company sued the firm to recover the money. It was held that such a deposit was not within the ordinary business of the firm or what appeared to be such business, and the firm was not liable. 1 Rhodes v Moules [1895] 1 Ch 236, CA; cf Nicholson v Ricketts (1860) 2 E & E 497. 2 As discussed at para 11.39 above. 3 Hirst v Etherington [1999] Lloyd’s Rep PN 938, CA; United Bank of Kuwait v Hammoud [1988] 1 WLR 1051, commented upon below. 4 See United Bank of Kuwait v Hammoud [1988] 1  WLR  1051, commented upon below and JJ  Coughlan Ltd v Ruparelia [2003]  EWCA  Civ 1057, where the court held that the investment scheme in question was abnormal and incredible and that it was no part of a solicitor’s business to be involved in a scheme of that kind; contrast Kotak v Kotak [2017] EWHC 1821 (Ch). 5 JJ Coughlan Ltd v Ruparelia [2003] EWCA Civ 1057. 6 [1962] 3 All ER 1103. 7 [1991] 2 IR 8, distinguishing British Homes Assurance Corpn Ltd v Pateson [1902] 2 Ch 404. 8 (1986) 65 ALR 385, HC of A, followed in Fried v National Australia Bank (2001) FCA 907 where the act of a partner in withdrawing money to steal it was not within the business of the partnership; see also New Mining & Exploring Syndicate Ltd v Chalmers and Hunter 1912 SC 126 (Scotland).

478

The authority of a partner to bind the firm 19.12

(c)  Old decisions 19.11  Old decisions are to be regarded with caution today where they lay down that it is never within ‘carrying on in the usual way business of the kind carried on by the firm’1 for a partner (for instance) to accept property in lieu of a debt2 or to give a guarantee for the firm’s debt3 or to submit a dispute to arbitration4 or even to execute a deed5. What falls within such ‘carrying on’ will depend upon the nature and apparent nature of the business of the firm at the time of the contract in question. Thus it had long been established that a single partner had no authority to join his partners into another partnership6; but in Mann v D’Arcy7 the question came up again. A partner in a firm that dealt in potatoes entered into a profit-sharing venture with an outsider in relation to a cargo of potatoes and thereby created a new partnership with him. Megarry J was prepared to hold that because the arrangement fell within the broader ambit of the firm’s business, even such an arrangement as would create a new partnership fell within the partner’s implied authority. The outsider successfully claimed that the firm was bound by the arrangement with him and liable for the losses on the venture. 1 To quote the Partnership Act 1890, s 5. 2 Niemann v Niemann (1889) 43 Ch D 198, CA. 3 See Munby J in Bank of Scotland v Henry Butcher [2003] 1  BCLC  575 at paras 20–22, agreeing with the first edition of this book and citing Brettell v Williams (1849) 4 Exch 623; see also Hasleham v Young (1844) 5  QB  833 and Hedley v Bainbridge (1842) 3  QB  316, both cases whose usefulness was doubted in United Bank of Kuwait v Hammoud [1988] 1 WLR 1051 at 1063E. Partners were held liable (by estoppel) on an unauthorised guarantee in Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84. 4 Adams v Bankart (1835) 1 Cr M & R 681. 5 Green v Sutton (1840) 2 Mood & R 269, NP; Berkeley v Hardy (1826) 5 B & C 355. The harshness of the apparent rule was modified this century by decisions to the effect that the invalid deed might operate as a good equitable assignment, binding on the firm: Re Briggs & Co, ex p Wright [1906] 2 KB 209; Marchant v Morton, Down & Co [1901] 2 KB 829; Gilchrist v Douglas [1924] 1 DLR 38. 6 Singleton v Knight (1888) 13 App Cas 788, PC; and the Partnership Act 1890, s  24(7), provides that no person may be introduced as a partner without the consent of all existing partners. It is odd if a single partner had implied authority to effect such an introduction, but the subsection yields to any contrary agreement, ‘express or implied’ (s 24). 7 [1968] 1 WLR 893.

(d) Partnership debts, and contracts of the partner and of the firm 19.12  Contracts and debts relating to the business of a trading firm are binding on the firm even though they are not trading contracts: ‘It is quite a fallacy to suppose that partners are not liable except upon the contracts relating to the article in which they deal’1. The firm is not liable where the partner contracts for himself alone2. The mere fact that he uses the firm’s headed writing paper is not conclusive that 479

19.13  The firm and outsiders

he is acting for the firm3; the question who is the true contracting party is decided according to the objective intention of the contracting parties4. Where the premises used by the partnership belong to one partner only, the firm may still be liable on the gas bill5, and for the fees of the attorney instructed to arrange for the discharge of the mortgage on the premises where the interest is being discharged by the firm6. By contrast where a partner personally borrows money for the purposes of the firm but in his own name and on his own security, he was held to not make his partners liable for it to the lender7. Where the partnership extends to only part of a business, expenses incurred by the other part will not be the liability of the firm: In Barton v Hanson8 the partners separately owned horses which drew the stage-coach along stages of the road; they were partners only in the general profits of the stage-coach. Held they were not all liable to the supplier of goods for the horses of one of their number.

If suppliers to a partner cannot tell whether the goods are for the use of him or his firm, but they have been ordered in the name of the firm, the firm is bound9. By contrast where a partner (without authority from the firm) takes a lease for the use of the firm, but the firm never learns of it or takes possession, it is not liable for the rent10.   1 Per Denman CJ in Griffith v Hughes (1847) 9 LTOS 147.  2 Re Christopher, ex p Harris (1816) 1 Madd 583.  3 Infante v Charman (31 July 1996, unreported).   4 ‘The Swan’ [1968] 1 Lloyd’s Rep 5; Badgerhill Properties Ltd v Cottrell [1991] BCC 463, CA.  5 City of London Gaslight and Coke Co v Nicholls (1826) 2 C & P 365, NP.  6 Griffith v Hughes (1847) 9 LTOS 147.  7 Bevan v Lewis (1827) 1 Sim 376. Aliter if borrowing was authorised.   8 (1809) 2 Taunt 49; contrast Thomas v Clark and Todd (1818) 2 Stark 450, NP.  9 Simpson v McDonough (1844) 1 UCQB 157 (Canada). 10 Securities Development Co v Noble and Hodgins [1931] DLR 161.

(e)  Trading and non-trading partnerships and other businesses 19.13  The distinction between trading and non-trading or professional partnerships is not one made in the Partnership Act 1890 but it is useful because the authority that may be implied in favour of a partner in one may not be implied in his favour in another1. A trading partnership is one that buys and sells by way of business, rather than one that practises a profession or runs a cinema2. Thus it has been held that to borrow money for the firm3 and to pledge its goods4 are within the implied authority of a partner in a trading firm but not the narrower authority of a partner in a professional or non-trading firm5. A partner in a trading firm will have implied authority to buy and sell stock belonging to the firm6 but a single partner in a professional firm will usually lack authority to sell the firm’s property. The courts have held that it is within the implied authority of a partner in a trading firm to employ a solicitor to defend an action against the firm7 or to sue for firm debts8 or to take on employees9, and that a trawler firm partner has implied authority to employ 480

The authority of a partner to bind the firm 19.16

an agent to manage its vessel10, but these are no more than decisions on their own facts. The issue is simply whether the act in question was within the course of the business, or its apparent course, a matter that may be resolved by expert evidence of the practice of today11.  1 Higgins v Beauchamp [1914] 3 KB 1192; Wheatley v Smithers [1906] 2 KB 321; Dickinson v Valpy (1829) 10 B & C 128.  2 Higgins v Beauchamp [1914] 3 KB 1192 at 1195.  3 Lane v Williams (1692) 2 Vern 277.  4 Butchart v Dresser (1853) 4 De GM & G 542.  5 Higgins v Beauchamp [1914] 3 KB 1192.  6 Butchart v Dresser (1853) 4 De GM & G 542; Brogden v Metropolitan Railway Co (1877) 2 App Cas 666, HL.  7 Tomlinson v Broadsmith [1896] 1 QB 386.  8 Court v Berlin [1897] 2 QB 396, CA.  9 Drake v Beckham (1843) 11 M & W 315, Ex Ch. 10 Lindern Trawler Managers v WHJ Trawlers (1949) 83 Ll L Rep 131. 11 Per Staughton LJ in United Bank of Kuwait v Hammoud [1988] 1 WLR 1051 at 1063.

(f)  Particular matters within the usual scope of a business (i) Admissions 19.14  An admission by a partner binds the firm1, but only if it is concerned with the partnership affairs and made in the ordinary course of business2, such as on a bill of exchange in the firm’s name3; and see ‘Limitation’ under para 19.26 below. 1 Grant v Jackson (1793) Peake 203; the Partnership Act 1890, s 15, discussed at para 21.37 below. 2 Contrast Hunt v Hunt, Stabb, Preston & Co (1821) 1 Nfld LR 234 (Canada). 3 Wilkes v Hopkins (1845) 1 CB 737.

(ii)  Assignment of debts 19.15  It has been held that a partner has authority to assign a debt due to the firm1. 1 Re Briggs & Co, ex p Wright [1906] 2 KB 209.

(iii)  Bank accounts 19.16  A single partner has a general authority to draw on the firm’s bank account1, even after his sole partner’s death2, and in an ordinary trading partnership he may overdraw where the nature of the business requires it3. He may open a bank account in the firm’s name unless there is a restriction on this in the partnership agreement but he has no authority to open a firm bank account in his own name alone4, or to pay money belonging to the firm 481

19.17  The firm and outsiders

into his private bank account5. If he signs a cheque in the firm name it will be inferred that he is drawing a cheque on the firm6. It has been said that a solicitor has no authority to give a post-dated cheque7 but he may stop a cheque issued in the firm name8. 1 Backhouse v Charlton (1878) 8 Ch D 444. 2 See note 1 above and para 20.17ff below. 3 Bank of Australasia v Breillat (1847) 6 Moo PCC 152 at 194; Fisher v Tayler (1843) 2 Hare 218; on appeal (1843) 2 LTOS 205. 4 Alliance Bank Ltd v Kearsley (1871) LR 6 CP 433. 5 A  L Underwood Ltd v Bank of Liverpool and Martins [1924] 1  KB  775 at 792 followed by Devlin J in Baker v Barclays Bank Ltd [1955] 1  WLR  822 at 828; Australia and New Zealand Bank Ltd v Ateliers de Constructions Electriques de Charleroi [1967] 1 AC 86; see also Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340, CA; varied [1991] 2 AC 548, HL where the question arose what act would put a bank upon notice of a partner’s default. 6 Ringham v Hackett (1980) 124 Sol Jo 201, CA. 7 Forster v Mackreth (1867) LR 2 Exch 163, but this case is one of those ‘elderly decisions’ said by Staughton LJ in United Bank of Kuwait v Hammoud [1988] 1 WLR 1051 at 1063E to be of doubtful authority. 8 Gaunt v Taylor (1843) 2 Hare 413.

(iv)  Bills of exchange 19.17  A partner in a trading partnership1 (not solicitors2) may draw, endorse and accept bills of exchange for partnership purposes3 but not for his private purposes4, and may not delegate the power5 or accept bills in blank6. When a partner accepts such a bill for his own purposes7 or otherwise in fraud on his partners8 the burden is upon the holder to show that proper value was given. When a bill is addressed to the firm and he accepts it in the name of the firm, the acceptance is that of the firm9, and the partner is not severally liable on it10, but if he accepts it in his own name, he is liable11, save that if all members accept it in their own names it is to be presumed that they accept it for the firm12. Section 23 of the Bills of Exchange Act 1882 (codifying the previous law) provides: No person is liable as a drawer, indorser, or acceptor of a bill who has not signed it as such: Provided that: (1) Where a person signs a bill in a trade or assumed name, he is liable thereon as if he had signed it in his own name; (2) The signature of the name of a firm is equivalent to the signature of the person so signing of the names of all persons liable as partners in that firm.  1 Bunarsee Dass v Gholam Hossein (1870) 13  WR  29; contrast a non-trading partnership where the presumption was otherwise: Wheatley v Smithers [1906] 2 KB 321; Yates v Dalton (1858) 28 LJ Ex 69; Robertson v Jones (1880) 20 NBR (4 P&B) 267 (Canada); including even where the business of the firm itself was moneylending: Mandelberg v Adams (1931) 31 SRNSW 50, but we doubt that this is good law in England today.  2 Garland v Jacomb (1873) LR 8 Exch 216, Ex Ch.  3 Harrison v Jackson (1797) 7 Term Rep 207.  4 Re Cunningham & Co Ltd (1887) 36 Ch D 532; Re Riches and Marshall’s Trust Deed (1865) 4 De GJ & Sm 581.  5 Re Robinson and Farrand (1841) 1 Mont D & De G 475.

482

The authority of a partner to bind the firm 19.19  6 Hogarth v Latham & Co (1878) 3 QBD 643, CA.  7 Leverson v Lane (1862) 13 CBNS 278; Frankland v M’Gusty (1830) 1 Knapp 274, PC.  8 Hogg v Skeen (1865) 18 CBNS 426.  9 Re Barnard, Edwards v Barnard (1886) 32 Ch D 447, CA. 10 See note 9 above. Joint and several liability is discussed at para 20.1ff below. 11 Owen v Van Uster (1850) 10 CB 318; Re Adansonia Fibre Co (1874) 9 Ch App 635. 12 Rossland Cycle Co v M’Creadie 1907 SC 1208.

(v) Borrowing 19.18  A partner has authority to borrow for the firm’s purposes1. His receipt in the firm name is that of the firm2, and in a trading partnership if he says that the loan is for partnership purposes then the firm is bound and the lender is not put on enquiry as to the true destination of the money3. But a partner cannot make his partners personally liable on their own credit without their consents4. 1 Brown v Kidger (1858) 3 H & N 853, cited by Vaughan Williams J in Jacobs v Morris [1902] 1 Ch 816 at 828, and see Hely-Hutchinson v Brayhead Ltd (1968) 1 QB 549. Bank accounts and bills of exchange are discussed separately above. 2 Jackson v Ogg (1859) John 397. 3 Okell v Eaton and Okell (1874) 31 LT 330; Thomas v McNaughton (1912) 21 WLR 267, and see Bank of Montreal v Kiwi Polish Co (Canada) Ltd [1971] SCR 991 (Canada). 4 Blaine v Holland (1889) 60 LT 285, PC.

(vi)  Compromise or release 19.19  Generally a debtor of a firm will know from his dealings with the firm whether a single partner will have authority to release or compromise the claim against him; subject to this, a release by one partner of a claim by the firm binds the firm1. Where a claim in negligence is brought against the firm and the one partner responsible, and is compromised by that partner, the firm will usually take the benefit of the compromise2. In Howe v Oliver3 the plaintiff brought a claim for negligent advice given to her by one partner in a firm of solicitors. She settled with him for £95. Held she could not then proceed against the firm.

The authority of partners in litigation by or against the firm is discussed in Chapter 21, and joint and several liability at para 20.1ff below. 1 Piercy v Fynney (1871) LR 12 Eq 69; Munster v Cox (1885) 10 App Cas 680; Kendal v Wood (1870) LR 6 Exch 243; Hambridge v De la Crouée (1846) 3 CB 742; Hawkshaw v Parkins (1819) 2 Swan 539; Barker v Richardson (1827) 1 Y & J 362; Furnival v Weston (1822) 7 Moore CP 356; Arton v Booth (1820) 4 Moore CP 192; Raymond v M’Mackin and Ritchie (1860) 9 NBR (4 All) 524; contrast Crane v Lewis (1887) 36 WR 480, where the partner was held not to have authority to compromise an action. 2 Re Armitage, ex p Good (1877) 5 Ch D 46, CA; Re WEA [1901] 2 KB 642 at 652, CA. 3 (1908) 24 TLR 781.

483

19.20  The firm and outsiders

(vii) Deeds 19.20  A partner was said to have no implied or apparent authority to execute a deed in favour of an outsider so as to bind his firm1. But probably this is an assumption of fact rather than a principle of law. And he may have authority to agree with the outsider what he is thus unable to effect by deed; so an assignment of book debts by way of security is valid as an equitable assignment binding on the firm even if it is not binding on the firm as a deed2. An authority to execute a deed must be given by deed3; but where one partner executes a deed purporting to be for the firm, in the presence of the other partners, the firm is bound4. 1 Harrison v Jackson (1797) 7 Term Rep 207; Marchant v Morton, Down & Co [1901] 2 KB 829. 2 Re Briggs & Co [1906] 2 KB 209; Marchant v Morton, Down & Co [1901] 2 KB 829; Ex p Wright [1906] 2 KB 209. 3 Steiglitz v Egginton (1815) Holt NP 141. And a partner may not deliver a deed executed by the firm in escrow without express authorisation: Windsor Refrigerator Co Ltd v Branch Nominees Ltd [1961] Ch 88; on appeal [1961] Ch 375, CA. 4 Burn v Burn (1798) 3 Ves 573 at 578; Ball v Dunsterville (1791) 4 Term Rep 313; R  v Longnor Inhabitants (1833) 4 B & Ad 647.

(viii) Distress 19.21  A partner has authority to distrain for rent due to the firm1. 1 Robinson v Hofman (1828) 4 Bing 562.

(ix) Employees 19.22  A partner may hire and dismiss employees of the firm1. Receipt by a partner of a deposit from a person seeking employment was held not to be within the ordinary course of the firm’s business in Land v Burton2. 1 Donaldson v Williams (1833) 1 Cr & M 345; Beckham v Drake (1841) 9 MW 79; revsd sub nom Drake v Beckham (1843) 11 M & W 315, Ex Ch. 2 (1935) 79 Sol Jo 180.

(x) Guarantees 19.23  A partner ordinarily has no authority to give a guarantee for the liability of another binding on the firm1. But it will do if the guarantee is given in reference to business ordinarily carried on by the firm2, such as a promise by way of a solicitor’s undertaking as part of a transaction on behalf of a client3, or where the guarantee is given as an integral part of a contract which the partnership has properly entered into4. 484

The authority of a partner to bind the firm 19.27 1 Brettel v Williams (1849) 4 Exch 623; Duncan v Lowndes and Bateman (1813) 3 Camp 478; Stein v Garlick and Holdcroft [1910]  TPD  250 (South Africa); Stewart v Parker and Fox (1878) 18 NBR (2 P&B) 223 (Canada). As to the cesser of a guarantee on a change in the constitution of the firm, see para 8.6ff above. 2 Mayfield v Sankey (1890) 6 TLR 185; Fortune v Young 1918 SC 1 (Scotland). 3 Alliance Bank Ltd v Tucker (1867) 17 LT 13. 4 Bank of Scotland v Henry Butcher [2003] 1 BCLC 575 discussed at para 19.3 above.

(xi)  Illegal and unreasonable behaviour 19.24  A partner has no authority to do what is illegal1; his firm is liable if he carries out for a fraudulent purpose acts which are within the ordinary course of its business2, and vicarious liability may be imposed upon his firm for his dishonesty or malpractice ‘carrying out the partnership’s business, albeit in a misguided fashion’3. If he otherwise has authority to do any particular thing, it is authority to act in a reasonable and not excessive or improper way4. Fraud, negligence and other wrongs are discussed in the next chapter, and illegality in partnerships is discussed in Chapter 4. 1 Kirwan v Goodman (1841) 9 Dowl 330; Holman v Johnson (1775) 1 Cowp 341 at 343 per Lord Mansfield; contrast the position in tort, considered under paras 19.44 and 19.54 below. 2 Dubai Aluminium Co v Salaam [2003] 2 AC 366. 3 Northampton Regional Livestock Centre v Cowling [2015] EWCA Civ 651 at [94]. 4 Bank of New South Wales v Owston (1879) 4 App Cas 270, PC.

(xii) Lending 19.25  If it is part of the ordinary course of the firm’s business to lend money, then a partner may lend accordingly1, but not otherwise. 1 Re Land Credit Co of Ireland, Weikersheim’s Case (1873) 8 Ch App 831.

(xiii) Limitation 19.26  Part payment of a partnership debt by a partner will start time running afresh against his partners1. 1 Re Tucker [1894] 3 Ch 429, CA; Goodwin v Parton and Page (1880) 42 LT 568, CA; Wright v Pepin [1954] 1 WLR 635.

(xiv)  Litigation and instructing lawyers 19.27  What partner may instruct solicitors and authorise and prosecute an action is considered at para 21.7 below; what authority a partner has to defend proceedings on behalf of the firm is considered at para 21.17 below. Where he 485

19.28  The firm and outsiders

instructs solicitors to advise the firm, those solicitors will discharge their duty by giving advice to him and need not give it to every member of the firm1. 1 Berlevy v Blyth Dutton [1997] CLY 3821, CA. The question of the right of one partner to know what legal advice is being obtained by others is considered at para 15.11ff above.

(xv)  Mortgaging or charging 19.28  A partner can give security for a firm’s debt1, for instance by assigning the book debts by way of security2. 1 Re Clough, Bradford Commercial Banking Co v Cure (1885) 31 Ch D 324; Re Patent File Co (1870) 6 Ch App 83. 2 Re Briggs & Co [1906] 2 KB 209, where an assignment of book debts by way of security was valid notwithstanding that it was done by a deed which did not bind the firm. They cannot create a floating charge: Re West Park Golf and Country Club [1997] 1 BCLC 20.

(xvi)  Notice to quit 19.29  A partner may serve a notice to quit on behalf of his firm1, but this may be a breach of the partnership agreement: see para 8.46 above. 1 Featherstone v Staples [1986] 1 WLR 861, CA; Hammersmith and Fulham London Borough Council v Monk [1992] 1 AC 478, HL.

(xvii) Options 19.30  A partner may have authority to bind his firm by the exercise of an option to extend its lease1. 1 Young v Lamb [2001] NSWCA 225.

(xviii)  Partnership, other 19.31  One partner has no authority to take any of his partners with him into another partnership1, although Megarry J in Mann v D’Arcy2 found a narrow exception to this where one partner embarked upon a purchase and sale venture with an outsider in the goods that the firm usually traded in; although this was (he held) another partnership, it was not another ‘business’ but ‘merely one mode of buying and selling what he was authorised to buy and sell on behalf of the partnership’3 so his original partners were bound to the arrangement under section 5 of the Act in spite of the provisions of section 24(7). 1 Singleton v Knight (1888) 13 App Cas 788 at 790, and see James LJ in Re European Society Arbitration Acts (1878) 8 Ch D 679 at 704 and Hawksley v Outram [1892] 3 Ch 359, CA.

486

The authority of a partner to bind the firm 19.35 2 [1968] 1 WLR 893. 3 [1968] 1 WLR 893 at 899A.

(xix)  Powers of attorney 19.32  Deeds are discussed at para  19.20 above. Where a partner gives a power of attorney to another partner or to an outsider its width is a matter of construction1; but its misuse by a partner to whom it is given will not confer any particular liability on his firm2. If a partner has power to do an act on behalf of the partnership, he generally has power to do it through an agent such as his attorney; delegation as regards his partnership share is discussed at paras 10.10 and 10.24 above. 1 Jacobs v Morris [1902] 1 Ch  816, CA; Hawksley v Outram [1892] 3 Ch  359, CA and para 19.48 below. 2 Chilton v Cooke & Sons (1877) 37 LT 607 and para 19.51 below.

(xx)  Property of another partner 19.33  One partner has no authority to give a valid receipt for another partner’s own separate debt1, or to sell the property of another merely because it is being used for the purpose of the firm’s business; if he purports to make such a sale the purchaser gets no title2. 1 Powell v Brodhurst [1901] 2 Ch 160; Kendal v Wood (1870) LR 6 Exch 243. 2 Sattalick v Jarrett [1918] 1 WWR 92. For a purported sale of another partner’s performance rights under the Copyright, Designs and Patents Act 1988 see Bourne v Davies [2006] All ER (D) 160 (Jun), Ch D (M Herbert QC).

(xxi)  Receipt of payment 19.34  An outsider gets a good receipt if he pays a single partner for the firm’s debt1 but not for another partner’s own separate debt2. A partner’s authority to receive payment is not revoked merely because he has appointed another partner to receive the debt3. 1 Piercy v Fynney (1871) LR 12 Eq 69; Cowan v Dart (1848) 10 LTOS 466; Moore v Smith (1851) 14 Beav 393; Jacaud v French (1810) 12 East 317. 2 Powell v Brodhurst [1901] 2 Ch 160. 3 Bristow and Porter v Taylor (1817) 2 Stark 50.

(xxii) Set-off 19.35  A partner has no authority to set off his separate debts against debts due to the firm1. 1 Piercy v Fynney (1871) LR 12 Eq 69, and see paras 21.10 and 23.10 below.

487

19.36  The firm and outsiders

(xxiii)  Shares, subscribing for 19.36  It has been held to be outside the scope of the business of a trading firm to buy shares in another company whatever its objects1, but today when investment in equities is commonplace this rule may be too wide. 1 Niemann v Niemann (1889) 43 Ch  D  198; Masecar v McKenzie & Sons [1924] 2 DLR 1242 (Canada).

(xxiv) Tender 19.37  A partner may tender a firm’s debt1. 1 Douglas v Patrick (1790) 3 Term Rep 683.

(xxv) Trusteeships 19.38  The effect of a partner voluntarily or involuntarily becoming a trustee is considered at para 19.58ff below. (xxvi)  Undertakings by solicitors 19.39  These are specifically discussed at para 19.72ff below. (xxvii)  Variations in contracts 19.40  A partner can give an outsider an extension of time for complying with his obligations under a contract with the firm1. 1 Leiden v Lawrence (1863) 2 New Rep 283.

(xxviii) Warranties 19.41  A partner with authority to sell goods in the course of the business has authority to warrant their quality1. 1 Abrahams v Spitz (1963) 107 Sol Jo 113, CA; Benmag v Barda [1955] 2 Lloyd’s Rep 354.

(xxix)  Written contracts 19.42  A partner may sign a written contract for the sale of land in the name of his firm and thereby bind it if the right to sell is otherwise within his 488

The authority of a partner to bind the firm 19.43

authority, which is given implicitly if the firm is one of speculative builders1. Even so he may not thereby bind the firm to unusual conditions2. Partnership land and leases are discussed at para 8.33ff above. 1 LCC  v Agricultural Food Products [1955] 2  QB  218 at 223; France v Dutton [1891] 2 QB 208. See also Gavaghan v Edwards [1961] 2 QB 220 and Blackburn v Walker (1920) 150 LT Jo 73. 2 Keen v Mear [1920] 2 Ch  574, a case on the Statute of Frauds, s  4, which seems equally applicable to the Law of Property (Miscellaneous Provisions) Act 1989, s 1; Brettel v Williams (1849) 4 Exch 623.

(g) Where the partner is in breach of his partnership obligations 19.43  The fact that a partner is acting negligently need not prevent his acting in the ordinary course of the business of the firm1, nor does the fact that he is acting dishonestly2, for instance by bribing an employee in a rival firm to supply secret information3. A misrepresentation can be made within the ordinary course of the business of the firm4. He will probably have no apparent authority to do what is actually illegal5. Where a partner maliciously commenced a prosecution for alleged theft of partnership property he was held not to have been acting within the scope of his authority6. In United Bank of Kuwait v Hammoud7 a partner8 in a solicitors’ firm gave a false undertaking to a bank which made a loan on the strength of it which was not repaid. He had no authority to give the undertaking. The bank claimed against the firm and the issue was whether the giving of the undertaking was an act ‘for carrying on in the usual way business of the kind carried on by the firm’ within section 5 of the Act9. Held (Court of Appeal) that the professional work of a solicitor nowadays extends beyond giving legal advice10, and that it would appear to reasonably prudent and competent bankers that there were underlying transactions in that case ‘of a solicitorial nature’, so the transaction fell within the usual business of the kind carried on by the firm, and the firm was liable. Staughton LJ pointed out that: (a) the transaction appeared to the bank to be of a kind which was within the ordinary authority of the partner; the fact that the transaction was not in fact of such a kind was irrelevant11; (b) ‘Elderly decisions’12 purportedly show what types of transactions are and are not within the ordinary authority of a solicitor, but (c) ‘That material should be treated with caution, in my judgment; the work that solicitors do can be expected to have changed since 1888; it has changed in recent times and is changing now. So I prefer to have regard to the expert evidence of today in deciding what is the ordinary authority of a solicitor’13.

In Dubai Aluminium Co Ltd v Salaam14 Lord Nicholls, considering vicarious liability for an equitable wrong rather than for breach of contract, posed a different touchstone, discussed in para 19.45 below. 489

19.44  The firm and outsiders  1 Blyth v Fladgate [1891] 1 Ch 337; Marsh v Joseph [1897] 1 Ch 213, CA.  2 JJ Coughlan Ltd v Ruparelia [2003] EWCA Civ 1057; Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103; Mendieta v Nolan and Evison (1958) 11 DLR (2d) 779 (Canada).  3 Hamlyn v John Houston & Co [1903] 1 KB 81, CA discussed in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 31ff; and see Lister v Hesley Hall Ltd [2001] UKHL 22, [2002] 1 AC 215, discussed at para 19.45 below and approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677.  4 Rapp v Latham (1819) 2 B & Ald 795. For misrepresentation see para 19.52 below.  5 Kirwan v Goodman (1841) 9 Dowl 330; Holman v Johnson (1775) 1 Cowp 341 at 343 per Lord Mansfield, but contrast JJ Coughlan Ltd v Ruparelia [2003] EWCA Civ 1057 and the position in non-contractual cases considered at para 19.51 below and Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366, approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677.  6 Arbuckle v Taylor (1815) 3 Dow 160. For the liability of the firm for the tort of a partner see para 19.44ff below.   7 [1988] 1 WLR 1051, CA. See also para 19.54 below.   8 For thus the ‘salaried partner’ was treated.   9 Per Glidewell LJ at [1988] 1 WLR 1057H. 10 Per Lord Donaldson at [1988] 1 WLR 1066D. 11 [1988] 1  WLR 1064D, following Lloyd v Grace, Smith & Co [1912]  AC  716, HL; and Uxbridge Permanent Benefit Building Society v Pickard [1939] 2 KB 248, CA, considered by the Privy Council in Kooragang v Richardson & Wrench (1982) AC 462. 12 [1988] 1 WLR 1063E, referring to Hedley v Bainbridge (1842) 3 QB 316; Hasleham v Young (1844) 5 QB 833; Forster v Mackreth (1867) LR 2 Exch 163 and Cleather v Twisden (1885) 28 Ch D 340, CA. 13 [1988] 1 WLR 1051 at 1063E. 14 Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 23, approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677.

2 THE LIABILITY OF THE FIRM FOR A PARTNER’S WRONGS AND OMISSIONS A Wrongful acts and omissions generally   19.44 B Negligence  19.48 C Breach of contract   19.49 D Crime  19.50 E Fraud  19.51 F Misrepresentation  19.52 G Constructive trusteeship or accountability in equity   19.53 H Other torts and wrongs   19.54 I Where the partners in the firm change   19.56 J Liability of a successor practice on a professional indemnity claim   19.57

A  Wrongful acts and omissions generally (a)  The statutory liability 19.44  The firm is liable if a wrong is committed or a culpable omission made by a partner who was either authorised to do so or did so ‘in the course of the 490

The liability of the firm for a partner’s wrongs and omissions 19.45

partnership business’1, and to secure an object which would have been within the ordinary scope of the partnership business if attained by legitimate means2. The exception is if the partner’s authority to act was limited to the knowledge of the person suffering3. Section 10 of the Partnership Act 1890 provides: Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act.

So the firm is liable if the partner’s wrongful act suffered by the outsider is done: (a) either in the course of the firm’s ordinary business, or (b) if it is outside such scope but with the specific authority of the firm, given in advance or subsequently ratified, and (c) his conduct ‘must be wrongful, that is to say it must give rise to a faultbased liability and not, for example, merely receipt-based liability in unjust enrichment’4. The position in contract and the meaning of ‘the business of the firm’ in that context is discussed earlier in this chapter. Receipt-based liability and breach of trust is discussed in paras 19.53 and 19.58 below. 1 Per Winn J in Meekins v Henson [1964] 1 QB 472 at 477 and for a full discussion see Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366. 2 Hamlyn v John Houston & Co [1903] 1 KB 81 at 85, CA, discussed in Dubai and Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 31ff. 3 Ludgater v Love (1881) 44 LT 694, CA. 4 Per Lord Millett in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 111.

(b)  The breadth of the liability 19.45  A firm is liable for any wrong by a partner if he was acting in the ordinary course of the business of the firm1,

which is widely interpreted by the courts, but the test of the firm’s liability is similar to that of an employer and not necessarily the same as other principals of agents2. The principle of vicarious liability making the firm liable may extend to overcharging3, bribery4, sexual assault or harassment5, incurring tax penalties6, drafting fraudulent documents7, or the managing partner’s conspiracy8, or his clerk’s fraud9. A company director may hold his directorship in the ordinary course of the business of a partnership10. The effect of the section is to make the firm vicariously liable. This (it has been held) produces a ‘necessary equation’ of members of a partnership firm with employers for this purpose11. The liability of an employer depends upon whether there is a sufficiently close connection between the duties that the employee was employed to perform and the tort committed by him12. This closeness of connection involves a strong causative link13. 491

19.45  The firm and outsiders

In Dubai Aluminium Co Ltd v Salaam14 Lord Nicholls posed as the ‘touchstone’: The wrongful conduct must be so closely connected with acts the partner or employee was authorised to do that, for the purpose of the liability of the firm or employer to third parties, the wrongful conduct may fairly and properly be regarded as done by the partner while acting in the ordinary course of the firm’s business.

Each member of the firm is the agent of his partners, and the general rule of agency is that the principal is liable for the fraud, deceit, misrepresentation, tort and other malfeasance or omission of duty of his employee or other agent in the course of his employment or as a mode of doing what the agent was authorised to do15, although the principal did not authorise or justify or participate in or even know of the misconduct, or even if he forbade the acts or disapproved of them; but beyond the course of the agency the principal is not liable for his agent unless he has expressly authorised the acts to be done, or he has subsequently adopted them16. Not all of the features of the wrongdoing must have occurred in the course of the business, only those necessary to constitute the wrong17. The question is therefore whether the acts were done in the course of the business, a question of fact, but one which can only be answered after it has been decided whether the acts were legally capable of being done in the course of the business18.   1 See the Partnership Act 1890, s 10, quoted in para 19.44 above.  2 Winter v Hockley Mint Limited [2018]  EWCA  Civ 2480 distinguishing Armagas Ltd v Mundogas SA, The Ocean Frost [1986] AC 717.  3 Dresser Industries Inc v Digges (1989) WL 139243 (D Md).  4 Petrograde Inc v Smith [2000] 1 Lloyd’s Rep 486, an employment case.  5 Proceedings Comr v Ali Hatem [1999] 1  NZLR  305, NZCA (New Zealand). Various Claimants v Institute of the Brothers of the Christian Schools [2012] UKSC 56. In England an employer can be vicariously liable under the Protection from Harassment Act 1997, s 3, for its employees’ breach of duty under s 1 of that Act (William Majrowski v Guy’s and St Thomas’ NHS Trust [2005] EWCA Civ 251) and the partnership position is doubtless the same.  6 Dubai Aluminium Co Ltd v Salaam [2003] 2  AC  366 per Lord Nicholls at para  10. The liability for a firm’s VAT is a joint and several liability of the individual partners: Scrace v IRC (14 July 2006, unreported), Ch D; see the VAT Act 1994, s 45(1).  7 Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366, approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677.  8 Longman v Pole (1828) Dan & LI 126.  9 Lloyd v Grace, Smith & Co [1912] AC 716. 10 Ingot Capital Investments v Macquarie Equity Capital Markets (No 6) [2007] NSWSC 124. 11 Per Winn J in Meekins v Henson [1964] 1  QB  472 at 477, cited with approval by Lord Millett in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 106, to whom Flynn v Robin Thompson & Partners (2000) 144 Sol Jo LB 102, CA was not cited, which doubts the proposition. What is the extent of an employer’s liability was considered in Lister v Hesley Hall Ltd [2001] UKHL 22, followed by Laddie J in Balfron Trustees Ltd v Peterson [2001] IRLR 758, a case of a fraudulent employee. 12 Lister v Hesley Hall Ltd [2002] 1 AC 215, where the operators of a boarding school were held liable for the headmaster’s assaults on pupils; similarly in Various Claimants v Institute of the Brothers of the Christian Schools [2012] UKSC 56, both cases being explained in Winter v Hockley Mint Limited [2018] EWCA Civ 2480. 13 The Catholic Child Welfare Society and Others v Various Claimants and The Institute of the Brothers of the Christian Schools [2012]  UKSC  56, para  86; Northampton Regional Livestock Centre v Cowling [2015] EWCA Civ 651.

492

The liability of the firm for a partner’s wrongs and omissions 19.47 14 [2003] 2 AC 366 at para 23, followed in Winter v Hockley Mint Limited [2018] EWCA Civ 2480. The majority agreed, but Lord Millett (with whom the majority also agreed) expressed the matter slightly differently. Dubai Aluminium was followed in the Court of Appeal in Northampton Regional Livestock Centre v Cowling [2015] EWCA Civ 651 and approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677. In Mattis v Pollock [2003] 1 WLR 2158 at para 18 the Court of Appeal held that the principles of partnership law and employment law on this issue were ‘indistinguishable’. See also the law stated in Australia in Crouch and Lydon v IPG Finance Australia Pty (2013) QCA 220. 15 Lister v Hesley Hall Ltd [2001]  UKHL  22, approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677. 16 Per Lord Keith of Kinkel giving the judgment of the Privy Council in New Zealand Guardian Trust Co Ltd v Brooks [1995] 1  WLR  96 at 99, quoting Lord Macnaughten in Lloyd v Grace, Smith & Co [1912] AC 716 at 737 who was in turn citing with approval Blackburn J in McGowan & Co Ltd v Dyer (1873) LR 8 QB 141 at 145 who was quoting with approval from Story on Agency. 17 Per Lord Millett in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 distinguishing Crédit Lyonnais Bank Nederland NV v Export Credits Guarantee Department [2000] 1 AC 486; Scarborough Building Society v Howes Percival (1998) 76 P & CR D4, CA. 18 Per Lord Millett in Dubai Aluminium Co Ltd v Salaam [2003] 2  AC  366 at para  112, approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677.

(c)  Claims against either partner or firm 19.46  A claimant who has a claim in misrepresentation, fraud, negligence or any other wrong which can be attributed to a partner will usually bring proceedings against the partners in the firm name alone, rather than against the particular partner responsible. But a firm as such cannot directly be liable for anything; only those with legal personae such as the partners can be1. The liability of the partners is a secondary one only, the primary liability being that of the wrongdoing partner2. Contrast the partners’ liability in contract which is an equal, joint one3, see para 19.49 below. 1 Only for procedural purposes do the rules of court allow the partners to be sued in the firm name in certain circumstances; see para 21.20ff below. 2 Meekins v Henson [1964] 1 QB 472 at 476 cited with approval by Lord Millett in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366. 3 Hang Seng Finance Ltd v Chan Kwok Yim (2002) HKEC 519.

(d) Professional indemnity insurance cover, and limitation of liability 19.47  A partner in a professional firm is likely to be protected against civil claims by insurance, both in his personal capacity and in his capacity as a partner, and for most professions such insurance is compulsory1. He may seek further protection by agreeing with the client (perhaps in a client care letter) that his liability should be limited in some manner. Such an arrangement is permissible only if it: (1) is not below the minimum level of cover required by the Solicitors’ Indemnity Insurance Rules for a policy of qualifying insurance; 493

19.48  The firm and outsiders

(2) is brought to the client’s attention, and (3) is in writing. Any purported limitation of liability (by a solicitor or other person) may be unenforceable under consumer protection legislation2. 1 See eg Solicitors’ Indemnity Insurance Rules 2013. 2 Ie Unfair Contract Terms Act 1977, or Consumer Rights Act 2015.

B Negligence 19.48  The fact that a partner is acting negligently need not prevent his acts being done in the ordinary course of the business of the firm1. The firm is liable both in contract and tort for the negligence of a partner in acting within the scope of the business of a professional firm2, and has been held liable for a partner’s negligence in allowing a workman to be injured3, or in his management of the firm’s coalmine4. When the firm runs a taxi5 (or a stagecoach6), all members are liable for the negligence of the driver. If, within his retainer, a professional man becomes aware of a risk to his client, he must warn the client, and this is not outside the scope of his retainer7. 1 W B Anderson & Sons Ltd v Rhodes (Liverpool) Ltd [1967] 2 All ER 850; Blyth v Fladgate [1891] 1 Ch 337; Sawyer v Goodwin (1867) 36 LJ Ch 578. 2 Midland Bank Ltd Trust Co v Hett, Stubbs and Kemp [1979] Ch  384; Welsh v Knarston 1972 SLT 96; Kirkintilloch Equitable Co-operative Society Ltd v Livingstone 1972 SLT 154. For the ‘Business of the firm’ see para 19.8 above. 3 Ashworth v Stanwix (1861) 4 LT 85, followed in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 106. 4 Mellors v Shaw (1861) 25 JP 806. 5 Gates v R Bill & Son [1902] 2 KB 38, CA. 6 Moreton v Handern (1825) 4 B & C 223. 7 Crédit Lyonnais v Russell Jones & Walker [2002] EWHC 1310 (Ch).

C  Breach of contract 19.49  Where a firm has become liable on a contract1 the then partners are liable2. Section 6 of the Partnership Act 1890 provides: An act or instrument relating to the business of the firm done or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person thereto authorised, whether a partner or not, is binding on the firm and all the partners.

The obligation is a primary obligation in contract, from which a partner can only be released by the agreement of the outside contracting party3. In addition, a partner may become liable for a debt or obligation which is incurred whilst he is a partner, even though the contract was made before he was a partner4. Section 9 of the Partnership Act 1890 provides: 494

The liability of the firm for a partner’s wrongs and omissions 19.50 Every partner in a firm is liable jointly with the other partners … for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in due course of administration for such debts and obligations, so far as they remain unsatisfied, but subject in England … to the prior payment of his separate debts.

This section is considered further at para 20.14 below. 1 As to a partner’s authority to bind the firm see para 19.1ff above. 2 Friends Provident v Evans [2006]  EWCA  Civ 581; contrast the primary liability of the partner, and secondary liability of the firm, for other wrongs, para 19.46 below and Hang Seng Finance Ltd v Chan Kwok Yim (2002) HKEC 519. For the liability of a partner which is a corporation see Woodgate v Davis (2002) 42 ACSR 286. 3 For novation see paras 20.15 and 20.21 below. 4 Sir Frederick Pollock (A  Digest of the Law of Partnership) (1920) p  67 observes, ‘An incoming partner is liable, however, for new debts arising out of a continuing contract made by the firm before he joined it’. The beginning and end of a partner’s liability is discussed at para 20.13ff below.

D Crime 19.50  A firm can commit an offence1, and can be guilty of corporate manslaughter2. A partner can commit theft against the firm3. In the event that a firm contravenes an enactment in the Companies Acts, every partner is treated as committing an offence4. A partner can render his firm criminally liable although the other partners themselves may not have been involved in the crime5. They will not be liable for aiding and abetting merely because of their knowledge and passive acquiescence, but can be if they know of the offence, are able to control their partner and deliberately decide to refrain from doing so6. One partner’s crime will not be attributed to another merely because they are members of the same firm; the Solicitors’ Regulation Authority cannot find that a solicitor is guilty of unbecoming conduct merely because another solicitor in his firm is so guilty7. The firm can be held liable for penalties for breach of the revenue laws8. 1 See, for instance, failure to comply with an obligation under Pt XI of the Financial Services and Markets Act 2000, s 177, or to comply with strict liability under the Water Resources Act 1991, under which every member may be liable: R v L (2009) PTSR 119, followed in R v Jonathan Lear; R v Christine Lear [2018] EWCA Crim 69. Or the statute creating the offence may provide that the firm can be liable separately from its members, as in W Stevenson & Sons (a firm) and Bick v R [2008] EWCA Crim 273, where liability for the fine was limited to the firm’s assets. 2 If its activities are organised or managed in a way that causes a person’s death and amounts to a gross breach of care owed to the deceased: Corporate Manslaughter and Corporate Homicide Act 2007, s 1 and Sch 1. 3 R v Bonner [1970] 1 WLR 838, CA. 4 Companies Act 2006, ss 1121–1123 and 1255(2). 5 Parsons v Barnes [1973] Crim LR  537, DC; cf Bennett v Richardson [1980]  RTR  358 (driving uninsured). 6 R v JF Alford Transport (1997) 141 Sol Jo LB 73, CA. 7 Akodu v SRA (13 November 2009, unreported). 8 Per Lord Nicholls in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 10, citing old authority, approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677.

495

19.51  The firm and outsiders

E Fraud 19.51  A partner may be acting within his implied authority ‘in the ordinary course of the business of the firm’1 even when he is acting fraudulently2 or otherwise dishonestly3: for instance by bribing an employee in a rival firm to supply secret information4. The firm is liable if the partner has been fraudulent, and fraud means dishonesty. Actual dishonesty must be proved5.The test is the ordinary standard of honest behaviour. The subjective understanding of the person concerned is irrelevant6. The firm is liable where fraudulent concealment by a guilty partner prevents time running under the Limitation Act 19807. The mere fact that one partner makes an incorrect statement whilst another knows the truth does not mean that their knowledge may be combined and that a fraud has been perpetrated8. In Armstrong v Strain9, a case decided before the Misrepresentation Act 1967, the plaintiff had bought a bungalow which suffered from such cracks that no building society would lend on it. He purchased relying on the vendor’s estate agent called Skinner, who represented to him that ‘Any building society would lend £1200 on it’. Skinner believed this but his principal, the vendor, called Strain, knew it to be untrue. A claim in fraud against each of them failed, because Strain knew the falsity of the statement but made no representation whereas Skinner had made the statement believing it to be true.

If a guilty partner puts up an innocent partner to make an untrue statement, then the firm is liable for the fraud10; although the second partner may be innocent, he is liable for the fraudulent representations of his partner even though those representations reached the third party through and by the innocent channel of himself11. One partner’s fraudulent insurance claim may entitle an insurer to repudiate a policy in favour of a partnership even though the other partners are innocent12. But liability for fraudulent statements as to credit are not actionable unless in writing and signed13. If he is in breach of a statutory duty in the course of the business, such as a duty not to harass an employee, he renders his firm liable14.   1 To quote section 10 of the 1890 Act, in paras 19.44 and 19.45 above.  2 Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at paras 30, 31 (per Lord Nicholls), approved in Mohamud v Wm Morrison Supermarkets plc [2016]  AC  677; Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103; De Beer v Kanaar & Co [2002] EWHC 688 (Ch); Lister v Hesley Hall Ltd [2001] UKHL 22, [2001] 2 WLR 1311 per Lord Millett at para 77; Hackney v Knight (1891) 7 TLR 254; Smith v Mackenzie (1881) 1 NZLR 1, NZCA; Sawyer v Goodwin (1867) 36  LJ  Ch  578; compare Hornsby v Clark Kenneth Leventhal [1998] PNLR 635, CA where the Court of Appeal found the fraudulent business of an employee was not that of his employer firm, and Lloyd v Grace Smith & Co [1912] AC 716, where the House of Lords held a solicitor liable for the fraud of his clerk, and Kirwan v Goodman (1841) 9 Dowl 330; Holman v Johnson (1775) 1 Cowp 341 at 343 per Lord Mansfield.  3 Blyth v Fladgate [1891] 1 Ch 337; Marsh v Joseph [1897] 1 Ch 213, CA; United Bank of Kuwait v Hammoud [1988] 1 WLR 1051, CA; Armagos Ltd v Mundogos SA [1986] AC 717; Cricklewood Holdings v Quigley [1992] 1 NZLR 463; cf Generale Bank Nederland NV v Export Credits Guarantee Department [1998] 1 Lloyd’s Rep 19, CA, and see cases cited in note 1 above.  4 Janvier v Sweeney [1919] 2 KB 316; Hamlyn v John Houston & Co [1903] 1 KB 81, CA.   5 Per Lord Parmoor in Nocton v Lord Ashburton [1914] AC 932 at 978.  6 Starglade Properties v Nash [2010] EWCA Civ 1314.

496

The liability of the firm for a partner’s wrongs and omissions 19.52   7 See the Limitation Act 1980, s 32(1); Moore v Knight [1891] 1 Ch 547.  8 Armstrong v Strain [1952] 1  KB  232, CA; Zurich v Gray & Kellas (2007)  CSOH  917 (Scotland), where the partner signed in the name of the firm, ‘We are not aware’ when in fact another partner did have the awareness in question. Crédit Lyonnais Nederland NV v Export Credits Guarantee Department [2000] 1 AC 486, HL. See para 20.32 below for a discussion of the firm’s knowledge.   9 [1952] 1 KB 232 and Scruton v Bone [2001] All ER (D) 290 (Nov), CA (Sir Andrew Morritt V-C). Contrast the libel case of Meekins v Henson [1964] 1 QB 472, noted in para 19.54 below. 10 London County Freehold and Leasehold Properties Ltd v Berkeley Property and Investment Co Ltd [1936] 2 All ER 1039, CA; Ludgater v Love (1881) 44 LT 694, CA; but see Meekins v Henson [1964] 1  QB  472 noted in para  19.54 below, and Armstrong v Strain [1952] 1 KB 232, CA noted above. 11 Per Atkinson J in Anglo-Scottish Beet Sugar Corpn v Spalding UDC [1937] 2 KB 607 at 621, explaining S Pearson & Son Ltd v Dublin Corpn [1907] AC 351, HL as cited with approval by Romer LJ in Armstrong v Strain [1952] 1 KB 232 at 248, and see dicta in the Scottish case Zurich v Gray & Kellas (2007) CSOH 917. 12 MMI General Insurance v Baktoo [2000] NSWCA 70 (NSW Sup Ct CA). 13 Section 6 of the Statute of Frauds Amendment Act 1828 (Lord Tenterden’s Act) provides: ‘No action shall be brought whereby to charge any person upon or by reason of any representation or assurance made or given concerning or relating to the character, conduct, credit, ability, trade or dealings of any other person, to the intent or purpose that such other person may obtain credit, money or goods upon it unless such representation or assurance be made in writing, signed by the party to be charged therewith’. The section applies only to fraudulent misrepresentations and not to negligent ones: see W B Anderson & Sons Ltd v Rhodes (Liverpool) Ltd [1967] 2 All ER 850, following Banbury v Bank of Montreal [1918] AC 626, HL. 14 Majrowsky v Guy’s & St Thomas’s NHS Trust [2006] 3 WLR 125.

F Misrepresentation 19.52  A person who has contracted with a firm on the basis of a fraudulent or innocent misrepresentation by one of the partners can rescind the contract and recover any benefit that has passed to the firm1 or obtain damages in lieu2, but cannot obtain damages against a partner who joined the firm after the misrepresentation was made3. Where he contracts after an innocent misrepresentation has been made to him by a member of the firm and as a result he suffers loss, he can claim damages as if the representation had been made fraudulently4, unless the partner can prove that he had reasonable grounds to believe and did believe (up to the time the contract was made) that the facts represented were true5. Section 15 of the Partnership Act 1890 provides: A … representation made by any partner concerning the partnership affairs, and in the ordinary course of its business, is evidence against the firm.

If a partner is guilty of misrepresentation, either negligent6 or fraudulent7 the firm is liable whether or not a contract ensues, if he was acting in the ordinary course of the business of the firm8, or with the authority of his partners9, as will usually be the case if the misrepresentation was made in discussions leading to a contract10 or made by an estate agent to a prospective purchaser. But a firm is not liable for a fraudulent11 representation as to the character or credit of any person unless the representation is in writing signed by all the parties in their own names12 and not just in the firm name13. A misrepresentation which induces an outsider to join a firm as a partner is discussed at para 14.7ff above. 497

19.53  The firm and outsiders  1 Refuge Assurance Co Ltd v Kettlewell [1909] AC 243, HL.   2 See the Misrepresentation Act 1967, s 2(2).  3 British Homes Assurance Corpn Ltd v Paterson [1902] 2 Ch 404.   4 The measure of damages is the same as for fraud, ie the tortious measure: the plaintiff must be put in the position he would have been in if the representation had not been made, not the position he would have been in were it true: East v Maurer [1991] 2 All ER 733, CA; Royscot Trust Ltd v Rogerson [1991] 2 QB 297, CA.   5 See the Misrepresentation Act 1967, s 2.  6 Richardson v Norris Smith Real Estate (1977) 1 NZLR 152.  7 Clemance v Hollis (1978) 2 NZLR 471.  8 Rapp v Latham (1819) 2 B & Ald 795.   9 See the Partnership Act 1890, s 10, quoted in 9.44 above. 10 Resolute Maritime Inc v Nippon Kaiji Kyokai, The Skopas [1983] 2 All ER 1. 11 The representation must be fraudulent to attract the benefit of the section: Banbury v Bank of Montreal [1918] AC 626, HL. 12 See Statute of Frauds Amendment Act 1828, s 6 which is quoted in the text and which does not cover mere negligent misstatement. The point must be pleaded. 13 Swift v Jewsbury (1874) LR 9 QB 301, Ex Ch. On this the position of a company is different from that of a firm as explained by Oliver LJ in UBAF Ltd v European American Banking (1984) 1 QB 713 at 722ff.

G Constructive trusteeship or accountability in equity 19.53  A partner may constitute himself a constructive trustee in a number of different ways, because a constructive trust is imposed in equity wherever justice and good conscience require it1. Because the words ‘accountable as a constructive trustee’ are misleading, Lord Millett2 has recommended that they be substituted by ‘accountable in equity’. Sometimes the liability is imposed where the quasi-trustee partner holds property for another. The question whether the firm is liable for his breach of such a constructive trust is discussed in the next chapter, ‘Breach of trust and misappropriation’3. The liability is also imposed by law where the partner has not himself received any property, but he ‘dishonestly procures or assists in a breach of trust or fiduciary obligation’4. Such an activity falls within the scope of a ‘wrongful act’ in section 10 of the Partnership Act 1890 (quoted in para 19.44 above)5 and so may render the firm liable under that section if the acts that constituted the wrong6 were done by the partner ‘acting in the ordinary course of the business of the firm, or with the authority of his co-partners’ as required by that section. There is no principle that a solicitor does not have implied or apparent authority to constitute himself a constructive trustee7, and a dishonest partner in a professional firm may be so acting8. 1 Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch 276, CA. 2 Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 142, approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677. 3 Section  10 (quoted at para  19.44 above) is not concerned with wrongdoing by a trusteepartner for reasons given by Sir Christopher Slade in Walker v Stones [2001]  QB  902 at 946–951, CA, but the House of Lords allowed a petition for leave to appeal on this issue (2001) 1 WLR 1341, after which the case settled. 4 Royal Brunei Airlines v Tan [1995] 2 AC 378 at 392G, PC, where the requirement of dishonesty is discussed and emphasised, followed in Twinsectra Ltd v Yardley [2002] UKHL 12, [2002]

498

The liability of the firm for a partner’s wrongs and omissions 19.54

5 6 7

8

2 AC 164 and Group Seven Ltd v Ali Nasir [2017] EWHC 2466 (Ch). The first two cases are reconciled in Barlow Clowes v Eurotrust [2006] 1 WLR 1476, HL; see Starglade Properties v Nash [2010] EWCA Civ 1314 and para 19.51 above. Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 following Agip (Africa) Ltd Jackson [1990] Ch 265 at 290. In New Zealand see Estate Realties Ltd v Wignall (1992) 2 NZLR 615. Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 114. Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 especially at paras 40–42 where Lord Nicholls questioned contrary statements by Lord Herschell in Mara v Browne [1896] 1 Ch  199; and Vinelott J in Re Bell’s Indenture [1980] 1  WLR  1217 at 1230; approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677. Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366, approved in Mohamud v Wm Morrison Supermarkets plc [2016]  AC  677. See remarks to a similar effect on the activities of the solicitor-trustee partner in Walker v Stones [2001] QB 902 at 946–951, CA and note 3 above, and Mohamud v Wm Morrison Supermarkets plc [2016] AC 677.

H  Other torts and wrongs 19.54  Where a partner trespasses1 or harasses an employee2 or is fined for contempt of court or not filing a statutory certificate3 or maliciously commences a prosecution for alleged theft of partnership property, he may or may not be acting within the scope of his authority4 according to whether he was acting in the ordinary course of the business of the firm, or with the authority of his co-partners5, which is a question of fact in each case. The wrong must be that of the partner and not (for instance) that of an officer of a corporate partner6. The features necessary to constitute the wrong have to have occurred in the course of the business if the firm is to be liable7. A firm may be liable for breach of professional confidence8 or libel, in which case a question as to the state of mind of the partners may arise if privilege is claimed: In Meekins v Henson9 a junior partner, on behalf of a firm, had published a libel in circumstances of qualified privilege which could be obviated only by malice, and only the senior partner was guilty of malice. It was argued that neither was liable, for the one had no malice and the other had not published the libel. Held by Winn J, rejecting this argument that the publication was by all three partners, but the senior partner alone was liable, and not the firm.

A solicitor-advocate who assaulted his opponent in the course of a hearing by trying to seize a document from him was held to be acting in the ordinary course of the business of the firm, but not when he punched his opponent outside the courtroom afterwards, so his firm was liable for the first assault but not the second10. Where a partner in a selling agent’s firm received a secret commission from a purchaser, both he and the firm were liable11.  1 Petrie v Lamont (1841) Car & M 93.  2 Under the Protection from Harassment Act 1997: Majrowski v Guy’s and St Thomas’s NHS Trust [2007] 1 AC 224, HL.  3 Taylor Made Golf Co Inc v Rata & Rata [1996]  FSR  528; Grant v Mathewson (1843) 1 LTOS 625, NP.  4 Arbuckle v Taylor (1815) 3 Dow 160.   5 See the Partnership Act 1890, s 10, quoted in para 19.44 above.

499

19.55  The firm and outsiders  6 Tomasetti v Brailey [2012] 274 SLR 248.  7 Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366, approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677; and see Scarborough Building Society v Howes Percival (1998) 76 P & CR D4, CA.  8 Allan v Ng & Co [2012] 2 HKLRD 160.   9 [1964] 1 QB 472, cited with approval by Lord Millett in Dubai Aluminium Co Ltd v Salaam [2003] 2  AC  366 at para  106, approved in Mohamud v Wm Morrison Supermarkets plc [2016] AC 677; contrast the facts with those of Armstrong v Strain (a case in deceit) given at para 19.51 above. 10 Flynn v Robin Thompson & Partners (2000) 144 Sol Jo LB  102, CA. See also Fennelly v Connex South Eastern Ltd [2001] IRLR 390, CA and authorities on assaults cited in Mattis v Pollock [2003] 1 WLR 2158. 11 Northampton Regional Livestock Centre v Cowling [2016] 1 BCLC 431.

The partner benefiting from his own wrong 19.55  Whether the partner has benefited from his own wrong is irrelevant to the firm’s liability save in so far as it may tend to show whether the act was within his authority1. 1 Lloyd v Grace, Smith & Co [1912] AC 716, HL; United Bank of Kuwait v Hammoud [1988] 1 WLR 1051, CA.

I  Where the partners in the firm change 19.56  A claim in tort is only complete when damage is suffered by the plaintiff, which may be after the partners who committed the wrong have left the firm. The original partners do not become liable for the causative wrongful ‘act or omission’1 until the damage is suffered which gives the plaintiff his rights of action. It is they who must be sued, not those who are partners at the later date when the cause of action strictly accrues. This is something of a trap, for CPR2 provides that partners may be sued in the name of the firm of which they were partners ‘at the time when the cause of action accrued’, although they are not the ones actually responsible. The difficulty has been resolved3 by the court interpreting the rule as meaning that the firm name represents those who were partners when the breach of duty occurred, rather than at the later date when the cause of action arose. 1 See the Partnership Act 1890, s 10; British Homes Assurance Corpn Ltd v Paterson [1902] 2 Ch 404. Where the claim against a solicitor’s firm is a claim in negligence for the failure of the firm to institute proceedings before a limitation period expires, the partners in the firm as it was constituted when the retainer was accepted remain liable even though the firm has meanwhile dissolved: Welsh v Knarston 1972 SLT 96 (Scotland). 2 See further on this under procedure in claims against the firm, CPR, Pt  7  PD 5A and para 21.24 below. 3 In Australia: State of South Australia v Peat Marwick (1997) 24 AC SR 230 at 254, considered at para 21.30 below.

500

Breach of trust and misappropriation 19.58

J Liability of a successor practice on a professional indemnity claim 19.57  Professional indemnity insurance usually gives cover to firms and other employers by reference to the year in which a claim is made rather than the year in which the default occurred. As a consequence a claim may arise at a date after the firm at fault has ceased to practise. Many professional bodies1 require that where a ‘successor practice’ has succeeded to some part of the business of a previous practice, there is an obligation on it to insure against liability for claims which were caused by the previous practice. This may result in the successor practice suffering enhanced premiums and having to deal with claims for which it has no legal liability, although the claimant’s rights will strictly be against the partners in the previous practice. The position of an incoming partner is discussed at para 20.16 below. 1 Eg SRA Indemnity Insurance Rules 2013.

3 BREACH OF TRUST AND MISAPPROPRIATION A The principles  19.58 B Where the partner in default is acting within his authority as a partner  19.60 C Where the partner in default is acting outside his authority as a partner  19.62 D What the firm may be liable for   19.70 E Breach of solicitors’ undertakings   19.72 F A trustee-partner’s right to fees   19.74

A  The principles 19.58  A partner may be liable to an outsider for breach of trust or other misuse of the outsider’s property. The question will then arise as to what extent he has rendered his other partners liable. The partner concerned may be the express trustee named in a will or settlement or may only be trustee by implication because he holds the property of another under fiduciary duties such as on constructive trusts1 or as an executor de son tort2. Constructive trusteeship arising from dishonest assistance in another’s breach of trust does not usually require3 the partner in question to receive any property at all, so is considered under ‘constructive trusts’ at para 19.53 above. Where he takes property, the nature of the trusteeship may be irrelevant to the question of the liability of his partners4 discussed here, save in so far as it raises questions as to how far he had authority to act as he did. 501

19.59  The firm and outsiders

The principles applicable may be summarised as follows: (1) a trustee’s breach of trust imposes no liability on his partners if he is acting outside the scope of the partnership, unless they have notice of the breach of trust or if trust funds can be traced into their hands; but (2) if he misapplies another’s property (whether strictly he is a trustee of it or not) then his partners are liable if it was received by him either within his actual or apparent authority, or within the course of the firm’s business; (3) if liable at all, the partners are jointly and severally liable5. These principles are derived from sections  11 and 13 of the Partnership Act 1890 and not from section 10 (considered in the previous chapter). As Lord Millett observed in Dubai Aluminium Co Ltd v Salaam6, ‘Section  10 makes the firm vicariously liable for the loss caused by a party’s wrongdoing … Sections 11 and 13 are not concerned with wrongdoing or with vicarious liability but with the original liability of the firm to account for receipts’7. 11 In the following cases namely – (a) where one partner acting within the scope of his apparent authority receives the money or property of a third person and misapplies it; and (b) where a firm in the course of its business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm; the firm is liable to make good the loss. 13 If a partner, being a trustee, improperly employs trust property in the business or on the account of the partnership, no other partner is liable for the trust property to the persons beneficially interested therein provided as follows: (1) This section shall not affect any liability incurred by any partner by reason of his having notice of a breach of trust; and (2) Nothing in this section shall prevent trust money from being followed and recovered from the firm if still in its possession or under its control. 1 Agip (Africa) Ltd v Jackson [1990] Ch 265; Walker v Stones [2001] QB 902, CA; Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch  437, CA where Nourse LJ emphasised that dishonesty was not a necessary ingredient for the establishment of liability under the ‘knowing receipt’ as opposed to the ‘accessory’ head of constructive trust. 2 Mara v Browne [1895] 2 Ch 69; on appeal [1896] 1 Ch 199; but see the observations on the dicta in this case by Aldous LJ in Dubai Aluminium Co Ltd v Salaam [2001] QB and Lord Nicholls on appeal at [2003] 2 AC 366 at paras 40–42; Soar v Ashwell [1893] 2 QB 390, CA. 3 See the important decision Dubai Aluminium Co Ltd v Salaam [2003) 2 AC 366. 4 This question was left open in Re Acraman (1843) 3 Mont D & De G 399. 5 See the Partnership Act 1890, s 12. For joint and several liability see para 20.1ff below. 6 [2003] 2 AC 366. 7 Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 and see Sir Christopher Slade in Walker v Stones [2001] QB 902 at 946–951.

(a) Comparison between ss 11 and 13 of the Partnership Act 1890 19.59  Section  13 (quoted above) relieves the firm from claims for the default of a partner ‘being a trustee’ save for tracing claims and claims against 502

Breach of trust and misappropriation 19.60

partners who have notice of the breach of trust. This looks incompatible with section  11 which puts a more general liability on the firm for funds misapplied. But the reference in section  13 to a partner ‘being a trustee’ is intended to refer to his trusteeship being outside the ambit of the partnership business1. The section assumes that no partner (even a solicitor) would have implied authority from his partners to act as a trustee within the scope of the business of the firm2. Section  13 should therefore be read as if its opening words ‘If a partner being a trustee … ‘ are read as, ‘If a partner, outside the scope of his apparent authority as a partner and outside the course of the partnership business, being a trustee … ‘ So the distinction between sections 11 and 13 depends upon whether the trustee-partner in default is acting within the scope of his authority or not. As Millett LJ stated in Bass Brewers Ltd v Appleby3: Section  11 and section  13 are both concerned with third-party money received by the firm. Section 11 deals with money which is properly received by the firm (or by one of the parties acting within the scope of his apparent authority) for and on behalf of the third party but which is subsequently misapplied. The firm is liable to make good the loss. Section 13 is concerned with money held by a partner in some other capacity, such as trustee, which is misapplied by him and then improperly, and in breach of trust, employed by him in the partnership business. His partners can be made liable only in accordance with the ordinary principles of knowing receipt. There is a distinction to be drawn between money which is properly received by the firm in the ordinary course of its business and is afterwards misapplied by one of the partners, which is dealt with by section 11 of the Partnership Act 1890 and money which is misappropriated by a trustee who happens to be a partner and who in breach of trust pays it to his firm or otherwise improperly employs it in the partnership’s business. In the latter case, the innocent partners are liable only if the requirements of the general law of knowing receipt reproduced by section 13 are satisfied … 1 Rix J in Dubai Aluminium Co Ltd v Salaam [1999] 1 Lloyds’ Rep 415 at 470, approved on appeal [2001] QB 113 at 141 and in Walker v Stones [2001] QB 902 at 950, CA, but the House of Lords allowed a petition for leave to appeal on this issue [2001] 1 WLR 1341, after which the case settled. The point is made explicit in the Australian Partnership Acts. 2 Re Fryer (1857) 3 K & J 317. 3 (1996) 73 P & CR 165, CA. He repeated the point in Dubai Aluminium Co v Salaam [2003] 2 AC 366 at para 110.

B Where the partner in default is acting within his authority as a partner (a)  Express authority 19.60  When the partner who misapplies trust money is ‘acting within the scope of his apparent authority’ or ‘in the course of [the firm’s] business’ section 11 renders the firm liable1. 503

19.61  The firm and outsiders

If the acts complained of might be within the scope of the firm’s business, the firm does not become liable if in fact the partner was actually and apparently acting on his own account and not as a partner2 when he received the property and it was not misapplied whilst in the custody of the firm. 1 See Townend v Townend (1859) 1 Giff 201. 2 British Homes Assurance Corpn v Patterson [1902] 2 Ch  404; New Mining & Exploring Syndicate Ltd v Chalmers and Hunter 1912 SC 126; Marquise de Ribeyre v Barclay (1857) 23 Beav 107; Re Biddulph (1842) 1 Ph 227; Tendring Hundred Waterworks Co v Jones [1903] 2 Ch 615; but whether the latter case was rightly decided on its facts is doubted by Prime and Scanlan The Law of Partnership (1995), p 134.

(b)  Apparent and implied authority 19.61  A partner renders his firm liable1 to replace property which has disappeared, after the partner received the property ‘acting within the scope of his apparent authority’, or where the firm received it ‘in the course of its business’2. If he receives it as a partner, the firm is liable even if the other partners knew nothing of the transaction3. The scope of the firm is discussed at the beginning of this chapter. It was once said that it is never within a partner’s apparent authority, or in the course of a firm’s business, so to behave as to constitute himself a constructive trustee4, but that is to miss the point5. If the partner has authority to do a thing, he must have authority to do it badly or to fail to do it so as to cause loss6. The question is rather whether the transaction, had it not gone wrong, would have fallen within his apparent authority or the firm’s business7. The nature of the activity, and not the manner in which the activity is performed, will determine whether the activity falls within the scope of the firm’s ordinary business8.

The question of the extent of the course of the firm’s business will be one of fact in each case9. The scope of a solicitor’s practice is ever changing10. Lord Nicholls in Dubai Aluminium Co Ltd v Salaam11 said in relation to a claim by a partner for dishonestly assisting in a breach of fiduciary duty: The liability of a firm of solicitors in respect of acts of a partner which render him liable in this way depend upon an application of the ordinary principles relating to vicarious liability.

Many professional firms carry on financial and investment business and so are regulated under the Financial Services and Markets Act 2000 by the FCA or other bodies12. The terms of such regulation shed light on the authorised scope of firms to receive money13. But the courts have still been generous to solicitors’ firms by construing narrowly the scope of their ‘business’ for these purposes. In Antonelli v Allen14 Neuberger J held that for a partner to receive money and pay it into the firm’s client account was not within his apparent authority, nor within the course of the firm’s business, where the money was paid without any transaction being intended save the arrival of instructions from a third party in relation to it.

504

Breach of trust and misappropriation 19.62   1 See the Partnership Act 1890, s 11(a), quoted above.   2 See the Partnership Act 1890, s 11(b); Bass Brewers Ltd v Appleby (1996) 73 P & CR 165 quoted above; McDowie v Hetherington (1997) 142 DLR (4th) 648 (Ontario CA); Lam Tai Kwan v Lo Wai Kit (2007) HKLRD 365. See para 19.8ff above for discussion of the phrase ‘the partnership business’.  3 St Aubyn v Smart (1868) 3 Ch App 646, followed in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 105; cf Estate Realties Ltd v Wignall [1992] 2 NZLR 615 at 635.  4 Per Vinelott J in Re Bell’s Indenture [1980] 3  All ER  425 at 437, overruled in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 which explained Mara v Browne [1896] 1 Ch 199, and see also Robertson v Armstrong (1860) 28 Beav 123.  5 Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366. In McDowie v Hetherington (1997) 142 DLR (4th) 648 the Ontario Court of Appeal, not following Harman v Johnson (1853) 2 E & B 61, held that a buyers’ firm was liable for his misapplication of a client’s investments, following Ground J in Ernst & Young Inc v Falconi (1994) 17 OR (3d) 512 where he held the firm liable for a partner defrauding a client’s creditors and said: ‘It is sufficient if the partner used the facilities of the law firm to perform services normally performed by a law firm in carrying out the transactions’.   6 Per Paul Matthews: New Law Journal (1981) 243 at 245.   7 By contrast in Estate Realties Ltd v Wignall [1991] 3 NZLR 482 (New Zealand) a partner in a stockbroking firm received stock from a client and falsely alleged that he had sold it, whilst in fact retaining it for himself and making a profit, for which he was liable as a constructive trustee. Tipping J held that although the transaction was in the course of the partnership business, his two innocent (and ignorant) partners were not liable, because he had no authority to constitute himself a constructive trustee, following Vyse v Foster (1872) 8 Ch App 309 at 333 and National Commercial Banking Corpn of Australia v Battey (1986) 60 ALJR 379. They would only be liable if they had become aware of the breach of duty, in which case they would have constituted themselves constructive trustees. This may not be good law in England today.  8 Per Doherty JA giving the judgment of the Ontario Court of Appeal in McDowie v Hetherington (1997) 142 DLR (4th) 648.   9 See para 19.8ff above. 10 See United Bank of Kuwait v Hammoud [1988] 1  WLR  1051, especially Staughton J at 1063E, discussed at para 19.13 above. There is old authority for the proposition that money paid to a solicitor in the course of the management of a client’s affairs is money for which the firm is liable: Earl Dundonald v Masterman (1869) LR 7 Eq 504. 11 Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 41. 12 Eg by the Law Society or any other self-regulating authority. 13 What the scope of the firm’s business may be is considered further at para 19.8ff above. 14 Antonelli v Allen [2000]  NLJR  1825, but permission to appeal was granted by Robert Walker LJ ([2001]  EWCA  Civ 1563); see also Dubai Aluminium Co Ltd v Salaam [2001] 1  QB  113, CA, and in the House of Lords at [2003] 2  AC  366; and De Beer v Kanaar [2002] EWHC 688 (Ch).

C Where the partner in default is acting outside his authority as a partner (a)  Other partners with notice of the breach 19.62  With notice of a breach of trust1, the other partners are liable for the property that has passed through their hands or through the firm’s account, whether the firm has made any use of it or not2. Being in control of trust property and knowing that it is being dealt with wrongly they become liable for it (even after they have parted with it) as constructive trustees3. Constructive trusteeship also arises when the party charged takes no control of any 505

19.62  The firm and outsiders

property but knowingly assists in another’s dishonest design: see para 19.53 above. Section 13 of the Partnership Act 18904 enacts in relation to partners who receive trust money from a partner who is a trustee and which is paid to them in breach of trust, the ordinary rules of equity applicable to cases of knowing receipt; it is confined to trust property ‘employed in the business or on account of the partnership’, that is to say, to property received beneficially by the partnerships5. Partners who later join the firm and are unaware of the breach of trust are not liable6. In Macdonald v Richardson7 the executor of a deceased partner wrongly used the deceased’s assets in the continuing business which he carried on alone. Later a new incoming partner with no knowledge of the breach of trust was held to be not liable.

The degree of notice required to make such a partner liable amounts to actual knowledge of the breach of trust8. It will not be imputed to him, for instance merely because the person guilty of the breach of trust is his partner9. Section  1610 does not operate to give him notice, because that section is restricted to matters ‘relating to partnerships affairs’. Even if no property comes into their hands, they will be liable if dishonestly11 (and not merely with knowledge) they assist in the breach of trust12 as discussed at para 19.53 above. They are entitled to a limitation defence13.   1 The subject of notice and knowledge is dealt with further at para 20.32ff below.  2 Blyth v Fladgate [1891] 1 Ch 337 at 354. National Commercial Banking Corpn of Australia Ltd v Batty (1986) 160 CLR 251, HC of A; Jamey v Oxley (1939) 61 CLR 433.  3 Barnes v Addy (1874) 9 Ch App 244; Re Nevill, ex p White (1871) 6 Ch App 397, CA; Flockton v Bunning (1868) 8 Ch App 323n.   4 Quoted at para 19.58 above.   5 Per Millett LJ in Bass Brewers Ltd v Appleby (1996) 73 P & CR 165, CA, following Agip (Africa) Ltd v Jackson [1990] Ch 265.  6 Twyford v Trail (1834) 7 Sim 92.   7 (1858) 1 Giff 81 at 89. Contrast Twyford v Trail (1834) 7 Sim 92.  8 Eagle Trust plc v SBC Securities Ltd [1993] 1 WLR 484; Re Blundell (1888) 40 Ch D 370 at 381; Blyth v Fladgate [1891] 1 Ch 337 at 351; Mara v Browne [1896] 1 Ch 199, CA, where the Court of Appeal expressed the opinion (not following Blyth v Fladgate [1891] 1 Ch 337 or North J in Mara v Browne [1895] 2 Ch 69 at first instance) that knowledge by one partner of a breach of trust could not be imputed to the other members of the firm; Marsh v Keating (1834) 2 Cl & Fin 250, HL. Mara v Browne is discussed in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366.  9 National Commercial Banking Corpn of Australia Ltd v Batty (1986) 65 ALR 385, HC of A; Re Bell’s Indenture [1980] 1 WLR 1217, a case which suffered criticism as to its dicta and reasoning (P Mathews (1981) New L J 243) and was overruled in part in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366. 10 See the Partnership Act 1890, s 16; see also para 20.32ff below. 11 On the need for dishonesty in the real sense (not merely ‘equitable fraud’) see the judgments of the Court of Appeal in Belmont Finance Corpn Ltd v Williams Furniture Ltd [1979] Ch 250, CA, rejecting the contrary view of Ungoed-Thomas J in Selangor United Rubber Estates Ltd v Cradock (a Bankrupt) (No 3) [1968] 1 WLR 1555 at 1591. 12 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, PC; followed in Group Seven Ltd v Ali Nasir [2017] EWHC 2466 (Ch). 13 Paragon Finance v D B Thakerar [1999] 1 All ER 400 at 408.

506

Breach of trust and misappropriation 19.65

(b)  Tracing in to the firm (i)  How trust property may be traced 19.63  Trust property may be followed (at law) or traced (in equity) into the hands of the innocent partners in the firm even where they are unaware either of the trust or the breach of trust, and even where neither was within the scope of the authority of the partner in default or within the course of the business of the firm1. In equity the claim will be a proprietary one against the property in question, or for a declaration of charge over it if the claim cannot extend to the whole of the property2. 1 This is the effect of the Partnership Act 1890, ss 11 and 13, quoted in para 19.58 above. 2 Re Hallet’s Estate (1880) 13 Ch D 696, CA; Clark v Cutland [2004] 1 WLR 783, CA.

(ii)  What property may be traced in to the firm? 19.64  Tracing in equity will follow money or other property that has been misapplied into whatever form the property may have been converted, such as the land or securities that have been bought with the proceeds of sale of the original assets that belonged to the claimant or which were held upon trust for him. So if property has passed to the firm as a result of a partner’s breach of trust to an outsider, the firm will hold it as constructive trustee for the outsider1. But the property can only be traced if it can be identified and ascertained; if dissipated it cannot be traced2. 1 Peffer v Rigg [1977] 1 WLR 285 at 294; Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769, CA. 2 Re Diplock [1948] Ch 465 at 521.

19.65  Mixed funds If the trust funds are mixed with other money in the firm’s bank account or used with other money to buy an asset, then the claimant has, at his option, a right either to claim a lien over the asset to secure his personal claim to repayment or a proportionate share of the asset1. If the property increases in value, then he will choose to take a proportionate share2, but if it falls in value then he will take a lien and the loss must be attributed to the firm3. The rule in Re Hallett’s Estate4 will apply so as to raise the presumption that withdrawals from the account are from the firm’s money first, leaving the trust funds intact as far as possible. As between rival beneficiaries the rule in Clayton’s Case5 may apply and their priority will then be determined on the principle of first in, first out. But the modern tendency is to treat latecomers equally, so their loss is borne pari passu6. 1 Foskett v McKeown [2001] 1 AC 102 at 131G–132A per Lord Millett. 2 Re Tilley’s Will Trusts [1967] Ch 1179. 3 Wright v Morgan [1926] AC 788; Re Patten and Edmonton Union Poor Guardians (1883) 52 LJ Ch 787.

507

19.66  The firm and outsiders 4 (1880) 13 Ch D 696, CA. 5 Devaynes v Noble, Clayton’s Case (1816) 1 Mer 572; Sinclair v Brougham [1914] AC 398, HL discussed in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, HL. 6 Commerzbank Aktiengesellschaft v IMB Morgan (2004) 7 December 2004, Ch D, Laurence Collins J, applying Vaughan v Barlow Clowes Int [1992] 4 All ER 22, and see Allied Irish Banks v Smith [2015] IEHC 707.

19.66  Overdrawn accounts Where the funds have been paid into an overdrawn bank account, then they can no longer be traced, nor can misappropriated money be traced into an asset bought before the money was received by the purchaser1. 1 Bishopsgate Investment Management Ltd (in liquidation) v Homan [1995] Ch 211, rejecting dicta of Lord Templeman in Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] 1 WLR 1072, PC, but following Re Goldcorp Exchange Ltd [1995] 1 AC 74, PC; Re Tilley’s Will Trusts [1967] Ch 1179; Re Diplock [1948] Ch 465 at 548; James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62, CA.

19.67  Insurance claims If property is held by the firm subject to a tracing claim but the insurance premiums are paid by the firm and the property is destroyed, no tracing claim can be pursued against the insurance proceeds, because they are the fruit of the premiums and not of the property1. 1 Per Robert Goff J in Ellerman Lines Ltd v Lancaster Maritime Co Ltd [1980] 2 Lloyd’s Rep 497.

(iii)  The firm’s defence to a tracing claim 19.68  Purchaser for value without notice A defence to a tracing claim is that the firm or partner holding the assets has received them not as a volunteer but as a bona fide purchaser for value of the legal estate without notice of the equity1. ‘Purchaser’ includes a mortgagee or lessee2 and the words ‘for value’ merely mean for consideration; it need not be full monetary value. ‘Notice’ means actual knowledge and such matters as would have come to the purchaser’s attention or that of his advisers or agents had they made usual and proper enquiries3, and in each case it must be clear notice4: In Carl-Zeiss-Stiftung v Herbert Smith & Co (No 2)5 the plaintiffs in an action claimed that the defendants’ solicitors fees had been paid with the plaintiffs’ money, and claimed the money back against the defendants’ solicitors as constructive trustees. The claim failed because although the solicitors knew that there was a claim against the money, this was insufficient to amount to notice of a trust. ‘No case was produced6 in which a solicitor, simply receiving payment of his costs and disbursements, was held to be a constructive trustee and accountable to persons who claimed to be beneficiaries under a trust’7. 1 2 3 4

Re Diplock [1948] Ch 465 at 539. Re King’s Leasehold Estates (1873) LR 16 Eq 521 at 523. Ie constructive knowledge: Law of Property Act 1925, s 199. Knowledge and notice are discussed further at para 20.32ff below.

508

Breach of trust and misappropriation 19.71 5 [1969] 2 Ch 276, CA; contrast (on the facts) Re Carroll [1902] 2 Ch 175. 6 But see dicta in La Roche v Armstrong [1922] 1 KB 485 at 491. 7 Per Danckwerts LJ at [1969] 2 Ch D 291.

19.69  Delay and acquiescence The tracing claim being an equitable one, it is subject to equitable defences and will be barred by laches or if the claimant has acquiesced in the disposal of the fund1. If the innocent firm members have changed their position so that it would be unjust to require them to make repayment, then it will not be ordered against them2. 1 John v James [1991] FSR 397; Blake v Gale (1886) 32 Ch D 571. 2 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, HL.

D  What the firm may be liable for (a)  All forms of property 19.70  The firm may be rendered liable for the breach of trust of a member of the firm as regards almost any conceivable form of property. So if he has received a bribe and invested the proceeds in property put into the name of the firm, such property is held upon trust for the person injured1. If he has acquired confidential information and misused it they may be liable for the profit2. The measure of loss is the actual loss suffered by the trust estate3. It is restitutionary but in the alternative a claim for equitable damages may be made, and then questions of the foreseeability of the loss may arise4. 1 Daraydan Holdings Ltd v Solland Int [2004] 3  WLR  1106; A-G for Hong Kong v Reid [1994] 1 AC 324. 2 A-G v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 at 262–263. 3 Underhill and Hayton Law of Trusts and Trustees (1995), p 825. 4 These are deep waters: see Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 77 ALJR (High Court of Australia) and Bank of New Zealand v New Zealand Guardian Trust Co Ltd (1999) 1 NZLR 664 distinguishing on its facts the dictum of Lord Browne-Wilkinson in Target Holdings v Redferns [1996] 2 AC 421 at 437 as explained by Lord Millett (1998) 14 LQR 214 at 227 and Christopher Bevan (2003) TQR Issue 3 Vol 1 p 21. See also Street J in Re Dawson [1966] 2 NSWLR 211, quoted in Underhill and Hayton Law of Trusts and Trustees (1995), p 829.

(b)  Interest on the property, or a share of profits 19.71  If the firm is liable for the property of a beneficiary as constructive trustee of that property, it will also be liable for the profit that the property has made1. Alternatively, at the election of the beneficiary, the firm will be liable for interest on what is due to the beneficiary. If trust money is wrongfully lent to the firm or used by it, the beneficiaries are entitled to an enquiry whether they will receive more by way of interest or profits2. The claimant then elects between the two. 509

19.72  The firm and outsiders

The rate of such interest is based upon the restitutionary principle mentioned above. As Robert Walker J has observed3: ‘The rate of interest should mirror as far as possible the income which the plaintiff might have earned.’ Although compound interest may be ordered against a trustee who uses trust money in his own business4, on the basis that this is what he may be presumed to be capable of earning5, such a presumption will not be made against a professional firm rather than a trading firm6. Boardman v Phipps [1967] 2 AC 46, HL. Wallersteiner v Moir (No 2) [1975] QB 373, 508n; Flockton v Bunning (1868) 8 Ch App 323n. El Ajou v Dollar Land Holdings plc (No 2) [1995] 2 All ER 213. Wallersteiner v Moir (No 2) [1975] QB 373 at 508n. Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 702 per Lord Browne-Wilkinson. 6 Burdick v Garrick (1870) 5 Ch App 233. 1 2 3 4 5

E  Breach of solicitors’ undertakings (a)  Undertakings generally 19.72  A solicitor’s undertaking is a promise made in his capacity as a solicitor1, or a statement by a solicitor or a firm that he or it will cause something to be done, or refrain from doing something, given to someone who reasonably relies upon it2. Section 5 of the Partnership Act 18903 renders a firm liable for: the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm.

A solicitor’s undertaking will be enforced even if it is not contractual, under the court’s inherent jurisdiction over its officers4. Whether a single partner’s undertaking binds the partners (as it usually will) depends upon whether it is given for ‘carrying on in the usual way business of the kind carried on by the firm’, a matter considered further under the heading ‘Business of the firm’ at para 19.8ff above. If the answer is yes, the firm is liable5. The mere fact that it was given fraudulently by the solicitor in question does not itself stop the firm being liable6. 1 Per Staughton LJ in United Bank of Kuwait v Hammoud [1988] 1 WLR 1051, CA, following United Mining and Financial Corpn Ltd v Becher [1910] 2 KB 296 at 306 per Hamilton J. 2 Guidance Note 35 to Rule 10.05 of the Solicitors’ Code of Conduct 2007 (now replaced by SRA Code of Conduct 2011). 3 Printed as Appendix A below. 4 Udall v Capri Lighting Ltd [1988] QB 907, CA. 5 Re Acraman (1843) 3 Mont D & De G 399; Hasleham v Young (1844) 5 QB 833; Alliance Bank Ltd v Tucker (1867) 17 LT 13. 6 United Bank of Kuwait v Hammoud [1988] 1 WLR 1051, CA. Followed in Hirst v Etherington [1999] Lloyd’s Rep PN 938, CA.

510

Breach of trust and misappropriation 19.74

(b)  Undertakings to pay money 19.73  A solicitor who has received money subject to undertakings that he has given, holds it as trust money on the terms of the undertakings1. But Glidewell LJ has viewed restrictively the liability of a firm today when the undertaking is an undertaking to pay money2: Two requirements must be fulfilled before an undertaking is held to be within a solicitor’s ordinary authority. First, in the case of an undertaking to pay money, a fund to draw on must be in the hands of, or under the control of, the firm; or at any rate there must be a reasonable expectation that it will come into the firm’s hands … Secondly, the actual or expected fund must come into their hands in the course of some ulterior transaction which is itself the sort of work that solicitors undertake. It is not the ordinary business of solicitors to receive money or a promise from their client, in order that without more they can give an undertaking to a third party. Some other service must be involved.

Thus in Patel v Zukowski3 a solicitor was acting for a client seeking a commercial loan and undertook without the knowledge or express authority of his partner to: (a) pay £85,000 which it was believed he would soon receive; and (b) pay interest on it at £5,000 per month in default. His partner was liable on the first undertaking as it appeared to the recipient of the undertaking to be within the ordinary authority of a partner, but not the second, which was a ‘pledge of the solicitor’s credit’ unsupported by any money from a client and so not within the ordinary business of a solicitor. The fact that the solicitor may have said that the transaction is within the ordinary business of the firm is irrelevant4. 1 Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164, following Barclays Bank Ltd v Quistclose Investments [1970] AC 567, HL. 2 In United Bank of Kuwait v Hammoud [1988] 1 WLR 1051 at 1063G, and see Silver and Drake v Barnes [1971] 1 QB 396, CA, but contrast Citadel Management Inc v Thompson [1999] 1 FLR 21, CA. 3 [1999] GCCR 2173, R Wakerly QC sitting as a deputy judge of the Queen’s Bench Division. 4 Hirst v Etherington [1999] Lloyd’s Rep PN 938, CA.

F  A trustee-partner’s right to fees 19.74  A trustee who is a professional person is entitled to no fees or other remuneration (other than out of pocket expenses) unless provision is made for this in the trust instrument or the other trustees have agreed in writing1 or by court order2 or all the beneficiaries have consented3. The rule extends to preventing a solicitor who is a partner (even a salaried partner) recovering any profit costs from the trust estate for any work that may be done by his professional partner4. The only way around this is if he arranges that the work is done by his colleague outside the ambit of their partnership5: 511

19.75  The firm and outsiders A solicitor trustee may employ his partner to act for himself and his cotrustees with reference to the trust affairs, and may pay him the usual charges, provided that it has been expressly agreed between himself and his partner that he himself shall not participate in the profits or derive any benefit from the charges. Nothing short of this will be sufficient6. 1 Section 29(2) of the Trustee Act 2000. 2 Which will only be made in exceptional cases and not merely where the solicitors acted honestly and properly and there had been no loss to the trust estate: Re Worthington, Leighton v Macleod [1954] 1 WLR 526. 3 Re Pooley (1888) 40 Ch D 1, CA. There is a narrow exception: in litigation a solicitor-trustee is entitled to his profit costs where he acts jointly for himself and his co-trustee to the extent that the costs are not increased by himself being one of the parties: Cradock v Piper (1850) 1 Mac & G 664. 4 Re Hill, Claremont v Hill [1934] Ch  623, CA; contrast Re De Courcenay’s Estate [1912] 1 IR 341 with Re Boyle [1947] IR 61; for both of these references I am indebted to Michael Twomey Partnership Law (2000). 5 Clack v Carlon (1861) 30 LJ Ch 639 as explained in Re Hill, Claremont v Hill [1934] Ch 623 at 631, 633, CA. 6 Per Stirling J in Re Doody [1893] 1 Ch 129, CA, cited with approval by Maugham LJ in Re Hill, Claremont v Hill [1934] Ch 623 at 634.

4 CLIENTS’ CONFIDENTIAL INFORMATION AND CONFLICTS OF INTEREST 19.75  The members of any professional firm owe duties of confidentiality to their clients1 and former clients and the member has no general right to share the information with other members of his firm2: It is a duty not … without the consent of the former client to make use of it or cause any use to be made of it by others otherwise than for his benefit3.

The obligations of a professional not to misuse his client’s confidential information (mentioned at para  8.69 above) echoes the more general obligation on any person not to use in an unauthorised way information that is commercially valuable and which he has obtained confidentially, ie is not publicly available4. Where the firm or its partners act for different parties within the same transaction their duty of confidence is to each5. But there is no absolute bar upon a solicitor partner acting for one side in litigation where another partner has acted for the other6 as a matter of law, but the court will intervene to restrain him if breach of confidence or some other mischief is anticipated7, as when he has actual knowledge which is relevant and confidential, unless there is no real risk of disclosure, the burden being on the firm to show there is no risk8. If a firm has acted in the formation of a partnership it must only act against an individual partner or former partner in that partnership provided that no confidential information has been obtained about him9. It should not accept instructions to act for two or more clients when there is a significant risk of conflict between the interests of those clients10. But the fact that a partner is barred from acting for a certain client does not necessarily mean that he is barred from sitting as a deputy judge in a 512

Clients’ confidential information and conflicts of interest 19.75

case in which that client is a party; whether he should be barred depends upon the circumstances of the case11. Section  1612, which provides that notice to any partner who habitually acts in the partnership business ‘of any matter relating to partnership affairs’ operates as notice to the firm, cannot be used to extend the duty of the firm or its liability to the client. That liability will be defined by the implied terms of the particular retainer13, including any informed consent given by the client. Parties who grant a joint retainer to a firm of solicitors cannot assert privilege against each other if they subsequently fall out and sue one another, but they can maintain a claim to privilege against outsiders14. A firm may not retain computer data relating to an individual except in accordance with the registration provisions of the Data Protection Act 199815.   1 Rule 6.3 of the SRA Code of Conduct for Solicitors (2018) provides: ‘You keep the affairs of current and former clients confidential unless disclosure is required or permitted by law or the client consents.’ Confidential communications between a client and his legal advisers attract legal professional privilege, but that is another matter.   2 Per Lord Woolf MR in Bolkiah v KPMG [1999] 1 BCLC 1, CA.   3 Per Lord Millett in Bolkiah v KPMG [1999] 2 AC 222, HL and see Quinn Direct Insurance Ltd v Law Society of England & Wales [2010] EWCA Civ 805.  4 Douglas v Hello! Ltd [2007] UKHL 21 following Coco v Clark (1969) RPC 41.  5 Hilton v Barker Booth & Eastwood [2005]  UKHL  8; Halifax Mortgage Services Ltd v Stepsky [1996] Ch 1. The consequences of this are discussed by Lord Walker of Gestingthorpe in Hilton v Barker Booth & Eastwood [2005] UKHL 8.   6 Sir Nicholas Browne-Wilkinson V-C in David Lee & Co (Lincoln) Ltd v Coward Chance [1991] Ch 259 at 267; Bolkiah v KPMG [1999] 2 AC 222, disapproving Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831. In Australia and North America the law has been taken further: Mallesons Stephen Jacques v KPMG (1990) 4 WAR 357 (disapproved by Waller LJ in Bolkiah v KPMG [1999] 1 BCLC 1, CA); Royal Bank of Canada v Appleton (1987) 17 CPC (2d) 209; D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118 at 122; Re Asbestos Cases 514 F Supp 914 (1981) at 924.   7 Per Hoffmann J in Re A Solicitor (1987) 131 Sol Jo 1063; Re Recover Ltd, Hornan v Latif Group SL [2003] EWHC 536 (Ch). This is not a balance of convenience question on American Cyanamid principles ((1975) AC 396) but a final decision as to whether the firm should act: see Lawrence Collins J in Marks & Spencer plc v Freshfields [2004] 1 WLR 2331 at para 25.  8 Bolkiah v KPMG [1999] 2 AC 222 followed in Mireskandari v Law Society [2009] EWHC 2224 (Ch); Re a firm of Solicitors [2000] 1 Lloyd’s Rep 31: Young v Robson Rhodes [1999] 3 All ER  524; Re a firm of Solicitors [1995] 3  All ER  482, Lightman J, following Re a firm of Solicitors [1992] QB 959, CA; Re a firm of Solicitors [2000] 1 Lloyd’s Rep 31 (Walker J), QBD; Re a firm of Solicitors [1997] Ch 1; Canada Southern v Amoco (1997) 144 DLR 30. The Bolkiah principle applies only to solicitors: Caterpillar Logistics Services (UK) Ltd v Paula Huesca De Crean [2012] EWCA Civ 156.  9 Koch Shipping Inc v Richards Butler (a firm) [2002] All ER (D) 316 (Jul); Hilton v Barker Booth & Eastwood [2005] 1 WLR 567, HL. 10 Marks & Spencer plc v Freshfields [2004] 1 WLR 2331; see para 18.1 above and Hilton v Parker (2002) Times, 6 June. 11 Locubail (UK) Ltd v Bayfield Properties Ltd [2000] 2 WLR 870 at para 59. 12 Partnership Act 1890. This is considered further at para 20.32ff below. 13 Clark Boyce v Mouat [1993] 4  All ER  268 at 275, PC; Kelly v Cooper [1993]  AC  205; Galmerrow Securities Ltd v National Westminster Bank (20 December 1990, unreported). Section 16 is discussed at para 20.32ff below. 14 Hellenic Mutual War Risks Association v Harrison, The Sagheera [1997] 1 Lloyd’s Rep 160 per Rix J following Rochefoucauld v Boustead [1898] 1 Ch 550, CA. 15 A firm may be a ‘data controller’ under Article 4(7) of GDPR, implemented by section 6 of the Data Protection Act 2018.

513

20 How partners bear the firm’s liabilities Contents

para 1 Joint and several liability A Joint and several liability explained��������������������������������������������20.1 B Whether the liability is joint or several or both��������������������������20.3 C Releases and judgments��������������������������������������������������������������20.9 D A partner’s death����������������������������������������������������������������������20.12 2 The beginning and end of a partner’s liability A The beginning of liability: the incoming partner�����������������������20.13 B The end of liability: the retired, expelled, bankrupt or dead partner�������������������������������������������������������������������������������������20.17 3 The firm’s notice and knowledge and the client’s confidential information A The knowledge of a partner�����������������������������������������������������20.32 B Exclusion of liability by notice to the outsider��������������������������20.39 C Employees��������������������������������������������������������������������������������20.41

1  JOINT AND SEVERAL LIABILITY A B C D

Joint and several liability explained   20.1 Whether the liability is joint or several or both   20.3 Releases and judgments   20.9 A partner’s death   20.12

A  Joint and several liability explained 20.1  A claim by the partners is a ‘joint’ one if it is a collective one, such as a claim on a contract made by or on behalf of the firm, or if it is a claim for damage suffered by the firm1. A ‘joint’ debt is the debt of the firm, for which 515

20.2  How partners bear the firm’s liabilities

a partner is liable jointly with the other partners. A ‘several’ debt is a debt of an individual partner. All partnership liabilities are joint liabilities of the partners, but some partnership liabilities are also several liabilities of partners. As will be seen below, the firm’s liability in tort (including negligence) is a joint and several liability of the members of the firm. The distinction may seem arcane but it is important in four contexts: (a) Insolvency: If both the firm and a partner are insolvent, and the firm’s debts are not covered by the firm’s assets and are consequently claimed against the partner’s estate, a several firm debt will usually rank equally with those of his other creditors, but a mere joint firm debt will be postponed to them: see Chapter 23. (b) Contracts and retainers: It is a question of fact whether the contract or retainer of a firm is made with all partners jointly or with some or all of them individually, but there is a presumption that a contract with the firm is made with them jointly and not severally2. (b) Judgments and releases: As discussed below in this chapter, a compromise with one partner on a mere joint claim will often release the other partners. (c) Procedure in litigation: When the partners sue on a joint claim, all partners must be joined as parties3. The rights (but not always the liabilities) of the firm are held jointly4. 1 2 3 4

See Chapter 21. Partnership Act 1890, s 9, and see para 20.4 below. See note 1 above. See paras 20.4, 20.5 and 21.2 below.

(a)  The joint and several judgment creditor may elect 20.2  A creditor whose debt or other claim is a joint and several one may elect whether to prove against the firm or against the individual partner, and may pursue either course until his claim is satisfied, but may not prove in the insolvency of both1: The advantage of a joint and separate creditor is no more than that he can elect whether he will be in the first instance a joint or separate creditor; but if he has once elected, his fate must be the same as that of all other joint creditors2. 1 Bradley v Millar (1812) 1 Rose 273. 2 Per Lord Eldon in Ex p Bevan (1804) 10 Ves 107 at 109.

B  Whether the liability is joint or several or both (a)  Agreement between creditor and debtor 20.3  A firm debt is merely a joint debt of the partners save where it becomes a several liability in the instances mentioned below, or where one or more 516

Joint and several liability 20.4

of the individual partners have agreed to accept several liability1 or one represents himself to be the sole trader2. Agreement may be implicit, as where all the partners signed a guarantee in the firm name and in their own names in a form indicating that the guarantee was to be a joint and several one, when they were held liable jointly and severally3. Similarly where one partner gave a bond to secure a partnership debt, it was held that the liability ceased to be a joint one and became the several debt of that partner4. Section 81(1) of the Law of Property Act 1925 states in very broad terms that a covenant under seal (sic) which is expressed to be in favour of two or more persons, is to be construed as ‘being also made with each of them’. Those words would turn any joint covenant into a joint and several one. But subsection 81(3) provides that the section applies only in so far as a contrary intention is not expressed in the covenant, and such contrary intention will appear where the obligation is stated simply to be a joint one. 1 Murray v Somerville (1809) 2 Camp 98n. 2 Bonfield v Smith (1844) 12 M & W 405; De Mautort v Saunders (1830) 1 B & Ad 398. 3 Re Smith Fleming & Co, ex p Harding (1879) 12 Ch D 557, CA; contrast Re Wardley and Hodson, ex p Thorpe (1836) 3 Mont & A 716 where a partner’s separate debt was guaranteed by the firm, and the partners were held jointly liable. 4 Re Ewens, ex p Hernaman (1848) 12 Jur 643. The converse occurred in Re Barrow, ex p Christie (1832) Mont & B 352 where the debt was converted into a joint one. Additional, rather than new, security will not alter the nature of the debt: Re Warwick, ex p Meinertzhagen (1838) 3 Deac 101. But much of this antique law needs to be treated with caution.

(b)  Claims in debt and contract 20.4  The liability of the continuing members for the firm’s contractual obligations and debts is a joint liability alone1, unless they agree otherwise with the outside contracting party2. Under section 9 of the Partnership Act 1890 claims in contract3, as ‘all debts and obligations of the firm’, are a joint liability of all the partners. But the estate of a dead partner is severally liable in due course of administration for the firm’s unsatisfied debts and obligations, subject to prior payment of his separate debts4. There is old authority5 for the proposition that where one partner only is active (others being dormant) he may be regarded as severally liable on debts he incurs on behalf of the firm, but this is probably not good law today6. 1 The 1890 Act on this was declaratory of the existing law and followed Kendall v Hamilton (1879) 4 App Cas 504, HL; see also Weall v James (1893) 68 LT 515, CA; Re Clarke, ex p Buckley (1845) 14 M & W 469; Re Manley, ex p Wilson (1842) 3 Mont D & De G 57. 2 Connell v Deputy Comr of Taxation (1996) 96 ATR 4505 (W Aust Sup Ct full ct). 3 See para 19.1ff above. In New Zealand the liability of a partner as a constructive trustee was held by Tipping J in Estate Realties v Wignall [1991] 3 NZLR 482 to be an ‘obligation’ within the equivalent of the English s 9, but it is doubtful if this would be followed in England, where the matter is surely governed by s 11. For the joint liability to HMRC see Sutherland v Gustar [1994] Ch 304, CA; and Jamieson v Comrs Customs & Excise (14 June 2001, unreported), Ch D. 4 See Chapter 23. 5 Re Starkey and Whiteside, ex p Chuck (1832) 8 Bing 469; Ex p Norfolk (1815) 19 Ves 455; Ex p Hodgkinson (1815) 19 Ves 291. 6 Claims against the firm are discussed at para 21.12 below.

517

20.5  How partners bear the firm’s liabilities

(c)  Claims in tort and for misapplication of money 20.5  Under sections 10, 11 and 121 every member is liable both jointly and severally for everything for which the firm is liable while he is a partner by reason of: (a) any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners; or (b) misappropriation of any money or property of a third party received by a partner within his apparent authority, or received by the firm in the course of its business. Liability of joint tortfeasors has always been joint and several2, as has been the liability of partners for the default of one of their number who misapplies property when acting with their authority3. Thus where a partner in a firm of stockbrokers took bonds that belonged to a client his partners were liable, in the words of Sir James Romilly MR4, as a consequence of: … the misfortune of the Defendants being allied in partnership with an unprincipled man, who, while acting within the scope of his partnership authority, bound them, by his acts, to liabilities of which they were ignorant …

Had he not been acting in the course of the firm’s business then his partners would not have been liable either jointly or severally5. 1 Of the Partnership Act 1890, which is printed as Appendix A below. 2 Meekins v Henson [1964] 1  QB  472; Mercantile Credit Co Ltd v Garrod [1962] 3  All ER  1103; Re Kent County Gas Light and Coke Co Ltd [1913] 1 Ch  92; Hamlyn v John Houston & Co [1903] 1 KB 81, CA, discussed in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at para 31ff and para 19.54 above, and see the statement of the law on this point in the judgment of the Privy Council delivered by Lord Salmon in Wah Tat Bank Ltd v Chan Cheng Kum [1975] 2 All ER 257 at 261, PC. 3 See Re Collie, ex p Adamson (1878) 8 Ch D 807, CA and the two cases next cited below. 4 In Marquise de Ribeyre v Barclay (1857) 23 Beav 107 at 129; and see (to similar effect) Northampton Regional Livestock Centre v Cowling [2016] 1 BCLC 431 (CA). 5 New Mining & Exploring Syndicate Ltd v Chalmers and Hunter 1912  SC  126; see previous chapter.

(d)  Breach of trust 20.6  Where a firm is liable as a trustee (which will in itself pose some difficult questions1) then the liability of the members is joint and several2. 1 See the Partnership Act 1890, ss 11 and 13 and Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366, overruling the criticised decision Re Bell’s Indenture [1980] 1 WLR 1217 and see para 19.58 above. 2 Blyth v Fladgate [1891] 1 Ch 337; Atkinson v Mackreth (1866) LR 2 Eq 570; Re Biddulph (1843) 3 Mont D & De G 364; the Partnership Act 1890, s 12.

518

Joint and several liability 20.9

(e)  Orders for costs 20.7  An order for costs against two or more partners creates a liability for which they are jointly and severally liable1. 1 Mainwaring v Goldtech Investments Ltd (No 2) [1999] 1 WLR 745, CA.

(f) Deeds 20.8  An obligation made under seal made with two or more persons jointly is to be construed as being also made with each of them1, so a deed made by a firm is enforceable severally against the partners. 1 Law of Property Act 1925, s 81(1), as amended.

C  Releases and judgments (a)  Release of one partner jointly liable is release of all 20.9  Where by way of compromise or otherwise the creditor releases some of the partners jointly liable (either releasing them absolutely or, more usually, under an arrangement whereby he receives immediate payment of a reduced sum) the other partners are entirely released from the joint liability1, unless liability against them is kept alive by the terms of the release2 or by agreement with them expressly or impliedly3. Such implication will arise if the creditor, instead of releasing the debtor, merely covenants not to sue him4. A bank guarantee commonly allows the bank to release one of the partners and not the other5. The release can be implied in favour of one partner when another partner gives security, or better security, for the joint debt6. It is a different point that once an order against jointly liable tortfeasors has been satisfied by one of them, his cause of action for damages is extinguished against all of them7. Similarly where in litigation a costs order has been made against two parties, but on detailed assessment costs are disallowed on the application of one paying party, the other paying party is discharged8. As to the effect of judgments, see para 20.11 below. Where the claimant has linked claims for independent breaches of contract (rather than tort) and concludes a settlement with one defendant which concerns the liability of both, the question is one of construction as to whether the second is released9. Compromise of a partnership liability with one who is not a partner but who is merely liable by being held out as a partner, does not release the firm10. The death of a partner does not leave his partners alone liable and exonerate his estate11. 519

20.10  How partners bear the firm’s liabilities  1 Morris v Wentworth-Stanley [1999] QB 1004, CA; Howe v Oliver (1908) 24 TLR 781; New Zealand Guardian Trust Co Ltd v Brooks [1995] 1  WLR  96, PC; Brinsmead v Harrison (1872) LR 7 CP 547, Ex Ch; Solly v Forbes (1820) 2 Brod & Bing 38; Ex p Slater (1801) 6 Ves 146, following Bower v Swadlin (1738) 1 Atk 294. See Re A Bankrupt (No 622 of 1995) (1996) Times, 27 June (Robert Walker J).  2 Gardiner v Moore [1969] 1 QB 55; Ex p Good (1877) 5 Ch D 46, CA; Solly v Forbes (1820) 2 Brod & Bing 38; Artman v Artman [1996] BPIR 511; Bank of Montreal v Dobbin [1996] 5 Bank LR 190.  3 Heaton v Axa [2002] 2 WLR 1081, HL; Morris v Wentworth-Stanley [1999] QB 1004, CA; Re WEA [1901] 2 KB 642, CA; Watts v Lord Aldington (1993) Times, 16 December, CA.  4 Finley v Connell Associates [1999] Lloyd’s Rep PN 895 (Richards J).  5 Ebert v Trustee of the Property of Wolff [1998] Lloyd’s Rep Bank 280, CA.  6 Owen v Homan (1851) 3 Mac & G 378.  7 Per Lord Hope of Craighead in Jameson v Central Electricity Generating Board [2000] 1 AC 455, HL, following United Australia Ltd v Barclays Bank Ltd [1941] AC 1 and Kohnke v Karger [1951] 2 KB 670.  8 Mainwaring v Goldtech Investments Ltd (No 2) [1999] 1 WLR 745, HL and see Lord Salmon in Wah Tat Bank Ltd v Chan Cheng Kum [1975] AC 507 at 516A, PC.  9 Heaton v Axa [2002] 2  WLR  1081, HL, following Watts v Aldington (1993) Times, 16 December, CA and not following Jameson v Central Electricity Generating Board [2000] 1 AC 455, HL. 10 Re Armitage (1877) 5 Ch D 46. 11 See para 20.12 below.

(b)  The defence of one partner may stand for all 20.10  Where those jointly liable serve separate defences, and of these only one shows a good defence, that defence will stand good against the claim and be effective on behalf of the other defendants1. 1 Pirie v Richardson [1927] 1 KB 448, CA; Taylor v Collier (1882) 51 LJ Ch 853.

(c)  The joint claim formerly merged in the judgment 20.11  Before section  6(1) of the Law Reform (Married Women and Tortfeasors) Act 1935 came into force, anyone who suffered damage by reason of a tort committed by a number of persons was deemed to have but one cause of action which merged in the judgment which he might recover in respect of it1. He was barred from subsequently recovering judgment against any other tortfeasor responsible for that tort2. And liability on a firm’s contracts being joint only, the consequence was that a judgment against one partner discharged the other partners, even if the judgment was never satisfied3. These rules, which lie behind the reasoning of some pre-1935 cases, no longer exist4. By section  3 of the Civil Liability (Contribution) Act 1978 judgment against a partner ‘in respect of any debt or damage’ is no bar to another claim being brought against any other person jointly liable with him; but there may be adverse costs consequences from the duplication of actions5. Section 3 applies to actions of every nature, and is not confined to 520

Joint and several liability 20.12

actions in simple tort or contract. As a consequence of this change in the law, there is no requirement that all persons liable as defendants6 on a joint claim need to be joined as parties in the action7. But although the 1978 Act abolished the rule that a judgment in contract against one partner jointly liable operated as a bar against the other partners jointly liable, it did not affect their release by accord and satisfaction with him8. A judgment against one partner jointly liable is no longer a bar upon an action against another so liable9, neither will an Individual Voluntary Arrangement under section 260 of the Insolvency Act 1986 usually be, depending upon its terms10.  1 King v Hoare (1844) 13 M & W 494.  2 Wah Tat Bank Ltd v Chan Cheng Kum [1975] AC 507 at 516A, PC.  3 Kendall v Hamilton (1879) 4 App Cas 504, HL.   4 See note 2 above and the Civil Liability (Contribution) Act 1978, s 3.   5 See the Civil Liability (Contribution) Act 1978, s 4.   6 Contrast joint claimants who must all be joined: CPR, Pt 19.3 (discussed at para 21.2 below).   7 See notes to RSC Ord 15, r 4 in the Supreme Court Practice as to the earlier law.  8 Morris v Wentworth-Stanley [1999] QB 1004, CA.   9 See the Civil Liability (Contribution) Act 1978, s 3, discussed in Morris v Wentworth-Stanley [1999] 2 WLR 470, CA and Schooler v Customs and Excise Commrs [1996] BPIR 207, CA. 10 Johnson v Davies [1997] 1 All ER 921 per Jacob J upheld on appeal [1998] 3 WLR 1299; see also the Insolvency Act 1986, s 281(7).

D  A partner’s death 20.12  Logic might require that the death of a partner who is jointly liable should relieve his estate from all liability, which should accrue to the surviving partners alone. This was so at law but not in equity, where the liability survived against the dead partner’s estate1. Section 9 of the Partnership Act 1890 provides: Every partner in a firm is liable jointly with the other partners … for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in due course of administration for such debts and obligations, so far as they remain unsatisfied, but subject in England … to the prior payment of his separate debts.

So on the death of a partner a joint creditor of the firm may pursue either the firm or the separate estate of the dead partner, or both until his judgment is satisfied2. But if he sues the personal representatives of the dead partner he should join as parties those partners who survive, rather as if a joint liability between them and the estate had survived3. Questions of priority between them if the firm is insolvent are discussed in Chapter 23. 1 Kendall v Hamilton (1879) 3 CPD 403 at 437. 2 Liverpool Borough Bank v Walker (1859) 4 De G & J 24. 3 Re Hodgson (1885) 31 Ch D 177 at 192.

521

20.13  How partners bear the firm’s liabilities

2 THE BEGINNING AND END OF A PARTNER’S LIABILITY A The beginning of liability: the incoming partner   20.13 B The end of liability: the retired, expelled, bankrupt or dead partner   20.17

A  The beginning of liability: the incoming partner (a)  The incoming partner is generally not liable 20.13  The question when a partnership comes into existence is discussed in Chapter 2. The general rule is that a person is not responsible for any existing partnership debts or obligations1or the firm’s breach of duty to a client2 incurred before he became a partner3. So he is not liable on a costs order made against the firm when he was a partner if he had not been a partner when the underlying cause of action against the firm arose4. There is no presumption that the purchase of a business takes a transfer of its liabilities5. Section 17(1) of the Partnership Act 1890 provides: A person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he became a partner.

But he may become responsible for a liability if he agrees to it expressly or impliedly, as discussed below. Even where a new partner agrees to have his rights backdated, he is no competent claimant in a claim by the firm which arose before he joined6. After he has joined he becomes liable for the new partnership’s debts even though he has agreed with his partners not to be7. He does not become directly liable to a creditor of the old firm merely because he has agreed with the old partners to share their liability8. In Marsden v Guide Dogs for the Blind9 a solicitor who had overcharged his client then entered into partnership with other solicitors and the retainer continued. Lloyd J held that the new partners were not liable to contribute to the repayment of the overcharging.

Conversely the firm does not become liable (save by agreement) for the previous liabilities of the incoming partner even where those relate to the partnership business10. Where one person buys goods and later joins with others for their exploitation, those others are not liable to the original vendor for the price of the goods11. The firm is not liable if a partner buys goods alone on his own account and subsequently they become goods of the firm12. An incoming partner should beware of letting the firm pay old debts out of its new funds, or he may be contributing to debts for which he is not liable. If a series of debts are paid to one creditor of the firm out of a single account the oldest debts are presumed to be paid first, which will be to the prejudice of a partner who joins the firm whilst the payments are being made13. 522

The beginning and end of a partner’s liability 20.14  1 Kommalage v Sayanthakumar (2014) CA (Civ Div) 19/11/2014.  2 Heather Capital Ltd (in liquidation) v Levy & McRae [2015] CSOH 115 (OH).   3 Including fraud: Arden v Roy (1883) 1 NZLR (CA) 365.  4 Dyke v Brewer (1849) 2 Car & Kir 828; Newton v Belcher (1848) 12 QB 921; Shirreff v Wilks (1800) 1 East 48 but he may agree otherwise: Hine v Beddome (1859) 8 CP 381. He cannot bind the firm merely because he has agreed to be a partner in the future: Player v Isenberg (2002) NSWCA 186.  5 Creasey v Breachwood Motors Ltd [1993] BCLC 480.  6 Wilsford v Wood (1794) 1 Esp 181.  7 Wilson v Lewis Drinkwater (1840) 2 Man & G 197.  8 H F Pension Trustees Ltd v Ellison [1999] Lloyd’s Rep PN 489, Ch D per Jonathan Parker J.   9 [2004] EWHC 593 (Ch). 10 Bounty v Heaton (1865) 13  LT  238. Partners who purport to contract as agents for a partnership not yet in existence would render themselves liable personally on the contract: Advocate-General Cruz Vilaca in Ubbink Isolatie v Dak – en Wandtechniek cited by Arden LJ in Braymist Ltd v Wise Finance Co Ltd [2002] EWCA Civ 127, [2002] 2 All ER 333. 11 Young v Hunter (1812) 4 Taunt 582; Cothay v Fennell (1830) 10 B & C 671; cf Mawman v Gillett (1809) 2 Taunt 325n; Carlisle v Nigara Dock Co (1838) 5 OS 660 (Canada). 12 Karmali Abdulla Allarakhia v Vora Karimji Jiwanji (1914) LR 42 Ind App 48. 13 Clayton’s Case (1816) 1 Mer 572, but this principle is less fashionable today: Allied Irish Banks v Smith [2015] IEHC 707.

(b)  Existing obligations and unperformed contracts 20.14  Subject to questions of novation considered below, the partners who are liable on a contract are the parties to it1 and to some extent also a new partner who only joins the firm after it is made2. The principle is dealt with in section 9 of the Partnership Act 1890: Every partner in a firm is liable jointly with the other partners … for all the debts and obligations of the firm incurred while he is a partner.

The words in this section, ‘incurred while he is a partner’ are important. They impose liability upon those who are partners in the firm which incurs the liability on the ‘debt or obligation’ even if the debt or obligation arose under a pre-existing contract. As Sir Frederick Pollock expressed it3, ‘An incoming partner is liable, however, for new debts arising out of a continuing contract made by the firm before he joined it.’ A single contract must be distinguished from a series of contracts which extend over the period when the new partner joins. Thus in Dyke v Brewer4 Erle J considered a claim by a supplier of bricks, and held that each delivery to the firm constituted a separate contract so a new partner was liable for only those delivered after he had joined. When the liability had been incurred before the new partner became a partner, he was not liable: In Ellis v Steele5 a ship’s captain ordered some repairs from the plaintiff. Later the defendant became a partner with the captain in a proposed voyage. Held that the defendant was not liable for the cost of the repairs. 1 2 3 4 5

See para 19.49 above. Young v Hunter (1812) 4 Taunt 582; Saville v Robertson (1792) 4 Term Rep 720. Digest on the Law of Partnership (11th edn, 1920), the last edition edited by Sir Frederick. (1849) 2 Car & Kir 828. (1855) 25 LTOS 183.

523

20.15  How partners bear the firm’s liabilities

(c) Novation 20.15  Once he is a partner, he is not liable for a breach by his partners of a pre-existing contract1, except either under section 9 which is considered in the last paragraph, or if there is express2 or implied3 novation4 which involves the consent of both himself and the outsider who has contracted with the firm5: In British Homes Assurance Corpn Ltd v Paterson6 a solicitor had agreed to act for a mortgage company. He then took on a new partner. The company was informed of it but ignored the change, continuing to correspond with the first partner alone. Later he received a mortgage advance from the company and absconded with it. The company’s claim against the new partner failed because it had never accepted him as a party to the retainer.

The mere fact that the new partner joins the firm during the course of the retainer or other contract, does not of itself suffice as a novation to make him liable on the retainer or contract7. By joining the firm, the new partner will only be accepting liability for a breach of contract by another partner ‘acting in the ordinary course of the firm’s business’8 for money received by that other partner ‘within the scope of his apparent authority’9 or in the course of its business10, if the outside contracting party elects to treat him rather than the old firm as liable, for novation requires his consent as well as that of the incoming partner. Such election may be evidenced by conduct11. If the contracting party supplies goods or services necessary for the carrying on of the partnership business, he will be implicitly consenting to the new partner becoming a party to the contract12. But in British Homes Assurance Corpn Ltd v Paterson13 (above) the fact that the mortgage company made its payment to the first partner and not to the newly reconstituted firm, was held conclusive of his election not to treat the firm as a contracting party. Novation changes the contractual position. Novation means not simply that the original contract has been varied by the substitution, release or replacement of the original parties to it. It means, ‘There is a new contract and it is therefore essential that the consent of all parties shall be obtained’14. ‘There being a contract in existence, some new contract is substituted for it … the consideration being the discharge of the old contract’15. The classic case of novation is where there is a continuing contract with a firm, and both the departing partners are released in consideration for their acceptance of retirement terms, and new partners are implicitly taking over the ongoing liability; and the outside contracting party tacitly assents16. Where there is no express agreement between the relevant parties to a novation, the question is one of implied agreement, which is to be derived from the intention of the parties17. The agreement of some parties only, and not all the parties, will not suffice to amount to a novation. At the very least, therefore, all the parties concerned must be aware of the changes that are taking place, in order that it may be inferred that they have agreed to them18. Thus in the old case of Rolfe and Bank of Australasia v Flower, Salting & Co19, the Judicial Committee of the Privy Council considered the position of creditors of a firm whose partners were changing: 524

The beginning and end of a partner’s liability 20.16 Here the creditors of the old firm, knowing of the change of partnership, and that the new partners had taken over all the assets, and had agreed to be subject to all the liabilities of the former firm, not only continued their dealings with the new firm upon the same footing as with the old, and received a payment of a portion of that debt out of the blended assets of the old and new firms, but themselves proved that from the time when they understood that the new partners took over all the assets, and became subject to the liabilities of the preceding firm, they thenceforth treated the partners in that firm as their debtors, in respect of the old debt owing to them at the time of the creation of that firm, or of so much thereof as for the time being remained due.

Accordingly the old ex-partners were discharged from liability, and the new incoming partners were jointly liable. Novation in relation to the release of an outgoing partner from liability is discussed at para 20.21 below, and the release of the firm at para 18.32 above.   1 See the Partnership Act 1890, ss 9 and 10.  2 Helsby v Mears (1826) 5 B & C 504.  3 The agreement generally is established by indirect evidence: Galt Ltd v Cronsberry (1914) 27  WLR  44 (Canada); Scottish Pension Fund Trustees v Marshall, Ross & Munro [2018]  CSIH  39. The mere fact that the new firm has agreed with the old firm to take over a liability to a creditor does not make it liable to that creditor: H F Pension Trustees Ltd v Ellison Ch  D per Jonathan Parker J  [1999] Lloyd’s Rep PN  489; Marsden v Guide Dogs for the Blind [2004] EWHC 593 (Ch); Canadian Bank of Commerce v Marks (1890) 19 OR 450 (Canada).  4 Cripps v Tappin & Co (1882) Cab & El 13; Miller v John Finlay MacLeod 1974 SLT 99.  5 British Homes Assurance Corpn Ltd v Paterson [1902] 2 Ch 404; Ex p Peele (1802) 6 Ves 602. Novation is considered in relation to outgoing partners at para 20.21 below.   6 [1902] 2 Ch 404.  7 Marsden v Guide Dogs for the Blind [2004] EWHC 593 (Ch), following Arden v Roy (1883) 1 NZLR 365.   8 See the Partnership Act 1890, s 10.   9 See the Partnership Act 1890, s 11(a). 10 See the Partnership Act 1890, s 11(b). 11 See the facts of Bilborough v Holmes (1876) 5 Ch D 255, described below, and Rolfe and Bank of Australasia v Flower, Salting & Co (1865) 1 PC 27. 12 Dyke v Brewer (1849) 2 Car & Kir 828. 13 [1902] 2 Ch 404; cf Creasey v Breachwood Motors Ltd [1992] BCC 638. 14 Chitty on Contracts (29th edn, 2004), para 19-086. 15 Scarf v Jardine (1882) 7 App Cas 345 at 351. 16 Marsden v Guide Dogs for the Blind [2004] EWHC 593 (Ch), per Lloyd J. 17 In Re Head [1893] 3 Ch 426 at 429, per Chitty J; Scottish Pension Fund Trustees v Marshall, Ross & Munson [2018] CSIH 523. 18 Marsden v Guide Dogs for the Blind [2004] EWHC 593 (Ch). 19 (1865) 1  LR PC  27 at 44; Scottish Pension Fund Trustees v Marshall, Ross & Munson [2018] CSIH 523.

(d)  Professional indemnity insurance 20.16  Under professional indemnity insurance arrangements, the insurers of a ‘successor’ firm are usually rendered liable for claims against a predecessor firm or sole practitioner, and the partners in the successor firm must pay the excess and enhanced premiums accordingly. The effect of such arrangements 525

20.17  How partners bear the firm’s liabilities

will depend upon the policy provisions and the terms under which the firm succeeded to the earlier practice. In the absence of specific agreement, the implication will be: (a) that any excess on a claim will be the subject-matter of an indemnity from the previous firm or partner responsible for the claim; but (b) the mere fact that the new firm pays a higher premium because of the poor claims record of the practice that it has succeeded to, will not give it an indemnity against the partners of that previous practice. Consideration of the position of the successor practice is given at para 19.57 above.

B The end of liability: the retired, expelled, bankrupt or dead partner (a)  Existing liabilities of the firm (i)  The statutory provisions 20.17  A partner’s liability for partnership obligations that accrued while he was a partner remains with him after his departure unless he agrees with the creditors to the contrary. Section 17 of the Partnership Act 1890 contains these provisions: (2) A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement. (3) A retiring partner may be discharged from any existing liabilities by an agreement to that effect between himself and the members of the firm as newly constituted and the creditors, and this agreement may be either express or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted.

(ii) The continuing liability of the ex-partner for existing liabilities of the firm 20.18  To retire (or be expelled) from a firm naturally affects a person’s liability to his former partners, but neither retirement nor expulsion nor any other form of departure1 save bankruptcy or death2, prejudices his liability to any outsider with a claim against the firm3 as it was constituted when he was a member. That claim against him can only be discharged if the ex-partner pays the claim or procures the express or implied release of it by the creditor4. Release is common where a person leaves a firm and the understanding between the existing creditors and the continuing members of the firm is that the latter will adopt the liability alone. This novation is discussed at para 20.21 below and may be express or implied, as in the case of the liability of an incoming partner which is discussed at para 20.13ff above. 526

The beginning and end of a partner’s liability 20.19 1 The word ‘retires’ in s 17(2) is interpreted widely and so includes (for instance) where the partners turn the firm into a limited company: Earle v Cow (1920) 36 TLR 713. 2 Bankruptcy and death are discussed below. 3 See the Partnership Act 1890, s 17(2), quoted above. 4 His liability continues even after he has settled up with his partner: Davison v Donaldson (1882) 9  QBD  623, CA; Alna Press & Castle Wynd Printers Ltd v Trends of Edinburgh 1969 SLT (Notes) 91.

(iii)  What are existing debts and obligations? 20.19  The existing debts and obligations are not merely those that have fallen due at the date of the partner’s departure. The departing partner’s liability may include liability under a contract made by the firm before the partner’s departure1 under which liability is incurred afterwards2, unless the continuing partners have so varied the contract with the outside contracting party as implicitly to agree to discharge the outgoing partner3. Thus he will remain liable on the covenants in the firm’s lease4. In Hurst v Bryk5 the firm had liability under an onerous lease when a partner purportedly accepted his partners’ repudiation of the partnership agreement. Held his liability to indemnify his partners continued.

The liability may also be for breach of contract6, breach of trust7, fraud (within the scope of the partnership business)8, or in negligence9. If some dormant partners retire from a firm during the pendency of some proceedings brought on behalf of the firm, they are liable (with any continuing partner) for their solicitors’ costs of the action when the action ends, if his retainer did not arise from day to day but was a single contract to conduct the whole action10.   1 In Prince De Bearn v La Compagnie D’Assurances La Federale de Zurich (1937) 42 Com Cas 189 the claim against the ex-partner was upon bills of exchange accepted by the firm which fell due after he had retired. The nature of the liability is the issue: see Friends’ Provident Life v Evans [2006] EWCA Civ 581.  2 Re Tucker [1894] 3 Ch 429; Friend v Young [1897] 2 Ch 421 at 429; Bagel v Miller [1903] 2 KB 212. In Dobbin v Foster (1844) 1 Car & Kir 323 three partners engaged an employee for a certain period. The first partner retired and the other two went bankrupt and therefore could not fulfil the employment contract. Held the first was liable on the contract with the others.  3 Oakford v European and American Steam Shipping Co Ltd (1863) 1 Hem & M 182, in which it was held that the variation must be more than trivial; see also Goldfarb v Bartlett and Kremer [1920] 1 KB 639 and the heading ‘Guarantees’ in para 20.24 below. The variation will have to be with the outside contracting party.  4 Hurst v Bryk [2002] 1 AC 185, HL; Matthews v Ruggles-Brice [1911] 1 Ch 194.   5 [2002] 1 AC 185, HL; contrast Friends’ Provident Life v Evans [2006] EWCA Civ 581.  6 Phillips v Alhambra Palace Co [1901] 1 KB 59; Roughead v White 1913 SC 162; contrast Friends’ Provident Life v Evans [2006] EWCA Civ 581.  7 Smith v Patrick [1901]  AC  282; Blyth v Fladgate [1891] 1 Ch  337; Dickenson v Lockyer (1798) 4 Ves 36.  8 Sawyer v Goodwin (1867) 36 LJ Ch 578.  9 Welsh v Knarston 1972 SLT 96; Bean v Wade (1885) 2 TLR 157, CA, must be viewed with caution and was distinguished in Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp [1978] Ch 384. 10 Court v Berlin [1897] 2 QB 396; see also Welsh v Knarston 1972 SLT 96.

527

20.20  How partners bear the firm’s liabilities

(iv) Variation 20.20  Whilst the ex-partner may thus remain liable on a business contract, he has no control over the conduct of the business. His former partners may therefore vary the firm’s contractual relations without his consent. This will obviously prejudice him, so he is treated as a surety for the performance of the contract by the partnership, and on principles of surety any substantial variation in the terms of the principal contract will discharge him entirely1, as mentioned at para 20.24 below. Thus a joint obligation on a bill of exchange is converted by the retirement agreement into suretyship by the retired partner, which may subsequently be discharged by the continuing partners giving time to the debtor2. 1 Mercantile Bank of Sydney v Taylor [1893] AC 317, PC. 2 Goldfarb v Bartlett and Kremer [1920] 1  KB  639; Rouse v Bradford Banking Co [1894] AC 586, HL.

(v)  Agreement to release, or novation 20.21  An agreement between an outgoing partner, the continuing partners and a creditor, may provide that the outgoing partner is released and the creditor will accept the liability of the continuing partners alone1. The position is exemplified in section 17 of the Partnership Act 1890: (3) A retiring partner may be discharged from any existing liabilities, by an agreement to that effect between himself and the members of the firm as newly constituted and the creditors, and this agreement may be either expressed or inferred as a fact from the course of dealings between the creditors and the firm as newly constituted.

The common law position is that the burden of a contract is unassignable; the benefit is assignable unless the contract itself prohibits it2. Any assignment is effective if this is agreed between assignor, assignee and outside contracting party, and the agreement may be express or implied. In Marsden v Guide Dogs for the Blind Association3 Lloyd J pointed out that to imply the acceptance of a future liability by an incoming partner will probably be easier than to imply the release of the liability of an outgoing partner for an existing liability. There must be consideration for the new implied contract4. Those who are academically inclined5 have been troubled about this question. But there are two answers: (1) probably if the agreement is for a variation in the partners’ mutual rights which because it is of the type mentioned in the 1890 Act, it needs no consideration6; and (2) no partner can join a firm or leave it without agreement with the other partners, so a departing partner gives consideration which is surely sufficient to support the novation agreement in his favour. A simple release of a joint debtor discharges the whole debt, as discussed at para 20.9ff above, unless the remaining partners agree that it is to be kept 528

The beginning and end of a partner’s liability 20.21

alive. So it is important that all three agree7, and this is necessary even if the retiring partner is only a sleeping partner8. The agreement to release a partner may be inferred9, but will not be inferred merely from the creditor accepting the new firm as the debtor, or accepting new security for his loan10. It will be inferred if over a long period of time the creditor who knows of the retirement continues to deal with the new firm without making any reference to the retired partner11. In Bilborough v Holmes12 a partnership of two bankers took in two new partners and in due course the two original partners died, and later the new partners proved insolvent. In the meantime the depositors (who were aware of these changes in the ownership of the bank) had altered their deposits, accepted interest from the new partners, refrained from claiming against the old partners’ estates, and they proved in the bankruptcy of the new partners. Held a novation had taken place and the estates of the original partners had been released. By contrast in Re Head13 two bankers were in partnership as ‘Edenbridge Bank’ and accepted deposits and paid interest on those deposits. In due course, to the knowledge of the depositors, one partner died, but the business continued, paying interest on the deposits and replacing the old deposits for new ones. The issue was whether the estate of the original partner was released from liability. Held there was never any intention on the part of the depositors to discharge the original debtor and accept the liability of the survivor alone, so the liability of both, including the estate of the first, remained. In Rouse v Bradford Banking Co14 the issue was whether the plaintiff, a retired partner, was to remain liable on his firm’s debt to its bank, where it appeared that the bank had looked only to the continuing partners as the debtors. Lindley LJ in the Court of Appeal held that the plaintiff was not released: ‘What the Plaintiff has to prove is conduct inconsistent with a continuance of his liability, from which conduct an agreement to release him may be inferred’15.

It follows that the question whether a partner has been released may be a difficult one. Although as between true partners, the release of one partner by the creditor is a release to all16, the same rule does not apply to a person who is merely liable by holding out: a release to him does not afford a release to the partners17. Novation comprising the acceptance of liability by an incoming partner is discussed at para 20.15 above, and the release of the firm at para 18.32 above.   1 See the Partnership Act 1890, s 17(3), quoted above; Re Head, Head v Head [1893] 3 Ch 426; Daniel v Cross (1796) 3 Ves 277; Attwood v Banks (1839) 2 Beav 192; Mills v Boyd (1842) 6 Jur 943. The argument that the partner was released failed in Roughead v White 1913 SC 162.  2 Linden Gardens Trust v Lenesta Sludge Disposals (1994) 1 AC 85 at 108.   3 [2004] EWHC 593 (Ch) discussed at para 20.15 above in relation to an incoming partner.  4 Thompson v Brown and Weston (1827) Mood & M 40; D & C Builders Ltd v Rees [1966] 2 QB 617, CA.   5 See Chitty on Contracts (31st edn, 2012), paras 19-087–19-088.   6 See the Partnership Act 1890, ss 19 and 17(3), but contrast Joyce v Morrisey (1999) EMLR 233 at 244, CA. If the ‘agreement’ or ‘consent’ mentioned in those sections requires consideration, then they will have contractual force at common law without this needing to be enacted in the statute, so what is their purpose there?

529

20.22  How partners bear the firm’s liabilities  7 McWhirter v Creber [1931] 1 DLR 642 (Canada); Fergusson v Fyffe (1841) 8 Cl & Fin 121, and see para 20.15 above.  8 Welsh v Knarston 1972 SLT 96 following Court v Berlin [1897] 2 QB 396, CA.   9 See the Partnership Act 1890, s 17(3), quoted above; Attwood v Banks (1839) 2 Beav 192. 10 Harris v Farwell (1846) 15 Beav 31; Blew v Wyatt (1832) 5 C & P 397; Daniel v Cross (1796) 3 Ves 277; contrast Swire v Redman (1876) 1  QBD  536 (on which see Rouse v Bradford Banking Co [1894] 2 Ch 32 at 60); Re Head, Head v Head (No 2) (1894) 63 LJ Ch 549, CA. 11 Re Head, Head v Head [1893] 3 Ch 426; Rolfe and Bank of Australasia v Flower, Salting & Co (1865) LR 1 PC 27; Campbell v Campbell (1825) 3 LJOS Ch 129; Winter v Innes (1838) 4 My & Cr 101; Brown v Gordon (1852) 16 Beav 302. 12 (1876) 5 Ch D 255. 13 [1893] 3 Ch 426. 14 [1894] 2 Ch 32. 15 At 54. 16 See para 20.9ff above. 17 Re Armitage, ex p Good (1877) 5 Ch D 46, CA.

(vi)  Election or estoppel 20.22  Old authority1 established that where the firm has changed its constitution by a partner retiring and being replaced by another, a creditor of the firm as originally constituted must elect whether to sue the old firm or the new, and if he sues the new then he is estopped from then claiming against the retired partner. Today he would probably be barred only by an estoppel on modern principles2. 1 Smith v Gregory (1888) 6  NZLR  319; Scarf v Jardine (1882) 7 App Cas 345, HL; Re Glasscott, ex p Gurney (1842) 2 Mont D & De G 541. Contrast the cases in the next note. 2 Bottomley v Nuttall (1858) 5  CBNS  122; Re Hodgson, Beckett v Ramsdale (1885) 31 Ch D 177; Rouse v Bradford Banking Co [1894] AC 586, HL.

(vii)  The liability of a dead partner’s estate 20.23  On the above principles the estate of a dead partner is liable for the debts and obligations incurred while he was a partner1, but subject to the proviso that the debts of the partner’s individual estate take priority2. It is not liable for obligations incurred by the firm after his death3 or when goods which are ordered before his death are not delivered until after4. Section 9 of the Partnership Act 1890 provides: Every partner in a firm is liable jointly with the other partners … for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in due course of administration for such debts and obligations, so far as they remain unsatisfied, but subject … to the prior payment of his separate debts.

On the same principles as are mentioned earlier his estate may be expressly or impliedly released by the creditor, for instance by long delay after the deceased’s estate has been administered5. 1 See above at para 20.19ff above.

530

The beginning and end of a partner’s liability 20.25 2 Brown v Douglas (1840) 11 Sim 283. Priorities on insolvency are discussed in Chapter 23, the position of personal representatives generally is discussed at para 10.17ff above. 3 Friend v Young [1897] 2 Ch 421. 4 Bagel v Miller [1903] 2 KB 212. 5 Brown v Gordon (1852) 16 Beav 302.

(viii) Guarantees 20.24  When partners give a joint guarantee the question may later arise as to the liability on it of a partner who retires. The general rule is that on a continuing guarantee, the departing partner is not liable for future transactions. Section 18 of the Partnership Act 1890 provides: A continuing guaranty or cautionary obligation given either to a firm or to a third person in respect of the transactions of a firm is, in the absence of agreement to the contrary, revoked as to future transactions by any change in the constitution of the firm to which, or of the firm in respect of the transactions of which, the guaranty or obligation was given.

A modern guarantee will usually specify that the guarantee is to continue notwithstanding any change in the constitution of the firm. This may be implicit from the guarantee itself1. Without agreement a guarantee is discharged if the principal obligation is varied, for instance by the creditor giving extended time to the debtor2. 1 Backhouse v Hall (1865) 6 B & S 507 at 520 per Blackburn J; Metcalf v Bruin (1810) 12 East 400. 2 Goldfarb v Bartlett and Kremer [1920] 1  KB  639. Guarantees are discussed further at para 8.6ff above.

(b)  Debts and liabilities arising after a partner’s departure 20.25  An ex-partner is generally not liable (without his consent1) for debts that arise after he has departed although (as discussed above) he is liable for a debt (such as rent under a lease) which accrued whilst he was a partner even if it did not fall due until afterwards2. If the firm agrees with the creditor that the ex-partner’s liability is to be limited, the ex-partner can take advantage of that arrangement under the Contracts (Rights of Third Parties) Act 19993. Where a former partner’s name is used by the firm after his retirement, bankruptcy or death, to the knowledge of himself or those representing him, he or his estate might be liable under the rules relating to ‘holding out’ mentioned in Chapter  5. The Partnership Act 1890 gives some relief against this in the following rather obscure sections which are discussed below: 14(1) Every one who by words spoken or by conduct represents himself, or who knowingly suffers himself to be represented, as a partner in a particular firm, is liable as a partner to any one who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or

531

20.26  How partners bear the firm’s liabilities with the knowledge of the apparent partner making the representation or suffering it to be made4. (2) Provided that where after a partner’s death the partnership business is continued in the old firm-name, the continued use of that name, or of the deceased partner’s name as part thereof, shall not of itself make his executors or administrators’ estate or effects liable for any partnership debts contracted after his death. 36(1) Where a person deals with a firm after a change in its constitution he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change. (2) An advertisement in the London Gazette as to a firm whose principal place of business is in England and Wales … shall be notice as to persons who had no dealings with the firm before the date of the dissolution or change so advertised. (3) The estate of a partner who dies, or who becomes bankrupt, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable for partnership debts contracted after the date of the death, bankruptcy or retirement respectively.

So an ex-partner can only escape liability for debts accruing after his retirement5 (which includes expulsion) by giving notice of his retirement in the Gazette, by specifically notifying all those who had ‘dealings’ with the firm previously, and by ensuring that he is not thereafter an ‘apparent’ member of the firm or represented as a member6. Otherwise he may be liable to outsiders by ‘holding out’ or as an ‘apparent partner’, which are alternatives7 and which are discussed next, or by his own express or implied agreement, which is possible but unlikely. The opening words of s 36(1) – ‘Where a person deals with a firm’ – must presumably mean ‘Where a person deals with a firm or a single person carrying on the business in the firm name’. 1 He may have made himself expressly liable as guarantor: Ronan v ANZ Banking Group Ltd (2000) VSCA 77 (Vic Sup Ct CA). 2 Hurst v Bryk [2002] 1 AC 185, HL. 3 Prudential Assurance Co v Ayres [2007] EWHC 775 (Ch), where the liability was restricted to the amount of the partnership assets to the exclusion of the assets of the individual partners, and since the firm was insolvent this amounted to nil. 4 This subsection is discussed in Chapter 5. 5 He is liable anyway for ‘partnership debts or obligations incurred before his retirement’ (s 17(2)) which are widely defined as mentioned at para 20.19 above. 6 Re Tucker [1894] 3 Ch 429, CA; Wright v Pulham (1816) 1 Stark 375. 7 Lon Eagle Industrial Ltd v Realy Trading Co [1999] 4 HKC 675, Chung J; Eagle Shoe Co Ltd v Thompson (1956) 2 DLR (2d) 755 (Canada); Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397; Scarf v Jardine (1882) 7 App Cas 345.

(i)  Holding out 20.26  First, when he represents himself or ‘knowingly suffers himself to be represented’ as a partner he is liable under section 14(1) quoted above and the doctrine of ‘holding out’ which is discussed in Chapter 5 above; the mere fact that his name continues to be used is not definitive1. 1 Townsend v Jarman [1900] 2 Ch 698; Burchell v Wilde [1900] 1 Ch 551, CA; Re Fraser, ex p Central Bank of London [1892] 2 QB 633, CA; but see Williams v Keats (1817) 2 Stark 290.

532

The beginning and end of a partner’s liability 20.28

(ii)  Apparent members 20.27  Secondly, to a person dealing with the firm, retired partners are still liable as members if they are ‘apparent members’1 of the old firm, save that: (a) they are not liable for debts contracted after their retirement if that person did not know them as partners before their retirement; they must be ‘known to the person’2; and (b) they are not liable if that person has notice of the retirement3. This liability of a retired partner is quite different from his liability by ‘holding out’, mentioned above4. 1 Whether dormant or not: Farrar v Deflinne (1843) 1 Car & Kir 580; Western Bank of Scotland v Needell (1859) 1 F & F 461; Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397; but often a retired dormant partner will not be an ‘apparent’ partner as discussed below. See Elders Pastoral v Rutherford (1990) 3 NZBLC 101, 899, CA at 101, 901; and Pont v Wilkins 325/92 (26 March 1993, unreported), NZCA and Lon Eagle Industrial Ltd v Realy Trading Co [1999] 4 HKC 675, Chung J. 2 See the Partnership Act 1890, s 36(3), quoted at para 16.93 above; Coatsworth & Cooper Ltd v Schotanus [1962] OR 1118 (Canada). The fact that the person dealing with the firm may subsequently come to know or believe that the person was once a partner, is for the purpose of this subsection irrelevant (per Lynskey J in Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397 at 404). 3 See para 20.28 below and the Partnership Act 1890, s 36(1), quoted at para 20.25 above. For a case on this point involving a partnership of sugar-boilers see Minnit v Whinery (1721) 5 Bro Parl Cas 489, HL; for New Zealand, Canadian and Scottish cases respectively see Wood v Fresher Fads Ltd (2008) NZLR 248; Northern Crown Bank v Elford and Cornish [1917] 2 WWR 109; Padon v Bank of Scotland (1826) 5 Sh (Ct of Sess) 175. On the issue of notice the burden of proof is on the ex-partner, according to Canadian authority: Huffman v Ross [1926] 1 DLR 603; and see Wood v Fresher Fads Ltd (2008) NZLR 248. 4 Lon Eagle Industrial Ltd v Realy Trading Co [1999] 4 HKC 675, Chung J; see Chapter 5.

20.28  ‘Notice of the retirement’ means either of: (1) actual or imputed notice to the person on ordinary principles1. It must be notice of the retirement itself and not (for instance) notice of the possibility of a future retirement2. A statement as to who the present partners are may implicitly state that one not mentioned has retired3 but a mere change in the names on the writing paper which is not brought to the attention of the outsider is insufficient notice to him4. In Canada5 it has been held that reasonable public notice will suffice for a customer who has only learnt of the partnership as one of the public, but in England mere advertisement in a local paper circulating where he resides has been held insufficient6 unless it was also proved that the paper was delivered to his home7; (2) notice by advertisement in the Gazette but only if the person to be deemed to receive such notice had no dealings with the firm before the date of the advertised retirement8. 1 Re Hodgson, Beckett v Ramsdale (1885) 31 Ch  D  177. The mere fact that one of the continuing partners was a director of the creditor bank has been held insufficient to amount to notice to the bank of the departure of the retiring partner, but perhaps because the director was not concerned in the management of the bank and because in this context a bank is sui generis: Powles v Page (1846) 3 CB 16; Barfoot v Goodall (1811) 3 Camp 147 at 149.

533

20.29  How partners bear the firm’s liabilities 2 Woodside v Grant and Keatley (1914) 30  WLR  77 (Canada); Wood v Fresher Foods Ltd (2008) 2 NZLR 248 (New Zealand). 3 Mann v Sinclair (1879) 6  R  1078, Ct of Sess; Hart v Alexander (1837) 2  M & W  484; Paterson v Zachariah and Arnold (1815) 1 Stark 71. 4 Hamerhaven Pty Ltd v Ogge [1996] 2 VR 488 (Vic Sup Ct CA); Welsh v Knarston 1972 SLT 96 (Scotland); contrast Barfoot v Goodall (1811) 3 Camp 147. 5 Reid v Coleman Bros (1890) 19 OR 93. 6 Hart v Alexander (1837) 2  M & W  484; Company of the Proprietors of Norwich and Lowestoft Navigation v Theobald (1828) Mood & M 151; Leeson v Holt (1816) 1 Stark 186. 7 Jenkins v Blizard (1816) 1 Stark 418. 8 See the Partnership Act 1890, s 36(2), quoted above, following Parkin v Carruthers (1800) 3 Esp 248; Pillani v Motilal (1929) 45 TLR 283, PC, a case on the Indian Contracts Act 1872.

20.29  ‘Apparent members’ means members as they appear to the person dealing with the firm, not to the public at large1. Lynskey J said2: Apparent members [means] apparently members to the person who is dealing with the firm, and they may be apparent either from the fact that the customer has had dealings with them before, or because of the use of their names on the notepaper, or from some sign outside the door3, or because the customer has some indirect information about them.

But in Re Fraser, ex p Central Bank of London4 the mere fact that an expartner allowed the firm to continue in the old firm name (which included his own) did not suffice to render him liable to a new creditor who never knew him as a partner. 1 2 3 4

Per Lord Goddard CJ in Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397 at 405. Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397 at 403. Williams v Keats (1817) 2 Stark 290. [1892] 2 QB 633, CA, following Newsome v Coles (1811) 2 Camp 617.

20.30  ‘Known to the person’ If the person dealing with the firm did not ‘know’ previously that they had been partners, then the ex-partners cannot, in the absence of ‘holding out’, become responsible for the firm debt1. ‘There must be actual knowledge, which may be acquired either because of the fact that it is notorious, or because it has been directly communicated. It is not sufficient to say that other people knew’2. The knowledge must have been acquired by the person dealing with the firm before the departure and not afterwards3. 1 Re Hodgson (1885) 31 Ch D 177. 2 Per Lord Goddard CJ in Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397 at 405, citing Cresswell J in Farrar v Deflinne (1843) 1 Car & Kir 580: ‘Was this partnership actually known to the Plaintiffs, either by general report or by direct communication?’ 3 Elders Pastoral Ltd v Rutherford (1990) 3 NZBLC 99.

(iii)  Restricted liability of the estates of dead or bankrupt partners 20.31  Although the personal representatives of a dead partner may find themselves personally liable for the accruing debts of a firm if they are so rash as to allow themselves to be held out as partners in it1, a dead ex534

The firm’s notice and knowledge and the client’s confidential information 20.32

partner is hardly capable of being held out as a partner, except perhaps if his name continues to appear upon the firm’s writing paper. His estate is even then relieved from any liability in such a case by the express provisions of section 14(2) quoted above2, which is to the effect that the continued use of his name will alone impose no liability on his estate, and section 36(3) quoted above ends his liability without the need for specific notice to be given to any outsider. A bankrupt3 ex-partner might hold himself out, or allow himself to be held out, as a partner, thereby rendering him liable to a creditor of the firm, but the consequential claim against the bankrupt is unlikely to be of much value to the creditor. In the absence of any ‘holding out’, the estate of a dead or bankrupt partner is not liable to a creditor for any partnership debt contracted after the date of the death or bankruptcy4, although an agreement with his former partners may conceivably preserve his liability for a contribution5. 1 Wightman v Townroe (1813) 1 M & S 412; contrast Holme v Hammond (1872) LR 7 Exch 218. Liability by holding out is discussed in Chapter 5. 2 See para 20.25 above. Section 14(2) follows Lord Thurlow in Webster v Webster (1791) 3 Swan 490n. A dead partner’s estate may still be liable on a partnership debt if this is what he has agreed: Ronan v ANZ Banking Group Ltd (2000) VSCA 77 (Victoria SC). 3 Bankruptcy here probably does not include insolvency in the case of a corporate partner (see Anderson Group v Davies [2001] NSWSC 356), although curiously there is no reported English authority on this; bankruptcy here does not include the statutory winding up of the insolvent firm under the Insolvency Act 1986 as considered in Chapter  23, for then a liquidator is appointed and different questions arise. 4 See the Partnership Act 1890, s 36(3), quoted above, implicitly qualifying the provisions of s 36(1). 5 Contribution is discussed at para 14.54ff above.

3 THE FIRM’S NOTICE AND KNOWLEDGE AND THE CLIENT’S CONFIDENTIAL INFORMATION A The knowledge of a partner   20.32 B Exclusion of liability by notice to the outsider   20.39 C Employees  20.41

A  The knowledge of a partner (a)  Imputed knowledge 20.32  The knowledge of a partner is usually but not always imputed to the firm1. Section 16 of the Partnership Act 1890 provides as follows: 535

20.33  How partners bear the firm’s liabilities Notice to any partner who habitually acts in the partnership business of any matter relating to partnership affairs operates as notice to the firm, except in the case of a fraud on the firm permitted by or with the consent of that partner.

The delivery of the notice is deemed to take place at the date when, in accordance with his duty, the partner ought to have given it to his partners2. Notice to an outsider of the departure of a partner in considered at paras 20.25 and 20.28 above. 1 Lacey v Hill (1876) 4 Ch D 537; Sadler v Lee (1843) 6 Beav 324; Alderson v Pope (1808) 1 Camp 404n; Barber v Fletcher (1779) 1 Doug KB 305 at 306. A partner’s guilty knowledge cannot be imputed to the firm to make the firm dishonest, although the firm may be vicariously liable for a partner’s fraud: Zurich v Gray & Kellas (2007) CSOH 91. 2 Proudfoot v Montefiore (1867) LR 2 QB 511.

(b)  A partner who habitually acts in the partnership 20.33  The knowledge1 of the partner will be imputed to the firm if the partner ‘habitually’ acts in the partnership business2, so notice to a sleeping or limited partner will not suffice3. A limited partner ought never to be concerned with the management of the firm, as discussed in Chapter 24. But if from time to time he does so, notice to him will suffice under section 16. Notice to a partner before he becomes a partner will not suffice4 unless it amounts to actual knowledge in his mind when he becomes a partner5. 1 Baldwin v Casella (1872) LR 7 Exch 325; Wilbrahim v Colclough [1952] 1 All ER 979. 2 See the Partnership Act 1890, s 16, quoted above. 3 Thus a person’s position as chairman or non-executive director of a company does not constitute his knowledge the knowledge of the company: El Ajou v Dollar Land Holdings plc [1993] BCC 698 per Millett J; Re Hodgson, Beckett v Ramsdale (1885) 31 Ch D 177. 4 Société Générale de Paris v Tramways Union Co (1884) 14 QBD 424 at 443; affd sub nom Société Générale de Paris and Colladon v Walker (1885) 11 App Cas 20, HL; Williamson v Barbour (1877) 9 Ch D 529 at 535. 5 Bradley v Riches (1878) 9 Ch D 189.

(c)  Any matter relating to partnership affairs 20.34  Notice to a partner is only notice to the firm if it is a matter relating to ‘partnership affairs’. If the notice or actual knowledge is of a matter which is outside the scope of the partnership, notice is not imputed to the firm1. It might be supposed that the word ‘affairs’ includes the whole of the partnership business2. So Romilly MR in Marquise de Ribeyre v Barclay3 said: A partner must be fixed with a knowledge of the transactions that appear in the partnership books, and by the entries therein, which either disclose or plainly lead to a disclosure of the full extent of the dealings of their partner.

But not every fact communicated to one partner in relation to business or professional transactions is imputed to the whole firm. Information will not 536

The firm’s notice and knowledge and the client’s confidential information 20.35

be so imputed if it has been received by the partner or employee in confidence and in circumstances in which it is implicit that the information will not be passed on4. A partner need only share with his partners information that it is necessary for them to know or which they would expect to know. Under the law of agency the agent is only deemed to impart to his principal information that is material to the transaction in question5 and only where he is under a duty to impart to the principal such information6. ‘Where a person is a common officer of two companies, it is not the law that any knowledge that he has acquired as an officer of one of them is automatically to be treated as the knowledge of the other’7. The phrase ‘partnership affairs’ in section 16 quoted above does not include every detail of every part of the partnership business8, but only such matters as the partner is under a duty to the partners to impart to his partners: Section  16 … fixes the partnership with knowledge on matters connected with the partnership, but not its clients’ affairs. Furthermore it is concerned with whether the partnership, and not a single partner, should be regarded as enjoying the knowledge9.

The law may be different in Scotland10.  1 Re Borron, ex p Parratt (1836) 2 Mont & A 626.  2 Oppenheimer v Frazer and Wyatt [1907] 2 KB 50, CA.   3 (1857) 23 Beav 107 at 129.  4 Kelly v Cooper [1993] AC 205, PC.  5 El Ajou v Dollar Land Holdings plc [1993] BCC 698 at 719H per Millett J; Wyllie v Pollen (1863) 3 De GJ & Sm 596, CA.  6 Blackburn, Low & Co v Vigors (1887) 12 App Cas 531, HL. In El Ajou v Dollar Land [1994] 1 BCLC 464 at 481 Hoffmann LJ stated that the presumption was rebuttable.   7 Per Millett J in El Ajou v Dollar Land Holdings plc [1993] BCC 698, at 720B following Re Hampshire Land Co [1896] 2 Ch 743 and Re Fenwick, Stobart & Co [1902] 1 Ch 507.   8 In Scotland it has been held to extend to the question of who the firm’s client is: Tait v Brown & MacRae 1997 SLT (Sh Ct) 63.   9 Per Clarke J in Northumberland v Alexander (1984) 8 ACLR 882 at 905, following Campbell v McCreath 1975 SLT (Notes) 5 and Re Chisum Services Pty Ltd and the Companies Act 1961 (1982) 7 ACLR 614. The dicta of Ipp J to the contrary in Mallesons Stephen Jacques v KPMG Peat Marwick (1990) 4 WAR 357 was rejected by Waller LJ in Bolkiah v KPMG [1999] 1 BCLC 1, CA, reversed on other grounds [1999] 2 AC 222, HL. See also Russell McVeagh v Tower Corpn [1998] 3 NZLR 641. 10 Zurich v Gray & Kellas (2007) CSOH 91.

(d)  The knowledge of a professional imputed to his client 20.35  A separate matter is that where a solicitor or other professional is acting for a client, knowledge1 held by him or which reasonable inquiry would have revealed, is to be imputed to his client2. The reason that it is imputed is that he is under a duty to communicate the relevant information to his client. This is the third head of constructive knowledge mentioned by Hoffmann LJ in El Ajou v Dollar Land3. He would not normally be under any obligation to communicate the same fact to all of his partners. If a partner in two separate firms receives information relating to the clients or customers 537

20.36  How partners bear the firm’s liabilities

of one firm it is not imputed to the partners in the other4 unless the matter is equally applicable to them5. 1 Knowledge means actual knowledge. ‘Notice’ also extends to constructive notice where the professional is acting for a client purchaser. 2 See the Law of Property Act 1925, s 199(1)(ii)(b); Halifax Mortgage Services Ltd v Stepsky [1996] Ch 1. 3 [1994] 2 All ER 685 at 703. 4 Campbell v McCreath 1975 SLT (Notes) 5; Re Hampshire Land Co [1896] 2 Ch 743 at 748 quoted by Vaughan Williams LJ in Re David Payne & Co Ltd [1904] 2 Ch 608 at 616–7; and see Millett J in El Ajou v Dollar Land Holdings plc [1993] BCC 698 at 720B. 5 Steele v Stuart (1866) LR 2 Eq 84.

(e)  The knowledge of a guilty partner 20.36  The proviso to section  16 quoted in para  20.32 above means that where a partner is guilty of a fraud on the firm1 then the knowledge of his own fraud will not be imputed to the firm2. As Vaughan Williams LJ stated in Re Hampshire Land Co3: Common sense at once leads one to the conclusion that it would be impossible to infer that the duty, either of giving or receiving notice, will be fulfilled where the common agent is himself guilty of fraud4.

In company cases the doctrine has been extended to cases where there is no fraud, but the information is not such as the agent would incline to disclose: … you are not to impute to his principals knowledge by reason of the fact that their agent knew something which it was not his interest to disclose, and which he did not disclose5.

But whether the effect of the proviso to section 16 is thus extended beyond the ‘fraud’ required by the section to something wider, in partnership cases, is very doubtful. The circumstances in which the knowledge of an agent is imputed to the principal can vary a great deal6, and cases of agency outside the ambit of a partnership must therefore be regarded with caution as authoritative in partnership law. 1 Not every fraudulent act will be a fraud on the firm. 2 Zurich v Gray & Kellas (2007) CSOH 91; Williamson v Barbour (1877) 9 Ch D 529; Lacey v Hill (1876) 4 Ch D 537, CA; affd sub nom Read v Bailey (1877) 3 App Cas 94, HL; Bignold v Waterhouse (1813) 1 M & S 255. 3 [1896] 2 Ch 743 at 749. 4 This passage was cited with approval in J C Houghton & Co v Nothard, Lowe & Wills Ltd [1928] AC 1 at 15 and Kwei Tek Chao v British Traders and Shippers [1954] 2 QB 459 at 471. See also Wells v Smith [1914] 3 KB 722; Re David Payne & Co Ltd [1904] 2 Ch 608, CA; and Bradley v Riches (1878) 9 Ch D 189. 5 Re David Payne & Co Ltd [1904] 2 Ch  608, followed by Edward Nugee QC in Halifax Mortgage Services Ltd v Stepsky [1996] Ch 1, upheld CA [1996] Ch 207. 6 Per Hoffmann LJ in El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 at 702a, where he identified three categories of imputed knowledge which were plainly not exhaustive.

538

The firm’s notice and knowledge and the client’s confidential information 20.39

(f) Notice of a partner’s breach of trust, and notice to a purchaser 20.37  The partners will not be liable for the breach of trust of a partner acting outside his authority and outside the course of the business of the firm, unless they have actual knowledge of it. Section  16 does not operate so as to give to the firm notice of a partner’s knowing breach of trust. The rather special ‘guilty knowledge’ requisite to constitute a partner a constructive trustee, and what constitutes notice to a ‘purchaser’, are dealt with at paras 19.53 and 19.58ff above.

(g)  Where the outsider knows that notice will not be delivered 20.38  Where the outsider knows that the partner with a duty to deliver notice to the firm will not do so, notice is not imputed to the firm1, and it seems that if the partner is a partner in two firms with inconsistent interests2, his relevant knowledge will be imputed to neither3. 1 Lacey v Hill (1876) 4 Ch D 537 at 549 per Jessel MR; Rawlins v Wickham (1858) 3 De G & J 304; Sharpe v Foy (1868) 4 Ch App 35. 2 Aliter where the obligation is not inconsistent: Steele v Stuart (1866) LR 2 Eq 84. 3 Lacey v Hill (1876) 4 Ch  D  537 at 550 per Jessel MR; Re Hampshire Land Co [1896] 2 Ch 743 at 748 quoted by Vaughan Williams LJ in Re David Payne & Co Ltd [1904] 2 Ch 608 at 616–617, followed by Edward Nugee QC in Halifax Mortgage Services Ltd v Stepsky [1996] Ch 1; but none of these are cases of partnership agency.

B  Exclusion of liability by notice to the outsider (a)  Power to exclude 20.39  If an outsider has notice of a limit on the authority of a partner, no act of the partner with respect to the outsider will bind the firm, for section 8 of the Partnership Act 1890 provides: If it has been agreed between the partners that any restriction shall be placed on the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement.

The effect of this is that the firm can exclude from itself entirely or limit its liability in contract or tort1 provided that this is made sufficiently clear to the outsider, and provided that the limitation that it alleges is true2. This is considered earlier in this chapter with regard to the different ways in which the firm may be rendered liable for the acts or defaults of a partner. 1 Sections 5 and 8 of the Partnership Act 1890 are wide enough to cover acts of any nature. 2 Vice v Fleming (1827) 1 Y & J 227.

539

20.40  How partners bear the firm’s liabilities

(b)  The nature of the notice 20.40  Notice that the partner has no authority or only limited authority may be given expressly or by implication from the circumstances1, as where a partner purports to charge the firm’s property for his own purposes2, or where the lender knows that the partner’s authority is limited in writing but does not inspect the document3. 1 Kendal v Wood (1870) LR 6 Exch 243; Leverson v Lane (1862) 13 CBNS 278. 2 Re Riches and Marshall’s Trust Deed (1865) 4 De GJ & Sm 581. The question of a bank being put on notice today is rather different: see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, HL. 3 Jacobs v Morris [1902] 1 Ch 816, CA.

C Employees 20.41  Notice to an employee of a firm is generally notice to the firm, and to that extent it is notice to all partners, but ‘no-one has ever carried that doctrine to this extent, that the knowledge of the agent of the firm shall be the knowledge of the individual partner as between himself and his co-partner’1. Notice to an employee during office hours will constitute notice to the firm2 unless he does not receive it in his capacity as an employee of the firm3 and it does not relate to a matter he is under a duty to disclose to his principals4. Notice to an employee or other person which is not notice to the firm on these principles, does not become notice to the firm if he subsequently becomes a partner5 unless it is then in his mind6. 1 Per Jessel MR in Lacey v Hill (1876) 4 Ch D 537 at 549, and Northumberland v Alexander (1984) SCNSW 382 at 905, following Campbell v McCreath 1975 SLT (Notes) 5. 2 Truman’s Case [1894] 3 Ch 272. 3 Société Générale de Paris v Tramways Union Co (1884) 14  QBD  424, CA; affd sub nom Société Générale de Paris and Colladen v Walker (1885) 11 App Cas 20, HL. 4 Re David Payne & Co Ltd [1904] 2 Ch  608, CA; Re Deep Sea Fishery Co’s (Ltd) Claim [1902] 1 Ch 507. 5 Per Jessel MR in Williamson v Barbour (1877) 9 Ch D 529 at 535. 6 Bradley v Riches (1878) 9 Ch D 189.

540

21 Litigation by and against outsiders Contents

para 1 Actions by the firm A The firm’s cause of action�����������������������������������������������������������21.1 B What partner may authorise and prosecute proceedings?�����������21.7 C Set-off between debts and credits of the firm and the partner���21.10 2 Actions against the firm A When and how a claim against the firm may be brought����������21.12 B The partners’ defence���������������������������������������������������������������21.17 3 Procedure A The scope of rules of court enabling a firm to sue or be sued in the firm name�����������������������������������������������������������������������21.20 B Service and acknowledgment of service������������������������������������21.26 C Disclosure of partners’ names���������������������������������������������������21.33 D Disclosure and admissions��������������������������������������������������������21.35 E Admissions�������������������������������������������������������������������������������21.37 4 Judgment and execution against the firm A Judgment against the firm��������������������������������������������������������21.38 B Summary judgment������������������������������������������������������������������21.39 C Execution on a judgment against the firm generally�����������������21.40 D Execution against the assets of the firm������������������������������������21.41 E Execution against a partner without permission�����������������������21.42 F Execution against partners and non-partners with permission��21.43 G The appointment of a receiver��������������������������������������������������21.45 H Charging orders�����������������������������������������������������������������������21.46 I Bankruptcy�������������������������������������������������������������������������������21.47 J Statutory winding up����������������������������������������������������������������21.48 K ‘Garnishee’ or ‘third party debt’ proceedings����������������������������21.49 5 Costs A Costs orders�����������������������������������������������������������������������������21.50 B The firm as a litigant in person�������������������������������������������������21.51

541

21.1  Litigation by and against outsiders

1  ACTIONS BY THE FIRM A The firm’s cause of action   21.1 B What partner may authorise and prosecute proceedings?   21.7 C Set-off between debts and credits of the firm and the partner   21.10

A  The firm’s cause of action (a) The claim may be brought in the name of the partners or in the name of the firm 21.1  A firm in England and Wales is not a legal entity as it is in Scotland and some other jurisdictions. But Rules of Court enable partners to sue or be sued ‘In the firm name’1, which does not affect the substantive law2 but gives the firm some characteristics of a legal person3 in litigation but not in (say) arbitration or other adjudication. Partners must (unless inappropriate) sue on a partnership cause of action or present a bankruptcy petition on it in the firm name rather than in their own names if the conditions of the Rules of Court discussed at para 21.20ff below are satisfied. A foreign firm may only sue in England if by its law of domicile it has status as a legal entity4. Actions between partners, internal to the firm, and questions of jurisdiction under the Brussels Convention (now Brussels Regulation Recast) in relation to the constitution of the firm, are discussed at para  15.4ff above. The courts of the ‘seat’ of the partnership may have exclusive jurisdiction (ibid) even where the cause of action is by or against an outsider5. 1 2 3 4 5

CPR, Pt 7 PD 5A discussed at para 21.20ff below. Meyer & Co v Faber (No 2) [1923] 2 Ch 421 at 435, 439, CA. R v Holden [1912] 1 KB 483 at 487; Sadler v Whiteman [1910] 1 KB 868, CA. Von Hellfeld v Rechnitzeer and Mayer Frères [1914] 1 Ch 748, CA; see para 1.10ff above. But an overall review of the nature of the proceedings is required to ascertain with what they are principally concerned: JP  Morgan Chase Bank NA  v Berliner Verkehrsbetriebe BVG [2010] 2 WLR 690.

(b)  All partners to be joined in the claim 21.2  If the claim is brought by the partnership but not in the firm name, then all partners must be joined as parties or petitioners1 unless the court gives leave to the contrary. CPR, Part 19.32 requires: 19.3 (1) Where a claimant claims a remedy to which some other person is jointly entitled with him, all persons jointly entitled to the remedy must be parties unless the court orders otherwise. (2) If any person does not agree to be a claimant, he must be made a defendant, unless the court orders otherwise.

542

Actions by the firm 21.3

The purpose of the rule is simply to ensure that those with a direct interest in the litigation should be before the court to be bound by any judgment in the action and perhaps to bear a share of the costs. The general rule is that no-one can be a claimant against their will, and that all claimants must instruct a single firm of solicitors to represent them jointly, but in rare cases where justice requires it the rule may be departed from3. A partner may also be compelled by his partners to join as a claimant if given the indemnity mentioned in para 21.4 below4. A complaint by the main defendant that not all partners have been joined as parties may be made at any time5 until after judgment6. But his concerns are different from those of the partners inter se; the terms, as between the partners, on which the claim may be brought, is not a matter for the defendant7. Brickland v Newsome (1808) 1 Camp 474. Formerly RSC Ord 15, r 4(2), derived from RSC (rev) 1962, reflecting the previous practice. Lewis v Daily Telegraph Ltd (No 2) [1964] 2 QB 601. Kao, Lee & Yip v Koo Hoi Yan (2003) 1 HKLRD 125, citing Whitehead v Hughes (1834) 2 Cr & M 318, approved in Tomlinson v Broadsmith (1896) 1 QB 386, CA, at 392 and Seal and Edgelow v Kingston (1908) 2 KB 579 at 582, but see para 21.9 below. 5 Smurthwaite v Hannay [1894] AC 494, HL; in Walters v Green [1899] 2 Ch 696 the point was taken as a preliminary point. 6 Bullock v London General Omnibus Co [1907] 1 KB 264, CA. 7 Burneside v Harrison [1968] 1  WLR  782 where the explanation of Lord Denning MR is characteristically lucid. 1 2 3 4

(c)  When not all partners need be joined 21.3  The rule does not strictly require joinder of ‘partners’ as such, but of persons ‘jointly’ entitled. The two classes overlap but are not the same. Some partnership claims are not joint claims, for instance where there is only one surviving partner1 or where the right to sue for a partnership claim is vested in one who is not a partner or who is only one out of several partners. So if a promissory note for a sum due to the firm is made out to one partner alone, he alone should sue upon it2, as should one partner who has entered into a contract for the benefit of the firm3. If partnership land is vested in two partners out of several, they alone (as freeholders or registered proprietors) should maintain an action against a third party trespasser. Their claim arises by virtue of the legal estate being vested in them, rather than because they are partners. A taxation appeal on behalf of the firm need not be brought by all partners4. Even where the partners collectively are the competent claimants, the court will dispense with the joinder of all partners if it is burdensome and unnecessary5, for instance if one partner in a large and solvent partnership has gone abroad and cannot be found6, or has retired7, or if he is an enemy alien8. If the partner is in effect in the opposing camp in the litigation, for instance if the action is for the fraud of an outsider in collusion with him, leave will be given for him to be left out of the number of parties suing on the fraud9. If the claim is not a partnership claim but belongs to only some of the partners, there is no need for all to be joined. The question therefore becomes 543

21.3  Litigation by and against outsiders

whether the cause of action belongs to the partnership or to the partner or to both10, which is essentially one of fact11. Substitution may be allowed if there has been a mistake as to the identity of the claimant12. A cause of action will belong to the firm if: (a) the partners as such have suffered actionable damage in tort13, or (b) the claim is on a contract in the firm name or made for the benefit of the firm, whether this was stated in the contract or not14. In Calgary Associate Clinic v Johnston15 a member of a medical partnership rendered professional services to the defendant. Held the firm was entitled to sue for the fees.

Where the contract is assigned to the firm, the firm may sue on it16. When it is made by an agent (be it a partner, employee or otherwise) on behalf of the firm, the contract is that of the firm, and the firm may sue upon it17. In Skinner v Stocks18 a partner in a partnership of whale-fishers sold some whale-oil to a purchaser who knew nothing of the partnership and who did not pay. Held the partnership could sue for the price.

But if the contract puts the right to sue on one partner only19, or if the partner acting as agent purported to contract as principal20, he may sue alone, notwithstanding the provisions of CPR, Part 19.3 quoted in the last para. In Cawthorn v Trickett21 the partnership was between shipowners. The master of a ship was a part-owner of it but had its entire control and management. Held he could sue alone on its bills of lading.

When a single partner sues he sues for the firm’s loss and does not recover just his share of it22.   1 Then he will sue alone. But he will not succeed if the claim died with his partnership: Sales v Crispi (1913) 29 TLR 491.  2 Bawden v Howell (1841) 3 Man & G 638.  3 Roberts v J W Ward (8 February 1985, unreported), CA Transcript 71.  4 Sutherland v Gustar [1994] Ch 304, CA; contrast the Canadian cases of Kennedy, Ross & Velano and Herrington v City of Hamilton [1964] SCR 274 (Canada).  5 Leveck v Shaftoe (1796) 2 Esp 468, a case of a dormant partner.  6 Pilley v Robinson (1887) 20  QBD  155; Kendall v Hamilton (1879) 4 App Cas 504, HL; Pienaar v Rattray (1893) 12 SC 35.  7 Leeson v Moses (1915) 31 WLR 817 (Canada).  8 Roderiguez v Speyer Bros [1919] AC 59, HL.  9 Longman v Pole (1828) Mood & M 223; Richardson v Larpent (1843) 2 Y & C Ch Cas 507. 10 Story v Richardson (1839) 6 Bing NC 123. 11 Cox v Hubbard (1847) 4 CB 317. 12 W Hill & Son v Tannerhill [1944] 1 KB 472, CA; Noble Lowndes & Partners v Hadfields Ltd [1939] Ch 569. 13 Longman v Pole (1828) Mood & M  223; Robinson v Martin (1844) 3  LTOS  125, where the claim was for slander of a partner in the way of the firm’s trade, and it was held that the partners as a whole were the parties injured and he could not bring the claim alone; see also Le Fanu v Malcolmson (1848) 1 HL Cas 637. Contrast the Scottish case of Hustler v Watson (1841) 3 D 600, Ct of Sess where on rather similar facts it was held that the single partner mentioned in the defamatory statement might sue alone. In Australia actions have been held to have been rightly brought in the names of the partners for wrongful execution against goods of the firm in the hands of a single partner: Lane v Taylor (1866) 5 NSWSCR (L) 84; Smith v Ogg (1864) 3 NSWSCR (4) 6.

544

Actions by the firm 21.6 14 Cooke v Seeley (1848) 2 Exch 746; Alexander v Barker (1831) 2 Cr & J 133. 15 [1931] 4 DLR 247. 16 Blair v Ellis (1874) 34 UCQB 466 (Canada). 17 Alexander v Barker (1831) 2 Cr & J 133. 18 (1821) 4 B & Ald 437. 19 Radenhurst v Bates (1826) 3 Bing 463. 20 Agacio v Forbes (1861) 14 Moo PCC 160; Cawthorn v Trickett (1864) 15 CBNS 754; Clay and Newman v Southern (1852) 7 Exch 717. 21 (1864) 15 CBNS 754. 22 John Harris Partnership v Groveworld Ltd [1999] PNLR 697, following Lloyd’s v Harper (1880) 16 Ch D 290.

(d) Indemnity 21.4  The court would require a partner who is required to join as a coclaimant but who opposes the litigation to be given an indemnity against the costs1 if he requests it. This is usually unnecessary today as explained in para 21.9 below. It is a matter between the joint claimants themselves, and not one that the defendant can concern himself with2. 1 Johnson v Stephens & Cartier Ltd and Guiding [1923] 2 KB 857, CA; Davey & Co v Alby United Carbide Factories Ltd (1914) unreported (where security on the indemnity was required), noted at para 81/1/10 of the Supreme Court Practice 1997. See Seal and Edgelow v Kingston [1908] 2 KB 579, CA where such an indemnity had been given without order; Whitehead v Hughes (1834) 2 Cr & M 318. 2 Burnside v Harrison Marks Productions [1968] 1 WLR 782, CA.

(e)  Disability and death 21.5  If a partner is bankrupt his partners on behalf of the firm may sue or present a bankruptcy petition without him1, but if he becomes bankrupt in the course of the proceedings his trustee should be substituted for him2. If he dies, the right to sue survives to the other partners3. If he is a minor or under a mental disability he may only sue by his litigation friend4 unless the claim is brought in the firm name5. If he is a vexatious litigant and a ‘Civil Proceedings Order’6 has been made against him, the firm is in the same position as himself and may not sue without the leave of the court7. 1 2 3 4 5 6 7

See the Insolvency Act 1986, s 264(1)(a). Re Owen, ex p Owen (1884) 13 QBD 113, CA. Haig v Gray (1850) 3 De G & Sm 741; Re Tucker, ex p Tucker (1895) 2 Mans 358, CA. CPR, Pt 21. Harris v Beauchamp Bros [1893] 2 QB 534, CA. See Senior Courts Act 1981, s 42. Mephistopheles Debt Collection Service v Lotay [1994] 1 WLR 1064, CA, where the court rejected any analogy with disability arising from minority or unsoundness of mind.

(f)  Incoming and outgoing partners 21.6  The partners entitled to sue on a partnership cause of action are those solvent and living partners who were partners when the cause of action 545

21.7  Litigation by and against outsiders

accrued1. So a partner should not join in suing on a firm debt which arose before he joined the firm or after he left it. When the firm has been dissolved by the death of a partner (even between judgment and execution)2, the surviving partners may sue an outsider for the return of partnership assets and need not join the personal representatives of the dead partner3. In McClean v Kennard4 Sir G Mellish LG stated: Although the right of the deceased partner devolves on his executor, it is now fully settled that the remedy survives to his companion5, who must alone enforce the right by action, and will be liable, on recovery, to account to the executor or administrator for the share of the deceased. 1 As to the anomalous position in tort, where the cause of action does not accrue when the wrong is suffered but at the later date when loss is suffered, see para 21.24 below. 2 Re Hill, ex p Holt & Co [1921] 2 KB 831. 3 Chandroutie v Gajadhar [1987] AC 147, PC (West Indies). This echoes the Partnership Act 1890, s 38. 4 (1874) 9 Ch App 336 at 346, citing Williams on Executors (6th edn). 5 Ie the other partner.

B What partner may authorise and prosecute proceedings? (a)  As against the defendant 21.7  As far as the defendant is concerned, one partner without the express consent of his partners has authority to institute legal proceedings on behalf of the firm1. This rule relates to litigation alone; it does not mean that one partner can sue alone on a joint claim without the others being joined2 or that he impliedly carries with him the necessary intentions of all members of his firm to constitute the cause of action. So where they had all entered into a contract upon the basis of misrepresentations so the contract was consequentially voidable by them, he alone was not empowered to rescind the contract and thereby create the cause of action of the firm; the decision had to be taken unanimously3, or at least by a majority4. A partner usually has authority on behalf of his firm to take money that has been paid into court in an action brought in the firm name5 but he has no ostensible authority to refer to arbitration a claim in litigation involving the firm6. Whether a single partner may pursue a revenue appeal for the firm depends upon the terms of the relevant taxing Act7. 1 Re Sutherland & Partners’ Appeal [1993]  STC  399 at 405–406; Johnson v Stephens and Carter Ltd [1923] 2 KB 857, CA; Proudfoot v Bank of NZ (1885) 6 LRNSW 170; Collett v Hubbard (1846) 2 Coop temp Cott 94, until the firm disclaims: Hutcheon & Partners v Hutcheon 1979 SLT 61; Kapeleris v Bytenet Pty Ltd (1997) 15 ACLC 1,308. 2 Catlin v Cyprus Finance (1983) QB 759. 3 McLaren v McMillan (1907) 16 Man LR 604 (Canada); contrast Attwood v Small (1838) 6 Cl & Fin 232. 4 For the management of the firm see Chapter 12 and the Partnership Act 1890, s 24(8).

546

Actions by the firm 21.9 5 His power to compromise is considered at para 21.17 below. 6 Hatton v Royle (1858) 3 H & N 500; Adams v Bankart (1835) 1 Cr M & R 681; Re Crowder, ex p Nolte (1826) 2 Gl & J 295; Stead v Salt (1825) 3 Bing 101. But the firm may be bound by acquiescence: Thomas v Atherton (1877) 10 Ch D 185, CA. 7 Re Sutherland & Partners’ Appeal [1994] STC 387, CA; Sutherland v Gustar [1994] Ch 304; contrast the Canadian cases of Kennedy, Ross & Velano and Herrington v City of Hamilton [1964] SCR 274 (Canada).

(b)  As between the firm and its own solicitors 21.8  As regards the firm’s solicitors, a managing partner has implied authority to give instructions to conduct an action to recover debts due to the firm1, and any partner may do so as part of ‘carrying on in the usual way business of the kind carried on by the firm’2, but there is no general principle that every partner has ostensible authority to institute any sort of action on behalf of the firm that he has a mind to. The solicitor will be liable to the other side for breach of warranty of authority if the parties instructing him had no authority3. Where solicitors have been validly instructed on behalf of the firm, the solicitors will discharge their duty to the firm by advising the partner who instructs them; unless they know of a limit on his authority they need not advise his other partners4. 1 2 3 4

Court v Berlin [1897] 2 QB 396; Tomlinson v Broadsmith [1896] 1 QB 386. See the Partnership Act 1890, s 5; Griffith v Hughes (1847) 9 LTOS 147. Unical Properties v 784688 Ontario Ltd (1990) 73 DLR (4th) 761. Berlevy v Blyth Dutton [1997]  CLY  3821, CA. For the question of notice to a firm see para 20.32ff above.

(c)  As between the partners 21.9  Even though a partner’s ostensible authority to instruct solicitors to bring proceedings may be binding on a defendant to the action, and may be binding on the firm (even after dissolution1) it does not follow that he has actual authority to institute proceedings in the name of the firm2: that depends upon what authority he has been given by the partnership agreement or implicitly from the usual practice of the firm. In many professional firms the decision to litigate cannot be taken by one partner alone, save in the unusual case where full management powers have been delegated to him3. What authority he may have will vary from firm to firm4 and will depend upon what proceedings are contemplated. He may not usually refer a firm dispute to arbitration on his own authority5, and he may not sue in the firm name against the express wishes of the majority (or the other controlling body) of the firm6; if he does, they can put an end to the proceedings on their own7, unless they are proceedings (such as a personal tax appeal) which are in substance his rather than theirs8. 547

21.10  Litigation by and against outsiders

The problem for a minority partner who wished to commence proceedings was greater at a time when a claim on behalf of the firm might be non-suited if not all partners were joined as claimants9. Then he could only bring the action if he could use their names, which he could do on giving them suitable indemnities10. That practice is now unnecessary11 since he may bring an action on a joint claim in his own name alone provided that he joins his recalcitrant partners as defendants12.  1 Queensland Southern Barramundi v Ough (2000) 2 Qd R 172.   2 The power in a managing partner to bring proceedings in the name of ex-partners after a merger will not easily be implied: HLB Kidsons (a firm) v Lloyds Underwriters [2008] EWHC 2415 (Comm), Judge Mackie QC, a case which is otherwise notable for the confusion which arises when questions of ‘technical dissolution’ are alleged, as to which see para 16.1 above.  3 Court v Berlin [1897] 2 QB 396, CA.   4 As to the extent of a partner’s implied authority see Chapter 19.  5 Hatton v Royle (1858) 3 H & N 500.  6 Re Sutherland & Partners’ Appeal [1993] STC 399.  7 Hutcheon & Partners v Hutcheon 1979 SLT 61 (Scotland); the Partnership Act 1890, s 24(8) gives the final decision on ordinary matters connected with the partnership business to the majority, in the absence of any other arrangement.  8 Sutherland v Gustar [1994] Ch 304, CA.  9 Piercy v Fynney (1871) LR 12 Eq 69. 10 Whitehead v Hughes (1834) 2 Cr & M 318, approved by Sir Gorrell Barnes P in Seal and Edgelow v Kingston [1908] 2 KB 579 at 582 and Lord Finlay LC in Rodriguez v Speyer Bros [1919] AC 59 at 69. 11 Per Atkin LJ in Johnson v Stephens and Carter Ltd [1923] 2 KB 857 at 861, mentioned by Sir Donald Nicholls V-C in Sutherland v Gustar [1994] 4 All ER 1 at 5. 12 Under CPR, Pt 19.3(2).

C Set-off between debts and credits of the firm and the partner (a) The general rule: firm credits may only be set off against firm debts 21.10  A set-off is a cross-claim allowed to stand as a defence to a claim1. It does not arise in claims between partners because between them the action is for an account, and the only sum due is the sum found after the taking of the account. Set-off in insolvency is discussed at para 23.10ff below; we are here concerned with the position where the parties to the action are solvent. For one claim to be set off against another, the two claims must be between the same parties in the same right2. So the firm must be the same firm and not a successor firm, unless by assignment it stands in the shoes of the former firm3. The firm cannot set off its debt to an outsider against a sum that he owes to a partner, nor can a partner set off his own debt against one due to the firm4. Set-off is only available in favour of firm debts against firm creditors5, and in favour of partners’ separate debts against their own creditors6. The overdraft of one cannot be set against the credit account of the other by their bank7. But where a partner is jointly and severally liable for an obligation 548

Actions by the firm 21.11

of his firm8, the several claim against him may be set off against his separate claim against the creditor9. If the firm is entitled to a set-off, its entitlement is not prejudiced by the claim against it being brought against one of its partners only; conversely, where a debtor is entitled to a set-off, the firm cannot defeat it by assigning its own debt to a single partner and allowing the claim to be brought by him alone10. Damages due to a firm ought not to be reduced to take into account a benefit to a partner alone resulting from the same cause. In Jebsen v East and West India Dock Co11 the claimants who were the partners in a firm of ship-owners sued for a breach of contract which had prevented them from carrying the passengers they had intended. In fact this had sent many passengers onto other ships belonging to some of the partners. Held that this did not reduce the damages to which the firm was entitled.   1 Under CPR, Pt 16.6; Senior Courts Act 1981, s 49(2)(a).  2 Dole Dried Fruit and Nut Co v Trustin Kerwood Ltd [1990] 2 Lloyd’s Rep 309, CA; Nadreph Ltd v Willmett & Co [1978] 1 WLR 1537; Re Pennington and Owen Ltd [1925] Ch 825, CA; Richardson v Stormont, Todd & Co [1900] 1 QB 701, CA.  3 Re Jane, ex p Trustee (1914) 110 LT 556, CA. The liability for the debt may be transferred by agreement (see below) or novation (see paras 20.15 and 20.21 above).  4 Gordon v Ellis (1846) 2  CB  821; Baker v Gent (1892) 9  TLR  159; McEwan v Crombie (1883) 25 Ch D 175.  5 Spurr v Cass (1870) LR 5 QB 656.  6 France v White (1839) 6 Bing NC 33; McGillivray v Simson (1826) 2 C & P 320.  7 Cavendish v Geaves (1857) 24 Beav 163.   8 The partners are liable both jointly and severally in cases of tort and breach of trust, but only jointly in cases of debt: see para 20.1ff above.  9 Owen v Wilkinson (1858) 5 CBNS 526. 10 Puller v Roe (1793) Peake 260. 11 (1875) LR 10 CP 300; John Harris Partnership v Groveworld Ltd [1999] PNLR 697.

(b) Exceptions 21.11  To the rule that a partnership credit may only be set off against a partnership debt, there are three exceptions where there is no insolvency: (a) Where the respective creditors and debtors have expressly or implicitly agreed to allow a set-off; thus a debt due to a firm of two partners was set off against a debt due from one of them where the conduct of the partners and the creditor/debtor showed that they all intended the two accounts to be amalgamated1. (b) Where the firm is reduced to a single partner, a debt due to him from an outsider may be set off against a debt from him in his separate capacity due to that outsider2. (c) Where the firm is estopped from asserting that a claim is in fact that of the firm. If a partner has been allowed to represent himself to be a sole principal, the outsider who on the strength of this has given him credit may set off that credit against what he owes the partner personally on a separate account3. 549

21.12  Litigation by and against outsiders In Muggeridge’s v Smith & Co4 a firm of corn merchants was conducted by Muggeridge with a secret partner. Smith, who owed it money for corn, believed Muggeridge was a sole trader, and gave him credit on a private debt for hire of carriages. Muggeridge authorised the firm cashier to set off the one debt against the other. Later the firm disputed this and claimed from Smith the full amount of what he had owed for corn. Held that the set-off that Muggeridge had allowed in favour of Smith was binding on the firm, as Smith was justified in believing that Muggeridge was the sole principal and could therefore allow the private debt to be set off against the firm debt.

Conversely where several are held out as partners whereas in fact the business has only a sole principal, set-off will be allowed between sums due to the firm and liabilities incurred by those held out as partners. In Teed v Elworthy5 a banking business was run in the name of ‘John Teed, Thomas Teed & Co’. John was the father of Thomas, who was a minor. The father alone sued on a firm debt, saying that in fact Thomas had no interest in the business. He failed for lack of joinder of Thomas. Lord Ellenborough CJ observed: ‘If the father held himself and his son out to the world as partners, and persons dealt with them as such, though the son had no share in the funds of the house, yet third persons so dealing with them would be entitled to set off, against a debt contracted with the firm, any demand contracted with the son in the name of the partnership.’ 1 Ell v Harper (1886) 4 NZLR (SC) 307; Burgess v Morton (1894) 10 TLR 339, CA revsd on other grounds [1896] AC 136, HL. 2 Smith v Parkes (1852) 16 Beav 115; French v Andrade (1796) 6 Term Rep 582; the reasoning is that the debts cease to be owed in different rights. 3 Stracey, Ross, etc v Decy (1789) 7 Term Rep 361n; Borries v Imperial Ottoman Bank (1873) LR 9 CP 38; Gordon v Ellis (1846) 2 CB 821; Baker v Gent (1892) 9 TLR 159. 4 (1884) 1 TLR 166. 5 (1811) 14 East 210.

2  ACTIONS AGAINST THE FIRM A When and how a claim against the firm may be brought   21.12 B The partners’ defence   21.17

A When and how a claim against the firm may be brought (a)  Against one or all partners 21.12  According to the nature of his claim, an outsider may claim against the partners either jointly or jointly and severally, the meaning of which is discussed at para 20.1ff above. A separate or ‘several’ action against a single 550

Actions against the firm 21.13

partner needs little discussion, so this section is mainly concerned with actions against all the partners in the firm jointly. The partners must usually be sued in the firm name, as is discussed at para  21.20ff below. Or the partners may be sued in their own names. It is they and not the firm (which has no legal existence) that is liable. A claim against the firm name is as much a claim against the members individually as if their names had been set out in the claim form1, save that it does not result in a judgment that is automatically enforceable against the partners2. If the partners are sued separately, the fact that one has not been served is no bar to the action proceeding3. It is not improper (though it is unnecessary) for the partners to be sued both in their own names and in the name of the firm4. He who allows himself to be held out as a partner is liable as a partner5. A claim on a liability of the firm against one or some only of the partners is good; a claimant can no longer be non-suited for his failure to join all members of the firm on a joint claim6, or be required to show that he was unaware that absent parties were in fact partners7. In practice the claimant will want to join all available partners to increase the chance that his judgment will be met. This is why an action against the partners in the firm name is convenient, even though it usually does not result in a judgment that can be executed against all partners without leave8. Where a claim was made against receivers and wrongly they were sued in their firm name rather than in their individual names, the mistake was held to be one of ‘capacity’ rather than ‘identity’ and so incapable of being remedied under the then Rules of Court9. 1 Western National Bank of New York v Perez, Triana & Co [1891] 1 QB 304 at 314, CA per Lindley LJ. 2 See CPR, Pt 7 PD 5A, rr 5 and 6, considered at para 21.38ff below. 3 Robinson v Geisel [1894] 2 QB 685. 4 Dominion Bank of Canada v Palitti [1931] 3 WWR 377 (Canada). 5 See the Partnership Act 1890, s 14(1); see Chapter 5. 6 By the Civil Liability (Contribution) Act 1978, s  3 (following the Law Reform (Married Women and Tortfeasors) Act 1935, s 6(1)) a judgment against one of several persons liable jointly is no longer a bar to the action against the others, as per Kendall v Hamilton (1879) 4 App Cas 504, HL. See para 20.1ff above. 7 De Mautort v Saunders (1830) 1 B & Ad 398; Rice v Shute (1770) 5 Burr 2611; Smith v Huggins (1740) 7 Mod Rep 407. 8 See para 21.38ff below. 9 Ramsey and Maclaine v Leonard Curtis [2001] BPIR 389, CA.

(b)  Where a partner is a minor or under a disability 21.13  A firm may sue or be sued even though a partner is a minor or otherwise under a disability1. That partner is not liable for the debts of the firm save that the adult partners may insist that the assets of the firm are applied towards paying its debts2. So the judgment must expressly state that it does not bind the person under the disability3, although the CPR does not expressly mention this procedure. 1 Harris v Beauchamp Bros [1893] 2 QB 534. 2 See note 1 above. 3 Lovell & Christmas v Beauchamp [1894] AC 607, HL; and see para 21.38ff below.

551

21.14  Litigation by and against outsiders

(c)  A firm comprising foreign partners 21.14  Under CPR, Part 7  PD 5A, r 1 partners may only be sued in the firm name if they carry on business within the jurisdiction, as is discussed at para 21.20ff below. That being the test, whether the partners themselves are foreign is irrelevant1. If they do not carry on business within the jurisdiction they must be sued in their own names2. Service under Part 6 of the CPR on partners outside the jurisdiction in their own names is permissible in the circumstances also discussed at para  21.28ff below. Service upon a foreign ‘firm’ as such is bad3 unless in fact it carries on business within the jurisdiction4 and so satisfies CPR, Part 7 PD 5A, r 1. 1 Indigo Co v Ogilvy [1891] 2 Ch 31, CA. 2 Oxnard Financing SA v Rahn & Bodner [1998] 1 WLR 1465, CA; Western National Bank of New York v Perez, Triana & Co [1891] 1 QB 304. 3 Dobson v Festi, Rasini & Co [1891] 2 QB 92, CA. This is so even though it may be a legal entity under its local law: Oxnard Financing SA v Rahn & Bodner [1998] 1 WLR 1465, CA. 4 Hobbs v Australian Press Association [1933] 1 KB 1, CA.

(d) Changes in the firm and where a partner is retired, bankrupt, dead, or otherwise ceases to be a partner 21.15  In the absence of agreement to the contrary, a partner is not liable for a debt suffered by the firm before he joined it or after he left it: see para 20.17ff above. Conversely the firm is not liable for a debt incurred by the partner who was running the business before the partnership was formed1. Where a member has left the firm to the knowledge of the claimant, he is not liable on an action against the firm if he has not been served with the proceedings2. If he has been served he is liable for liabilities that accrued when he was a partner. If a partner retires without a dissolution, his estate is only free from debts contracted after his retirement with outsiders who did not know him to be a partner; the firm’s new debts owed to those who knew him as a partner bind his estate until the creditors have notice of his retirement3. A bankrupt partner need not be joined to any proceedings brought against the firm. The partnership is dissolved by the death or bankruptcy of any partner unless the partners have agreed to the contrary4. Whether or not there is a dissolution, the outgoing partner’s estate is not liable for debts contracted after his death or bankruptcy5, or for goods ordered before but not delivered until after that time6. If an action is proceeding against the partners in the firm name and one of them dies, there is no need for the action to be reconstituted or for his personal representatives to be joined7. The surviving partners can put in a defence in the firm name8. The action is good against the firm and judgment will be enforceable against the surviving partners and against all the firm’s assets9. The personal representatives of the dead partner only need be joined if a judgment is sought beyond the assets of the firm, against his separate estate10. But if in a claim against the firm by name all the partners die between 552

Actions against the firm 21.17

service and trial, the action will fail unless the personal representatives of a partner are joined11.  1 Bounty v Heaton (1865) 13 LT 238. These matters are discussed at para 20.17ff above.  2 Wigram v Cox, Sons, Buckley & Co [1894] 1  QB  792; cf Davis v Hyman & Co (1903) 72 LJKB 426.  3 See the Partnership Act 1890, s  36(1) set out in Appendix  A below and discussed at para 20.17ff above.   4 See the Partnership Act 1890, s 33(1).   5 See the Partnership Act 1890, s 36(1); Goldfarb v Bartlett and Kremer [1920] 1 KB 639.  6 Bagel v Miller [1903] 2 KB 212; this is discussed at para 20.13ff above.  7 Ellis v Wadeson [1899] 1 QB 714 at 718, CA.  8 Ellis v Wadeson [1899] 1 QB 714.   9 See note 8 above. 10 Ellis v Wadeson [1899] 1 QB 714 at 718, CA; Mathurdas Canji Matani v Ebhrahim Fazalbhoy (1927) ILR 51 Bom 986 (India). 11 Per Romer LJ in Ellis v Wadeson [1899] 1 QB 714. Judgment and execution in claims against the firm are considered at para 21.38ff below, and the end of a partner’s liability discussed at para 20.17ff above.

(e)  Where the firm has been dissolved 21.16  The firm may be sued in the firm name after dissolution on a debt incurred before dissolution1. The liability of an outgoing partner in such circumstances is considered in the previous paragraph and in para 20.17 below. After dissolution the firm continues in existence for the purpose of winding up its affairs, as is discussed in Chapter  18. To this extent the rights and obligations of the partners continue2. It must usually be sued in the firm name under CPR, Part 7 PD 5A, r 1, discussed at para 21.20ff below. 1 Re Wenham [1900] 2 QB 698, CA; Wilson v Roger McLay & Co (1884) 10 PR 355 (Canada). 2 See the Partnership Act 1890, s 38, as set out in Appendix A below.

B  The partners’ defence (a) Authority 21.17  A partner’s authority to defend an action against the firm will vary from firm to firm, echoing his authority to sue which is discussed in para 21.7ff above. Every partner will have authority to file a defence where a defence seems arguable or tactically necessary, but this does not mean that a partner (other than a managing partner1) has authority on his own initiative to carry on a defence in a difficult action without the consent of his partners. It has been held that a partner alone has no implied authority to consent to judgment2 or to compromise proceedings3 or to refer the dispute to arbitration4, but this is simply a question of extent of his actual authority, discussed at para 12.1ff above. 553

21.18  Litigation by and against outsiders 1 Tomlinson v Broadsmith [1896] 1 QB 386, where a managing partner was held by the Court of Appeal to have authority to instruct solicitors to defend an action brought against the firm for the price of goods supplied, and to authorise them to accept service of the proceedings on behalf of his partners. 2 Hambidge v De La Crouée (1846) 3 CB 742; Warne v Bromley (1844) 3 LTOS 70; Pitfield v Oakes (1893) 25 NSR 116. 3 Niemann v Niemann (1889) 43 Ch D 198; Crane v Lewis (1887) 36 WR 480. 4 Hatton v Royle (1858) 3 H & N 500.

(b)  One defence stands for all 21.18  Where a claim is made against the firm in the firm name, any defence filed is to be filed on behalf of the firm and not personally on behalf of the partner filing it1. It is open to the partners to put in different defences, but if they do so the defences are still only defences of the firm, and they are likely to be awarded the costs of one only, but the claimant must beat the contentions of all the defences2. If they are sued separately on a joint claim and one puts in a good defence but the others do not, the defence will be good in favour of all of them. In Pirie v Richardson3 a claim on a joint partnership contract was made against one former partner in a three-man firm which was in dissolution. Then the two other ex-partners were added as additional defendants. The first pleaded that a condition in the contract had not been complied with, and on this point he won. The other partners failed to take the point. Held (Court of Appeal) that the claim was a single action against the three partners; that each defence enured for the benefit of all; accordingly the claim was defeated as regards all three partners. 1 Ellis v Wadeson [1899] 1 QB 714. 2 Bull v West London School Board (1876) 34 LT 674; Ellis v Wadeson [1899] 1 QB 714. 3 Pirie v Richardson [1927] 1 KB 448.

(c) Limitation 21.19  The firm can rely upon an ordinary limitation defence. An acknowledgment in writing or a part payment of a firm debt by one partner1 will have the effect of stopping time running against the firm for the purpose of the Limitation Act 19802. As to other admissions by the firm see para 21.37 below. No period of limitation prescribed by the Limitation Act 1980 applies to a claim to recover trust property in the possession of partners or received by them and converted to their use3. Even if they are guilty of doing neither of those things, they can rely on no limitation period whilst the claim for breach of trust is being concealed by the fraud of one of their number or an employee4. When a foreign partnership is dissolved whilst an action is pending against it but the limitation period has expired, it is too late to join its partners 554

Procedure 21.20

individually under CPR, Part 19.45. Acquiescence or laches can arise where no period of limitation is prescribed6. Wright v Pepin [1954] 1 WLR 635; Griffiths v Hicks (1850) 15 LTOS 349. Goodwin v Parton and Page (1880) 42 LT 568, CA. See the Limitation Act 1980, s 21. Moore v Knight [1891] 1 Ch 547, following Blair v Bromley (1846) 5 Hare 542. Rowan Companies Inc v Lambert Eggink Offshore Transport Consultants VOF  [1999] 2 Lloyd’s Rep 443. 6 Re Loftus [2007] 1 WLR 591, CA, on this point overruling [2005] 1 WLR 1890 at paras 162–3. 1 2 3 4 5

3 PROCEDURE A The scope of rules of court enabling a firm to sue or be sued in the firm name   21.20 B Service and acknowledgment of service   21.26 C Disclosure of partners’ names   21.33 D Disclosure and admissions   21.35 E Admissions  21.37

A The scope of rules of court enabling a firm to sue or be sued in the firm name (a)  The rules 21.20  The partners may sue or be sued in the firm name (rather than in all of their individual names) if they carry on business within the jurisdiction. The convenience of suing in the firm name is slightly deceptive; as will be seen at para  21.38ff below, judgment obtained against partners in the firm name will not usually allow execution to issue against the individual estates of the partners1. In the firm name the partners might formerly sue not only outsiders but also other partners, and firms with common partners might sue one another2. Order 81, r 1 of the RSC formerly provided: Subject to the provisions of any enactment, any two or more persons claiming to be entitled, or alleged to be liable, as partners in respect of a cause of action and carrying on business within the jurisdiction may sue, or be sued, in the name of the firm (if any) of which they were partners at the time when the cause of action accrued.

The rule is not repeated in the CPR but is merely echoed in the Practice Direction to Part 7: 5A.1 Paragraphs 5A and 5B apply to claims that are brought by or against two or more persons who:

555

21.21  Litigation by and against outsiders (1) were partners; and (2) carried on that partnership business within the jurisdiction at the time when the cause of action accrued. 5A.2 For the purposes of this paragraph, ‘partners’ includes persons claiming to be entitled as partners and persons alleged to be partners. 5A.3 Where that partnership has a name, unless it is inappropriate to do so, claims must be brought in or against the name under which that partnership carried on business at the time the cause of action accrued.

These paragraphs changed the former practice by rendering it mandatory (unless ‘inappropriate’) for the firm to sue or be sued in the firm name; previously the procedure was optional. They slightly miss the object which was so usefully achieved by the old rule, which was that an action brought by or against a firm in the firm name automatically had the effect of binding those who had been partners when the cause of action arose, without any party having to give thought to the (often difficult) question who the partners then were. Probably, however, no change in practice was intended by this3. 1 Kommalage v Sayanthakumar (2014) CA (Civ Div) 19/11/2014, a case in which the person who had not been a partner when the cause of action had accrued was not liable on a costs order against the firm made after he became a partner. 2 As appeared from RSC Ord 81, r 6(1)(b) and Taylor v Midland Rly Co (1860) 28 Beav 287. 3 The intention of those doing the drafting was not to alter the practice so much as to modernise it. They got a little carried away. The present author must share some blame because he was consulted.

(b)  Where there is no partnership 21.21  By the practice direction Part 7A PD 5A.2, ‘“Partners” includes persons claiming to be entitled as partners and persons alleged to be partners …’. But this does not envisage that the rule can be invoked where the existence of the partnership, rather than the validity of the claim, is speculative or in issue. If an action is brought in a name which purports to be that of a firm but in fact is a single person’s trading name, the claim is bad1 and the court will order the substitution of the name of the true claimant2. On the other hand an action is not bad if it wrongly supposes the defendant to be a partnership. An individual defendant may be sued (but may not sue) in a ‘business name’ other than his own name if he carries on business under that name within the jurisdiction3. 1 Mason & Son v Mogridge (1892) 8  TLR  805; Ernst & Young v Butte Mining plc (No  2) [1997] 2 All ER 471. 2 Noble Lowndes & Partners (a firm) v Hadfields Ltd [1939] Ch 569. 3 By CPR, Pt 7 PD 5C see Willmott v Berry Bros (1981) 126 Sol Jo 209, CA; Hibernian Dance Club v Murray [1997] PIQR P46, CA.

556

Procedure 21.23

(c)  Partners under a disability 21.22  The firm may sue or be sued notwithstanding that a partner is a minor or otherwise under a disability, and the judgment is good against the firm and the adult partners, but must specifically exclude the partner under the disability1. The position of dead and bankrupt partners is considered, in relation to claims by and against the firm respectively, earlier in this chapter. 1 Lovell & Christmas v Beauchamp [1894] AC 607, HL.

(d)  ‘Carrying on business within the jurisdiction’ 21.23  Partners may be sued in the firm name only if they carry on business within the jurisdiction, whether or not they do so also elsewhere. Service upon them is considered below. It is irrelevant whether the partners are British subjects or foreign or domiciled abroad1. The test is not whether they were within the jurisdiction when the cause of action accrued, but whether this was so at the later date when they sue or are sued. A generous meaning has been given to the words, ‘Carrying on business’, in the case of English firms; the fact that the firm may have transferred its business to a company2 or may have been in dissolution and not strictly carrying on business anywhere at all, is no bar to it suing or being sued in the firm name that it used when the cause of action accrued3. The partners carry on business within the jurisdiction4 if they have an office there under the partners’ control5, or a trade stand, even if for only nine days6. For a partner merely to live in England or to visit England or Wales for business purposes is not sufficient7. They do not carry on business within the jurisdiction by keeping here an agent paid on commission8, with power merely to take orders or show samples9, even if the firm’s name is painted on his door10, unless the agent has power to contract on behalf of the firm11.  1 Worcester City and County Banking Co v Firbank, Pauling & Co [1894] 1 QB 784.  2 Willmott v Berry Bros (1981) 126 Sol Jo 209, CA.   3 See Lightman J in Ernst & Young v Butte Mining plc (No 2) [1997] 1 WLR 1485; and Re Wenham [1900] 2 QB 698, CA.   4 For an analysis of whether a corporation resides in a foreign country see Adams v Cape Industries plc [1990] Ch 433 at 523–531, CA.  5 Shepherd v Hirsch, Pritchard & Co (1890) 45 Ch D 231.  6 Dunlop Pneumatic Tyre Co Ltd v AG für Motor und Motorfahrzeugbau vorm Cudell & Co [1902] 1 KB 342, CA.  7 Western National Bank of New York v Perez, Triana & Co [1891] 1 QB 304, CA; Indigo Co v Ogilvy [1891] 2 Ch 31, CA; Heinneman & Co v Hale & Co [1891] 2 QB 83; Singleton v Roberts, Stocks & Co (1894) 70 LT 687, DC.  8 Singleton v Roberts, Stocks & Co (1894) 70  LT  687; Grant v Anderson & Co [1892] 1 QB 108; Rakusens Ltd v Baser Ambalaj Plastik Sanayi Ticaret AS [2001] EWCA Civ 1820.  9 Baillie v Goodwin (1886) 33 Ch D 604. 10 Okura & Co Ltd v Forsbacka Jernverks Aktiebolag [1914] 1 KB 715, CA. 11 Compagnie Générale Trans-Atlantique v Thomas Law & Co [1899] AC 431, HL; Thames and Mersey Marine Insurance Co v Società di Navigazione a Vapore del Lloyd Austriaco (1914) 111 LT 97, CA.

557

21.24  Litigation by and against outsiders

(e) ‘The name under which the partnership carried on business at the time the cause of action accrued’ 21.24  There is no requirement that the partners must be carrying on business at the date of the issue of the claim form; what is important is that they were doing so when the cause of action accrued1. Where the firm has varied its membership, three points must be borne in mind: (a) The firm must be sued, not in the name that it currently bears, but in its name as it was when the cause of action arose. (b) The firm must therefore have been in existence when the cause of action arose, and not merely at the later date when the action commenced. (c) In tort (including the important tort of negligence) the cause of action arises not when the wrong was committed, but at the later date when loss is suffered by the claimant. So a claimant who wishes to sue those who were partners when the negligence occurred, must consider whether he should sue them in the name they used when they caused the loss or the name they used at the later date when he suffered loss and the cause of action ‘accrued’. Logically the answer is the former, although this is not what the rule says. The difficulty was resolved by Olsson J in the Supreme Court of Australia2 when he held that the partners liable might be sued in the name of the firm of which they were partners at the time of the breach of duty, although no loss was then suffered and the cause of action therefore did not accrue until later: they ‘become liable for the ultimate consequences of the relevant breaches … A contingent liability for damage which ultimately flows from the relevant breach …’. No doubt the CPR should be construed in a similarly practical way, but it is a pity that those redrafting the rules did not deal with the point. 1 Ernst & Young v Butte Mining plc (No 2) [1997] 1 WLR 1485. 2 State of South Australia v Peat Marwick (1997) 24 ACSR 230 at p 254.

(f) Counterclaims 21.25  A counterclaim may be brought against a claimant firm in its firm name even though the counterclaim is against that firm with a partly different membership, because CPR, Part 20.4 permits a counterclaim to be brought against ‘a’ rather than ‘the’ claimant, and the firm name is mere shorthand for the whole body of partners1. 1 Ernst & Young v Butte Mining plc (No 2) [1997] 1 WLR 1485.

B  Service and acknowledgment of service (a)  Service generally 21.26  Where a claimant sues the partners in the firm name, the general rules as to service apply as laid down by CPR, Part 6. Where a person to be served 558

Procedure 21.27

is a minor or otherwise under a disability, service must be effected in the special manner required by CPR, Part 6.61. The procedure no longer varies according to whether or not the claimant is aware that the firm has been dissolved. 1 Fore Street Warehouse Co Ltd v Durrant & Co (1883) 10 QBD 471, DC.

(b)  Service within the jurisdiction 21.27  Any partner can be sued on a firm debt in his own name within the jurisdiction. A claimant is well advised to sue every partner against whom he proposes to execute his judgment1. The firm must usually be sued in its own name in accordance with the provisions of CPR, 7A PD 5A which requires it to be ‘carrying on business within the jurisdiction’ as discussed above. Service on the partners when they are being sued in the firm name may be effected2 in any of the following ways3: (a) under CPR, Part 6.7 by service on a solicitor who is authorised to accept service and has notified this in writing to the person serving. If a solicitor has done this then no other form of service is good save where the rules have required personal service; (b) under CPR, Part 6.5(3)(c)(i) by leaving it with a partner; (c) under CPR, Part 6.5(3)(c)(ii), by leaving the document ‘at the principal place of business4 of the partnership’ on any person having at the time of service the ‘control or management of the partnership business’ there5. A receiver and manager appointed by the court is no such person6. If there is no-one with such control or management then no such service can be effected7, but in an old case substituted service was ordered in such circumstances8. Service on a mere agent will not suffice9. The words ‘at the time of service’ show that personal service is here required because until the moment of service it will be impossible to know who has the requisite control of the premises; (d) under CPR, Part 6.9 where the firm has neither a solicitor acting, nor has given an address for service, then service can be effected if the document is sent or transmitted to or left at a partner’s usual or last known residence, or his place of business or last known place of business, or the principal or last known place of business of the firm. It has been questioned whether a firm in dissolution does have a current place of business10 but possibly it can: this is a matter of fact not law. So where the partners are being sued in the firm name, service on one partner at his usual or last known residence is good service on the firm and therefore on all partners11. If the document is sent to the wrong address, it is validly served if it comes to the hands of a partner at the right address12.  1 Chohan Clothing Co (Manchester) Ltd v Fox Brooks Marshall (1997) Times, 9 December, CA; Wigram v Cox, Sons, Buckley & Co [1894] 1 QB 792; cf Davis v Hyman & Co (1903) 72  LJKB  426, CA; Brand v Sandground (1901) 85  LT  517. For execution against a firm’s estate see para 21.38ff below.

559

21.28  Litigation by and against outsiders   2 CPR, Pts 6.4 and 6.5; see previously CPR, Pt 7 PD 5A, r 3(1). Service is valid notwithstanding that the partner is temporarily absent from the address served: City & Country Properties Ltd v Kamali [2007] 1 WLR 1219.  3 CPR, Pt  6  PD  4.1 seems to say that service under r 6.4(5) is mandatory, but it cannot mean this.  4 For the principal place of business see Davies v British Geon Ltd [1957] 1  QB  1, CA; Weatherley v Calder & Co (1889) 61 LT 508, DC; Rakusens Ltd v Baser Ambalaj Plastik Sanayi Ticaret AS [2001] EWCA Civ 1820, [2002] 1 BCLC 104.   5 CPR, Pt 7 PD 5A, r 3(1)(b).  6 Re Flowers & Co (1897) 65 LJQB 679.  7 Howard, Baker & Co v W E Bradley (23 April 1917, unreported), noted in The Supreme Court Practice (1997), para 81/3/3.  8 Shillito v Child [1883]  WN  208; we doubt whether this would be the practice under the present rules: Worcester City and County Banking Co v Firbank, Pauling & Co [1894] 1 QB 784, CA; West of England Steamship Owners Protection and Indemnity Association Ltd v John Holman & Sons [1957] 1 WLR 1164.  9 Rakusens Ltd v Baser Ambalaj Plastik Sanayi Ticaret AS [2001] EWCA Civ 1820; Baillie v Goodwin & Co (1886) 33 Ch D 604. 10 Planetree Nominees Ltd v Howard Kennedy LLP  [2016]  EWHC  2302 (Ch) per Chief Master Marsh. 11 Lexi Holdings plc v Luqman [2007] EWHC 2652 (Ch), Briggs J. 12 Austin Rover Group Ltd v Crouch Butler Savage Associates [1986] 1 WLR 1102, CA.

(c)  Service on partners outside the jurisdiction 21.28  The circumstances in which a partner or partners can be sued in their own names and served out of the jurisdiction are set out in Part 6 of the CPR and need not be discussed here. They can only be sued in the firm name under CPR, Part 7A PD 5A, which only applies if they are carrying on business within the jurisdiction when they are sued. They may be outside the jurisdiction personally but still carry on business within the jurisdiction, in which case CPR, Part 7A PD 5A applies. Good service may be effected on the firm at the principal or last known place of business of the firm1 within the jurisdiction if it is sued in its own name, so it is unlikely that circumstances will arise in which it is necessary for a partner to be served outside the jurisdiction where the firm is sued in its own name. If a foreign firm has a place of business within the jurisdiction (and can consequently be sued in its own name) then service without leave upon the manager in England2, or upon a single foreign partner who may temporarily be within the jurisdiction3, is good service upon the firm. But an order for service on the firm in its own name outside the jurisdiction cannot be made4, and substituted service upon such persons outside the jurisdiction, by means of service upon a person within the jurisdiction, will not be ordered5. A foreign partnership, unless it has status as a legal entity, is best sued in the names of its members rather than its firm name6. If it is necessary to sue partners of an English partnership in their own names outside the jurisdiction rather than in the firm name7, they can be served as named persons ‘Trading as X & Co’8. Nothing in the CPR prevents service out of the jurisdiction upon such partners under Part 6 in the usual way9. 560

Procedure 21.30 1 An agent’s address is not a ‘place of business of the firm’: Rakusens Ltd v Baser Ambalaj Plastik Sanayi Ticaret AS [2001] EWCA Civ 1820, [2002] 1 BCLC 104; see para 21.27 above. 2 CPR, Pt 6.5 (Table); Meyer v Louis Dreyfus & Cie [1940] 4 All ER 157, CA. 3 CPR, Pt 6.5; Pollexfen v Sibson (1886) 16 QBD 792; Hobbs v Australia Press Association [1933] 1 KB 1, CA. 4 Dobson v Festi, Rasini & Co [1891] 2 QB 92, CA. 5 Worcester City and County Banking Co v Firbank, Pauling & Co [1894] 1 QB 784 at 788 per Lord Esher. 6 Von Hellfield v Rechnityer [1914] 1 Ch 748 at 755. 7 To obtain judgments against them personally. 8 West of England Steamship Owners Protection and Indemnity Association Ltd v John Holman & Sons [1957] 1 WLR 1164. 9 West of England Steamship Owners Protection and Indemnity Association Ltd v John Holman & Sons [1957] 1 WLR 1164; Hobbs v Australian Press Association [1933] 1 KB 1, CA.

(d)  Consent to accept service 21.29  By agreement between the parties, service of a claim form may be effected in some other way, but it may only be so served outside the jurisdiction if permission to serve outside the jurisdiction (if required by the Rules) has been given by the court1. Where a mere employee who is not a manager has been authorised by a partner to accept service, service upon him is good service on the partner although not strictly envisaged by the rules2. Similarly a foreign firm may agree that it can be served upon its agent within the jurisdiction3. But it cannot consent to the court’s having power to give leave for service upon it out of the jurisdiction4. 1 CPR, Pt  6.15; Nottingham Building Society v Peter Bennett & Co (a firm) (1997) Times, 26 February, CA. 2 Kenneth Allison Ltd v A E Limehouse & Co [1992] 2 AC 105, HL; Nottingham Building Society v Peter Bennett & Co (a firm) (1997) Times, 26 February, CA. 3 Montgomery, Jones & Co v Libenthal [1898] 1 QB 487, CA; Tharsis Sulphur and Copper Co Ltd v Société Industrielle et Commerciale des Métaux (1889) 58 LJQB 435, DC. 4 British Wagon Co Ltd v Gray [1896] 1 QB 35, CA.

(e)  Acknowledgment of service (i)  How service may be acknowledged 21.30  The firm may not acknowledge service in its own name. Valid acknowledgment of service on the firm in the firm name must be made on behalf of all partners who were partners when the cause of action accrued1, and can only be signed by either2: (i) a person who was a partner at the time when the cause of action accrued, who should describe himself in the acknowledgment as ‘partner in the firm of X and Co3, or ‘a partner in the firm of X and Co at the date of accrual of the alleged cause of action’; or (ii) any person authorised by any such partner. 561

21.31  Litigation by and against outsiders

One relevant partner acknowledging as a partner suffices to acknowledge service on behalf of the firm4, even if his partners have given him no authority to acknowledge service5 or dispute that he is a partner at all6. If more than one partner acknowledges service, they need not do so by the same solicitor. If a partner with authority to defend proceedings instructs a solicitor to do so, that solicitor has authority to acknowledge service on behalf of all the partners in the firm7. Where a claimant knows that the individual is no longer a partner, he must take reasonable steps to ascertain his current address8. 1 2 3 4 5 6 7

CPR, Pt 10 PD 4.4(1). CPR, Pt 10 PD 4.4. See Form N9. Lysaght Ltd v Clark & Co [1891] 1 QB 552. Brooks v AH Brooks & Co [2010] EWHC 2720 (Ch). Robinson v Ward & Son (1892) 36 Sol Jo 415. CPR, Pt  10  PD  4.4(2); Robinson v Ward & Son (1892) 36 Sol Jo 415; contrast Mason v Cooper (1893) 15 PR 418 (Canada). 8 CPR, Pt 6.9 and Brooks v AH Brooks & Co [2010] EWHC 2720 (Ch).

(ii)  Time for acknowledgment 21.31  Time for acknowledgment of service expires 14 days after service of the claim form or the particulars of claim. Where service is effected upon a firm by several separate acts of service, the time for acknowledging service runs from the last of them1. 1 Alden v Beckley (1890) 25 QBD 543.

(iii)  Where a person served as a partner disputes liability as a partner 21.32  RSC Ord 81 formerly provided that where a person who had been served with proceedings as a partner acknowledged service but denied that he was a partner or liable as such at any material time, the acknowledgment of service stood as that of the firm until set aside. But under the CPR this should not arise, since he should only acknowledge service on behalf of the firm if he considers himself to be a relevant partner. If served with a claim against him personally alleging that he is a partner, he can simply acknowledge service in an unqualified manner and deny liability in his defence.

C  Disclosure of partners’ names (a)  Where the partners sue in the firm name 21.33  Where partners sue in the firm name they do not do so as partners in their firm as constituted at that date, but as partners in the firm as constituted when the cause of action accrued: see para 21.24 above. Nothing on the face 562

Procedure 21.35

of the claim form discloses this identity of theirs, so the defendant may specify the date when the relevant cause of action accrued and by notice to them require a written statement of their names and last known addresses as at that date, called a partnership membership statement1. The notice must be complied with within 14 days; the CPR specifies no specific consequence for default, but the court may order the partners or their solicitor to furnish this information verified on affidavit or in a witness statement supported by a statement of truth, failing which it may order the action to be stayed. There is no jurisdiction to order cross-examination on that evidence2. The notice can be served at any stage in the action. 1 CPR, Pt 7 PD 5B. 2 Abrahams & Co v Dunlop Pneumatic Tyre Co [1905] 1 KB 46, CA.

(b)  Where partners are being sued 21.34  Where a claimant is suing partners in the firm name, he may require a similar written statement of the names and addresses of the partners as they were on the date when his cause of action accrued and he must specify that date1. 1 CPR, Pt 7 PD 5B.1.

D  Disclosure and admissions (a) Disclosure 21.35  When partners are claimants or defendants in an action, whether or not the action is in the firm name, they are obliged1 to give disclosure of their documents. Each partner is anyway entitled to have access to and inspect and copy any of the partnership books2 unless he has agreed to the contrary with his partners, and he will have access to any other documents that belong to the firm. On disclosure he must therefore list such of these as are relevant to the action. It is no excuse for him to allege that his partners refuse to give him access to them3. In Re Pickering4 a beneficiary of the estate of a partner obtained an order for an account against the surviving partner, who admitted possession of the partnership books but claimed to be entitled to seal up parts of them as irrelevant; he deposed on affidavit that these parts related to his own private affairs. Held (Court of Appeal) that it was not a case in which the oath of the person ordered to produce was conclusive as to the irrelevance of these parts of the documents. He must specify the nature of the particular entries so as to enable the other party to judge whether he could safely dispense with the inspection of them.

The court has power to unseal and inspect the parts of documents that a partner has claimed are irrelevant5. 563

21.36  Litigation by and against outsiders

An order for disclosure against the firm is an order against the partners in the firm as they were when the cause of action accrued. Consequently where proceedings are brought in the firm name by one partner against the wishes of the other partner, and that other has obtained an indemnity against the costs from the first, both are still liable to give disclosure. An order for disclosure against the firm in those circumstances is an order against all partners6. 1 2 3 4 5

Under CPR, Pt 31. See the Partnership Act 1890, s 24(9), set out in Appendix A below. Taylor v Rundell (1841) 1 Y & C Ch Cas 128. (1883) 25 Ch D 247. Ehrmann v Ehrmann [1896] 2 Ch 826. The usual rule in non-partnership cases is that the court will accept the affidavit and will not inspect the documents: Westminster Airways Ltd v Kuwait Oil Co Ltd [1951] 1 KB 134, CA. 6 Seal and Edgelow v Kingston [1908] 2 KB 579, CA.

(b) Privilege 21.36  In a dispute with outsiders, the members of the firm have an unfettered right to assert ordinary privilege in respect of communications with legal advisers. The privilege is theirs jointly, and whether they elect to take or waive the privilege is an ‘ordinary matter connected with the partnership business’ to be resolved by a majority of the members under section 24(8) of the Partnership Act 1890 unless otherwise agreed between the partners. For a firm suing in its own name to claim privilege is strictly a nonsense, for the firm has no legal identity and privilege can only be invoked by legal persons. The privilege is that of the members only. But they may invoke the privilege of their predecessors in the firm, and even that of the partners in a previous firm that they have acquired: A successor in title to property succeeds to and is entitled to assert the privilege of a predecessor in title and so stands in the predecessor’s shoes to that extent1. 1 Per Peter Gibson J in Re Konigsberg [1989] 3  All ER  289 at 297b, citing Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd [1972] Ch 553.

E Admissions 21.37  By statute1 an admission by a partner is evidence (but not irrebuttable evidence) against the firm if it can be categorised as concerning the partnership affairs and made in the ordinary course of its business. Section  15 of the Partnership Act 1890 provides: An admission or representation made by any partner concerning the partnership affairs, and in the ordinary course of its business, is evidence against the firm.

564

Judgment and execution against the firm 21.38

Because this evidence can be rebutted2, the section is of little practical importance. Thus the admission will not be binding if it was made under a mistake3, and a receipt for a debt due to the firm and signed by one partner will not be binding upon the firm if it was given falsely and was a fraud on his partners4. The firm can then still sue for the debt5. Partnership books and records are the declarations of partners and as such are evidence against partners6. 1 Section  15 of the Partnership Act 1890 declared the existing law following Thwaites v Richardson (1790) Peake 16. 2 Re Coasters Ltd [1911] 1 Ch 86. 3 Hollis v Burton [1892] 3 Ch  226, but the admission may be sufficient to require that the money be paid into court: London Syndicate v Lord (1878) 8 Ch D 84. 4 Farrar v Hutchinson (1839) 9 Ad & El 641. 5 Henderson and Smith v Wild (1811) 2 Camp 561. 6 Hill v Manchester and Salford Water Works Co (1833) 5  B & Ad 866; Miller v White (1889) 16  SCR  445 (Canada). They may constitute misrepresentations with Limitation Act consequence: Moore v Knight [1891] 1 Ch 547, following Blair v Bromley (1846) 5 Hare 542.

4 JUDGMENT AND EXECUTION AGAINST THE FIRM A Judgment against the firm   21.38 B Summary judgment  21.39 C Execution on a judgment against the firm generally   21.40 D Execution against the assets of the firm   21.41 E Execution against a partner without permission   21.42 F Execution against partners and non-partners with permission   21.43 G The appointment of a receiver   21.45 H Charging orders  21.46 I Bankruptcy  21.47 J Statutory winding up   21.48 K ‘Garnishee’ or ‘third party debt’ proceedings   21.49

A  Judgment against the firm 21.38  If the partners are sued in the firm name by any outsider1, the judgment must be against the firm2; if partners are sued in their own names, judgment will be against them3. The court will not amend a consent judgment against the firm after it has been made in order that the claimant may seek to issue execution against one he has lately found out is a partner4. So if the partners are sued in the firm name and a partner gives no notice of intention to defend, no judgment can be entered against him personally5, but the judgment will be given against the firm as such. 565

21.39  Litigation by and against outsiders

If a judgment is obtained against a firm which includes as one of its members a minor or other person under a disability, the judgment should exclude him and be (for instance) ‘Against Smith & Co other than Frederick Smith a minor’6. 1 2 3 4 5 6

For the procedure in disputes between the members see Chapter 15. This was formerly implicit from CPR, Pt 7 PD 5A, r 5; Jackson v Litchfield (1882) 8 QBD 474. Munster v Cox (1885) 10 App Cas 680. See note 3 above. Jackson v Litchfield (1882) 8 QBD 474; Alden v Beckley (1890) 25 QBD 543. Lovell & Christmas v Beauchamp [1894]  AC  607 although the CPR does not specifically provide for this.

B  Summary judgment 21.39  In default of notice of intention to defend, judgment may be entered under CPR, Part 12 against the firm or against the partner, according to who is named in the claim form1. If notice of intention to defend is given by a person who has acknowledged service2 then summary judgment under CPR, Part 24 may be given against the firm3 or any partner being sued. Judgment may be given against the firm on admissions4. 1 Jackson v Litchfield (1882) 8 QBD 474, CA. 2 A matter discussed earlier in this chapter. 3 Acknowledgment of service by a single partner describing himself as such will suffice: Lysaght Ltd v Clark & Co [1891] 1 QB 552, DC. 4 Greenwood v Kanter (1966) 110 Sol Jo 54, CA.

C  Execution on a judgment against the firm generally 21.40  ‘Execution’ in this context means not only the enforcement of High Court judgments by ordinary means but also bankruptcy proceedings, in the sense that a bankruptcy petition based upon a judgment against the firm may not be served upon a partner (as opposed to the firm) unless leave to issue execution against that partner has been obtained1. Execution on a judgment against the firm is distinct from: (a) execution upon a judgment made in a partnership action between partners; and (b) execution by an outsider against any partner who is sued and served in his own name for a firm debt but not in the firm name; execution on a judgment against such a person may be made without leave in the ordinary way. 1 Re Ide (1886) 17 QBD 755.

566

Judgment and execution against the firm 21.42

D  Execution against the assets of the firm 21.41  If the judgment in favour of the outsider1 is expressed to be made against a firm, execution may issue without leave against any property of the firm within the jurisdiction2, and a writ of execution may not issue against any partnership property except on a judgment against the firm3. Execution will not issue on a judgment against the firm to satisfy either the private debt of a partner4 or to satisfy judgment obtained against any partner as such5. Execution may be levied against the partnership assets on a firm debt even though a partner has retired in the meantime, for such retirement is not a circumstance which requires permission to be granted for execution under CPR, Pt 70 PD 6A.46. Nor is leave for execution against the assets of the firm required on a judgment against the firm merely because a partner is dead7. But a judgment against a firm which includes as one of its members a minor or other person under a disability will expressly exclude him, and will not be capable of being executed against his assets (as opposed to the assets of the firm) at all8. 1 By contrast, judgments made in an action by or against a firm and a member or another firm with common membership are discussed at para 15.14ff above which is concerned with such internal disputes. 2 CPR, Pt 70 PD 6A.1. 3 See the Partnership Act 1890, s 23(1) (as amended), which is set out in Appendix A below. 4 Peake v Carter [1916] 1 KB 652, CA. 5 See note 4 above; contrast Flude Ltd v Goldberg [1916] 1 KB 662n. 6 For the analogous position under the RSC see Re Frank Hill [1921] 2 KB 831. 7 Aliter if all are dead then the personal representatives of the last must be joined: Ellis v Wadeson [1899] 1 QB 714. 8 Lovell & Christmas v Beauchamp [1894] AC 607.

E  Execution against a partner without permission 21.42  In addition to execution against the assets of the firm, and also without the leave of the court, concurrent or alternative execution may issue on a judgment or order in favour of an outsider1 against the firm, against any person provided that when the claim was issued he was neither a limited partner nor ordinarily resident outside the jurisdiction and2: (a) he acknowledged service of the claim form ‘as a partner’3; or (b) having been served ‘as a partner’ he failed to acknowledge service; or (c) he admitted in his claim form that he is or was a partner at a material time; or (d) he was adjudged to be a partner at such time. Where a person was a partner when a costs judgment was made against the firm, but had not been a partner at the time that the cause of action accrued upon which the costs order was based, he was not liable on the costs judgment4. 567

21.43  Litigation by and against outsiders

Execution may also issue on such a judgment or order against one who was a limited partner or ordinarily resident outside the jurisdiction when the claim form was issued, provided that he: (a) acknowledged service of the claim form ‘as a partner’5; or (b) was served within the jurisdiction with the claim form ‘as a partner’6; or (c) with permission given under CPR, Part 6, was served out of the jurisdiction ‘as a partner’7. 1 2 3 4 5 6 7

The enforcement of judgments in disputes between partners is considered at para 15.14ff above. CPR, Pt 70 PD 6A2. As to which see para 21.30 above. Kommalage v Sayanthakumar (2014) CA (Civ Div) 19/11/2014. Service ‘as a partner’ is dealt with at para 21.27ff above and in note 6 below. CPR, Pt 70 PD 6A3. A claim form need only be served upon a person ‘as a partner’ if service is being effected upon the firm – see para 21.27ff above. Service upon the firm as such is not permitted outside the jurisdiction: see CPR, Pt 6. So service outside the jurisdiction under CPR, Pt 6 on a person ‘as a partner’ in this sense would only seem to be possible in an action in which both the firm is being served, and individually the partner is being served outside the jurisdiction: Lindsay v Crawford and Lindsays (1911) 45 ILT 52. Is this intended? Surely an individual, validly served, is liable upon the judgment whether he was served ‘as a partner’ or not?

F Execution against partners and non-partners with permission 21.43  Where execution without permission is not allowed as stated above, for instance because the judgment is against the firm and the partner was outside the jurisdiction and was never served, a judgment against the firm may only be enforced against a partner individually with permission of the court1. Where he disputes his liability2, the court may direct the issue as to his liability to be tried; where he does not, the court may give leave to issue execution against him. The extent of the court’s discretion in exercising these powers is much wider than it was under RSC  Ord 81. Once a partner has been held to have been a partner in the firm at a date when liability as a partner attached to him, the only grounds upon which leave for execution to issue against him individually might be refused are these: (a) he was a minor or otherwise under a disability3; (b) he had left the firm, to the knowledge of the claimant, before the action was brought (even if after the cause of action had arisen) and the claimant had failed to serve him with the original process4. 1 CPR, Pt 70 PD 6A4; Chohan Clothing Co (Manchester) Ltd v Fox Brooks Marshall (1997) Times, 9 December, CA. 2 For instance on the ground that he was not, and was not held out to be, a partner: Davis v Hyman & Co [1903] 1 KB 854, CA, or not a partner at the relevant time: Kommalage v Sayanthakumar (2014) CA (Civ Div) 19/11/2014. 3 Lovell & Christmas v Beauchamp [1894] AC 607. 4 Wigram v Cox, Sons, Buckely & Co [1894] 1  QB  792; Davis v Hyman & Co (1903) 72 LJKB 426.

568

Judgment and execution against the firm 21.45

(a)  Non-partners liable by holding out 21.44  One who is not a partner may be liable to outsiders as a partner if he represents himself, or allows himself to be represented, as a partner1. If judgment has been obtained against the firm only, and it is alleged that a person is liable as a partner by having been held out as such, the issue as to his liability may be decided on a summons for leave to issue execution against him2. 1 See the Partnership Act 1890, s 14(1); see also Chapter 5. 2 Davis v Hyman & Co [1903] 1 KB 854, CA.

G  The appointment of a receiver 21.45  The court may appoint a receiver under CPR, Part 69: (a) over partnership assets, to preserve the partnership business during a dispute between partners, which is considered at para 15.38ff above; once such a receiver is appointed, a judgment creditor can obtain a charging order over the funds in his hands1 which will give him priority over the general body of creditors2; but for a creditor to enforce a judgment against a firm in receivership will otherwise constitute a contempt of court as explained at para 15.48 above; (b) over a partner’s share in the firm, by way of execution for his private debts, which is considered in Chapter 10; (c) over partnership assets by way of equitable execution for the debts of the firm to outsiders. This procedure has largely been replaced by that of third party debt orders (formerly garnishee orders) and charging orders3, but may be useful for attaching property not amenable to legal process such as future debts4. Form N354 of the County Court Rules is a useful precedent for an order for the appointment of a receiver. Out of court, a mortgagee by deed has a statutory power to appoint a receiver5. 1 Kewney v Attrill (1886) 34 Ch  D  345. In Brand v Sandground (1901) 18  TLR  96 the partnership was in dissolution and its assets in the hands of a receiver and a judgment creditor of the firm obtained a charging order over them. The court refused to discharge this on the application of the partners who had not been served with the writ in the action which had led to the judgment debt. 2 Newport v Pougher [1937] Ch 214, CA. 3 Charging orders against the assets of a firm on a firm debt under the ordinary law (see next para) must be contrasted with charging orders on a partner’s separate debt against his partnership share under the Partnership Act 1890, s 23(2), which are discussed at para 10.15 above. 4 Soinco SACI v Novokuznetsk Aluminium Plant Co [1997] 3 All ER 523, Colman J, following Bourne v Colodense Ltd [1985] ICR 291, CA. 5 Law of Property Act 1925, ss 101 and 109, and see the Agricultural Credits Act 1928, which enables a floating charge to be made over partnership assets and a receiver to be appointed in support of it.

569

21.46  Litigation by and against outsiders

H  Charging orders 21.46  If the firm is a debtor then a charging order can be made against it as if it were a person, and can be enforced in the usual way. CPR, Part 73 PD.4A.1 provides: A charging order or interim charging order may be made against any property, within the jurisdiction, belonging to a judgment debtor that is a partnership.

If an interim charging order is obtained it must be served upon a partner within the jurisdiction or on a person authorised by him or on some other person having the control or management of the partnership business1. 1 CPR, Pt 73.5(1) and Pt 73 PD 4A.2.

I Bankruptcy 21.47  A judgment in the firm name may found a bankruptcy petition against the firm1 or the partners2 but will only found petitions against individual partners if the form of the judgment is such as to support execution against them3. Insolvency is discussed generally in Chapter 22. 1 Re a Debtor (No 72 of 1982) [1984] 1 WLR 1143. 2 Re a Debtor (No 24 of 1935) [1936] Ch 292, CA. 3 Re Beauchamp Bros [1894] 1 QB 1, CA; Re Young (1881) 19 Ch D 124, CA. The principles are discussed earlier in this chapter.

J  Statutory winding up 21.48  Section  220(1) of the Insolvency Act 1986 and the Insolvent Partnerships Order 19941 enable a firm to be wound up as an ‘unregistered company’ in circumstances analogous to those in which a company can be wound up. A creditor is therefore able to petition for the winding up of the firm, as an alternative to petitioning for the bankruptcy of its members. Once a petition has been presented against the firm, it may apply2 for a stay of any proceedings against it. All this is discussed in Chapter 22. 1 The 1994 Order is set out in Appendix F below. 2 Under the Insolvency Act 1986, s 227.

K  ‘Garnishee’ or ‘third party debt’ proceedings 21.49  Where the firm is owed money by a third party, a judgment creditor of the firm may obtain a Third Party Debt order1 (formerly known as a garnishee order) against the third party ordering him to pay to the judgment creditor 570

Costs 21.51

sufficient to cover the judgment debt and costs. But such an order will not be made if its effect is (or might be2) to prefer one creditor over another, as will be the case if the firm is insolvent3. No Third Party Debt order may be made against the firm in relation to a private debt of a partner4, or against a partner in relation to a debt of the firm5. Where the firm owes money to an outsider, the outsider’s judgment creditor may apply to the court for a Third Party Debt order against the firm only if6 an interim third party debt order is served upon a partner within the jurisdiction or on a person authorised by him or on ‘some other person having the control or management of the partnership business’7. 1 2 3 4 5 6 7

See CPR, Pt 72.2. George Lee & Sons (Builders) Ltd v Olink [1972] 1 WLR 214. Prichard v Westminster Bank Ltd [1969] 1 WLR 547, CA. Hoon v Maloff (1964) 46 WWR 445, 42 DLR (2d) 770. Macdonald v Tacquah Gold Mines Co (1884) 13 QBD 535. CPR, Pt 72 PD 3A4.2. Ie the control or management of the whole of such business within the jurisdiction. These words are not identical to those of CPR, Pt 7 PD 5A, r 3 which formerly permitted service of a writ on the firm at the principal place of business, either by post or on the person with control or management there.

5 COSTS A Costs orders  21.50 B The firm as a litigant in person   21.51

A  Costs orders 21.50  In litigation brought by or against a firm, ordinary CPR considerations apply as to the burden of costs that is to be borne by the winning or losing party. Where an action is brought in the firm name but by a particular partner and he is the real person on whose behalf the action is fought, then an order for costs can be made against the partner alone under section  51(3) of the Senior Courts Act 19811. 1 Goodwood Recoveries v Breen [2006] 1 WLR 2723.

B  The firm as a litigant in person 21.51  Where a solicitor is represented by his firm, or the firm itself is represented by the firm, in litigation on his behalf or on its own behalf, the client is not a ‘litigant in person’ for the purposes of the CPR and so the restrictive rules on the recovery of costs by litigants in person do not apply1. 571

21.51  Litigation by and against outsiders

But this exception applies only to solicitors and solicitors’ firms. The time of solicitors and other employees of the firm acting on the case (including partners2) may therefore be claimed successfully upon detailed assessment; the client is entitled to the same costs as if an outside solicitor had been employed, save only that there can be no recovery for items which the fact of the firm acting has rendered unnecessary, such as notional attendances by the client upon himself3. It is otherwise with LLPs, although the rules on this may change4. 1 CPR, Pt 48 PD 52.5. 2 Malkinson v Trim [2002]  EWCA  Civ 1273, following London Scottish Benefits Society v Chorley (1884) 12 QBD 452 and (CA) (1884) 13 QBD 872. 3 London Scottish Benefits Society v Chorley (1884) 12 QBD 452 and (CA) (1884) 13 QBD 872, esp Brett MR at 876. 4 Halborg v EMW Law LLP [2017] EWCA Civ 793; see para 25.4 below.

572

22 Insolvency – winding up and similar procedures Contents

para 1 Bankruptcy contrasted with statutory winding up A The Insolvency Act 1986 option of statutory winding up�����������22.1 B Statutory winding up: drafting and terminology�������������������������22.2 2 Bankruptcy A Bankruptcy law preserved��������������������������������������������������������22.10 B Applications outside the ambit of statutory winding up�����������22.11 C The effect of bankruptcy����������������������������������������������������������22.14 3 Creditors’ applications under the Insolvency Act 1986 A Creditors’ applications generally����������������������������������������������22.19 B Creditors’ winding-up petitions where no concurrent bankruptcy or other insolvency petitions are presented against any members����������������������������������������������������������������22.28 C Concurrent petitions against firm and members�����������������������22.31 D Creditors’ applications for an administration order������������������22.41 4 Members’ applications under the Insolvency Act 1986 A Members’ winding up and administration applications������������22.54 B Members’ applications for an administration order������������������22.55 C Members’ winding-up petitions where no bankruptcy or other insolvency petition is presented against any member�������22.56 D Members’ winding-up petition where concurrent bankruptcy or other insolvency petitions are presented against all the members�����������������������������������������������������������������������������������22.59 E Article 11: members’ applications for joint bankruptcy without winding up the partnership�����������������������������������������22.67 F Members’ applications for partnership voluntary arrangements with creditors – ‘PVAs’���������������������������������������22.72 5 Applications by others under the Insolvency Act 1986 and Company Directors Disqualification Act 1986 573

22.1  Insolvency – winding up and similar procedures

A Applications by the liquidator or other responsible insolvency practitioner�������������������������������������������������������������22.75 B Financial services partnerships�������������������������������������������������22.78 C Applications by the Secretary of State��������������������������������������22.81 D The court of its own motion�����������������������������������������������������22.89 6 EU regulation of insolvency proceedings�����������������������������������������22.90

1 BANKRUPTCY CONTRASTED WITH STATUTORY WINDING UP A The Insolvency Act 1986 option of statutory winding up   22.1 B Statutory winding up: drafting and terminology   22.2

A The Insolvency Act 1986 option of statutory winding up 22.1  Before 29  December 19861 insolvency proceedings were brought against a firm by bankruptcy proceedings2 against some or all of the partners; there was no procedure for ‘winding up’ the firm as a quasi-corporation; it was treated for insolvency purposes as the entity that it legally is, simply a collection of separate persons, each of whom was jointly liable for its debts under section 9 of the Partnership Act 1890. Since 1986 the same procedure survives but additionally a firm may be wound up by the court, broadly speaking in the same circumstances as those in which a company may be wound up. The firm is treated as an ‘unregistered company’ which may be wound up under Part V of the Insolvency Act 1986. Because the entity being wound up is not a corporation but a group of persons, the law of individual insolvency is adapted, and the law of corporate insolvency further adapted to fit the case if there is a corporate member of a firm. The procedure is then divided between the Companies Court and the Bankruptcy Court. Jurisdiction is conferred upon the court by the Insolvency Act 1986 as extended to firms by the Insolvent Partnerships Order 19943 which considerably expands and replaces the Insolvent Partnerships Order 19864. Article 18(1) of the 1994 Order incorporates subordinate legislation5. The Insolvent Partnerships Order 1994 (which is reproduced as amended in Appendix  F below) envisages that a petition to wind up a firm may be presented in no fewer than five different situations, with different consequences in each case, and further envisages that in two other cases the assets of the firm may by administered under the insolvency code notwithstanding that no winding-up petition has been presented against it. It extends the provisions of the 1986 Order by extending to partnerships the machinery of voluntary arrangements and administration orders: see para 22.41 below. 574

Bankruptcy contrasted with statutory winding up 22.2 1 When the Insolvent Partnerships Order 1986, SI 1986/2142 came into effect; in turn it was revoked and replaced as from 1 December 1994 when the Insolvent Partnerships Order 1994, SI 1994/2421 came into effect (see Arts 1(1) and 20 of the latter). Both orders are made under the Insolvency Act 1986, s 420, which incidentally only enables the 1986 Order to be applied to insolvent partnerships and not to partnerships generally. The 1994 Order seems to go beyond ‘insolvent’ partnerships, but the phrase is discussed at para 22.2 below. 2 Or winding-up proceedings under the Companies Act in the less usual case of the member being incorporate. 3 SI 1994/2421, as amended, set out as Appendix F below. 4 SI 1986/2142 (revoked). 5 The statutory instruments are the Insolvency Practitioners Tribunal (Conduct of Investigations) Rules 1986, SI  1986/952; the Insolvency Practitioners (Recognised Professional Bodies) Order 1986, SI  1986/1764; the Insolvency Proceedings (Monetary Limits) Order 1986, SI  1986/1996; the Administration of Insolvent Estates of Deceased Persons Order 1986, SI  1986/1999; the Insolvency (Amendment of Subordinate Legislation) Order 1986, SI  1986/2001; the Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986, SI  1986/2123; the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987, SI  1987/2023; the Insolvency Regulations 1994, SI  1994/2507; the Insolvent Companies (Reports on Conduct of Directors) Rules 1996, SI  1996/1909; the Insolvency Practitioners and Insolvency Services Accounts (Fees) Order 2003, SI  2003/3363; the Insolvency Proceedings (Fees) Order 2004 (SI  2004/593); the Insolvency Practitioners Regulations 2005, SI  2005/524; and the Insolvency (England and Wales) Rules 2016, SI 2016/1024.

B  Statutory winding up: drafting and terminology 22.2  The provisions of the Insolvency Act 1986 relevant to partnerships (later modified for certain purposes only by the provisions of the Enterprise Act 2002) were largely applied to insolvent partnerships by the Insolvent Partnerships Order 1994, as modified, amended, applied and disapplied by successive statutory instruments1 which in turn modified, amended and corrected one another. The consequence is a morass of referential drafting. What follows is a summary. The transposition of the insolvency legislation into the partnership context has not been wholly successful. An apparent omission in the translation exercise is the failure to apply the anti-avoidance provisions of Part VI of the Insolvency Act 1986 (which allow the setting aside of preferences and transactions at an undervalue) to the winding up of a partnership where no bankruptcy or winding up order is made against the individual partners. By contrast this Part does apply in administration2. Characteristically, the legislation uses some slightly misleading definitions. The most important of these are given here to avoid overloading the text below. 1 The Insolvent Partnerships (Amendment) Orders 2002, 2003, 2005 and 2006, the last correcting serious mistakes in its predecessor. See para 22.41 below for an explanation of the legislation in relation to administration orders. 2 For administration see Art 6(5)(a) of the Insolvent Partnerships Order 1994. The provisions of Part VI of the IA 1986 are applied on the winding up of a corporate partner by Arts 8(5) and 10(3)(b) but not to the partnership itself.

575

22.3  Insolvency – winding up and similar procedures

(a) ‘Contributory’ 22.3  On a firm being wound up: Every person … who is liable to pay or contribute to the payment of any debt or liability of the [firm], or to pay or contribute to the payment of any sum for the adjustment of the rights of members among themselves, or to pay or contribute to the expenses of winding up the [firm]1. 1 See the Insolvency Act 1986, s 79(1) as adapted with amendments as mentioned in para 22.2 above and printed in Appendix F below.

(b)  ‘The court’ 22.4  This means the court having jurisdiction to wind up the partnership1, a matter considered below. 1 See Art 1(2) of the Insolvent Partnerships Order 1994, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

(c)  ‘Dissolution’ and ‘winding up’ 22.5  Under the Partnership Act 1890 the court can dissolve a partnership; the carrying out of the order, which is the responsibility of the partners themselves or their representatives, is then called winding up. These matters are dealt with in Chapter 18. It is unfortunate that this terminology was confused by the Insolvency Act 1986 (which deals with more than just insolvency) as adapted for partnerships by the Insolvent Partnerships Order 1994 (which deals with more than just the insolvency of partnerships). Under these enactments the ‘winding-up’ provisions relating to companies are extended to partnerships, and the order terminating the partnership is called a winding-up order rather than a dissolution order. As a result the phrase ‘winding up’ is now used in partnership law in two quite different senses to mean either: (a) the process whereby the affairs of the partnership are sorted out after the firm has been dissolved under the 1890 Act1; or (b) the court order itself that is made under the 1986 Act and the 1994 Order which brings about in effect a statutory dissolution of the firm and is discussed later in this chapter. Statutory winding up of insolvent partnerships is based upon wellestablished practice for winding up companies, adapted for partnerships as is described below. 1 See Chapter 18.

576

Bankruptcy contrasted with statutory winding up 22.9

(d)  ‘Insolvent member’ 22.6  This is a member (see below) of an ‘insolvent partnership’ against whom an individual bankruptcy or other insolvency petition is being or has been presented1. 1 See the Insolvent Partnerships Order 1994, Art 2(1).

(e)  ‘Insolvent partnership’ 22.7  This is not defined1 but the phrase is used where actual insolvency is only alleged2 rather than established, and Article 3(2) requires a reference to a ‘company’ in the Insolvency Act 1986 to be construed as a reference to an ‘insolvent partnership’, so the equation is with a ‘company’ rather than with an insolvent company. It is hard to give ‘insolvent partnership’ a meaning narrower than ‘any firm facing an application under the insolvency legislation’. Whether the phrase includes a firm in the stage between dissolution and the conclusion of the ordinary winding up of its affairs by the partners is unclear, but surely the answer must be yes, or else statutory insolvency could always be thwarted by the partners agreeing to dissolve the firm. 1 Save in the narrow context of the disqualification of partners under the Insolvent Partnerships Order 1994, Sch  8. Disqualification orders are discussed at para 3.28 above. ‘Partnership’ bears its ordinary meaning: Scott V-C in Re Senator Hanseatische Verwaltungsgesellschaft mbH [1996] 2 BCLC 562. 2 See the Insolvent Partnerships Order 1994, Arts 7 and 8, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

(f)  ‘Joint estate’ and ‘separate estate’ 22.8  In partnership law generally the property of the firm is the ‘joint estate’ and the property of the individual partner is the ‘separate estate’. Article 2(1) of the Insolvent Partnerships Order 1994 provides: ‘Joint estate’ means the partnership property of an insolvent partnership in respect of which an order is made by virtue of Part IV or V of this order … ‘separate estate’ means the property of an insolvent member against whom an insolvency order has been made.

These curiously worded definitions seem to take the matter no further.

(g) ‘Member’ 22.9  This is a member of the partnership and anyone1 who allows himself to be represented as a partner in the firm under section 14 of the Partnership 577

22.10  Insolvency – winding up and similar procedures

Act 18902; also, in the case of a creditor’s petition (see para 22.13ff below), it means a former partner. 1 The statutory definition of ‘member’ as including one thus held out does not reverse Re C & M Ashberg (1990) Times, 17 July which requires at least two real members. ‘Holding out’ is discussed in Chapter 5. 2 See the Insolvent Partnerships Order 1994, Art 2(1).

2 BANKRUPTCY A Bankruptcy law preserved   22.10 B Applications outside the ambit of statutory winding up   22.11 C The effect of bankruptcy   22.14

A  Bankruptcy law preserved 22.10  The Insolvency Act 1986 as adapted by the Insolvent Partnerships Order 1994 imports new remedies into partnership law but does not abolish old ones. Before 29 December 1986 there was no insolvency procedure whereby a creditor might dissolve a firm; his remedy in the last resort was to serve a bankruptcy petition upon some or all of the partners who were individuals or an insolvency petition upon some or all of its corporate partners. This he may still do1 (and for convenience we will call it bankruptcy), but it may not be in his interest to do it. As will be seen in the next chapter: (a) statutory winding up puts the separate creditors of a partner on a footing of equality with ‘joint’ creditors (ie the creditors of the firm) as regards their proof against the estate of an individual partner when the joint assets of the firm are exhausted; but (b) where there is no statutory winding up, the old rule applies that the partner’s separate creditors rank before the ‘joint’ creditors and his tools of his trade are excluded from the estate by section 283 of the Insolvency Act 1986; but (c) the court may order the regime of the 1994 Order to apply to a bankrupt (sic) partner and give consequential directions2. A creditor of the firm who is concerned about the solvency of the firm and its members will therefore be well advised to use the statutory machinery to petition to wind up the firm, or he will find his claim ranking behind the partners’ separate creditors in the bankruptcy of the partners. The 1994 Order also permits the partners to apply jointly for their own bankruptcy without any statutory winding up of the partnership, as discussed at para 22.67 below. 1 See the Insolvent Partnerships Order 1994, Art 19(5), as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 Insolvency Act 1986, s 303, as adopted and amended by the Insolvent Partnerships Order 1994, Art 14(2): Official Receiver v Hollens [2007] 3 All ER 767.

578

Bankruptcy 22.12

B Applications outside the ambit of statutory winding up (a)  Members’ applications (i)  A member’s claim for dissolution 22.11  Unless an administration order is in force1, any member of a firm can still apply to the court2 for dissolution upon any of the grounds mentioned in the Partnership Act 1890: for instance, because the business of the firm can only be carried on at a loss3. This will leave the winding up in the hands of the partners and will not involve the expense and embarrassment of a liquidator, but it will probably not prevent a statutory winding-up petition against the firm being presented by others. 1 See para 22.49 below. 2 The action may be by Pt 7 or Pt 8 Claim Form; the application can be made in the action before a Master or a Judge. 3 See the Partnership Act 1890, s 35(e), discussed in Chapter 17.

(ii)  Bankruptcy petitions against other partners 22.12  In the unusual1 case of one partner being a creditor of another partner (for instance because all outside partnership debts have been paid) the creditor may serve a bankruptcy petition on his partner2, as an alternative to making use of the statutory winding-up procedures against the firm described below3. But the rule that a partner is not in general a creditor of the firm (and the only relief he is entitled to against his firm is an account of the dealings and transactions of the partners4) otherwise bars any right to petition until after dissolution and the taking of the partnership accounts5. He may also petition for a distinct debt which arises entirely outside of the partnership. Where in an action for an account the partner claims that a debt falls within the partnership, he cannot separately petition on the basis that the debt is already due to him outside it6. 1 Because in general a partner is postponed as a creditor of the firm or of another partner: see para 23.2 below. 2 Under the Insolvency Rules 2016, rr 10.34–10.44. 3 Re Head [1894] 1  QB  638; Hope v Meek (1855) 10 Exch 829 at 843. Section  43 of the Partnership Act 1890 provides: ‘Subject to any agreement between the partners, the amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased partner in respect of the outgoing or deceased partner’s share is a debt accruing at the date of the dissolution or death.’ But this is subject to the rule discussed at para 23.27ff below that a partner or ex-partner cannot compete with the creditors of the firm. 4 Meyer & Co v Faber (No 2) [1923] 2 Ch 421, CA. 5 Re Palmer (1833) 3 Deac & Ch 244; Re Notley (1833) 1 Mont & A 46; see para 15.5ff above. 6 Re Gray (1835) 2 Mont & A 283.

579

22.13  Insolvency – winding up and similar procedures

(b)  Creditors’ petitions 22.13  The disgruntled creditor is still at liberty to present a bankruptcy petition1 against any member or all members of the firm2, under Part IX of the Insolvency Act 1986. But the 1994 Order provides machinery (discussed below) for petitions to be presented against either the members or the firm or both, and also provides that where a petition has been presented against a person who is a member of an insolvent partnership, the court may make consequential procedural directions which by section  303 of the 1986 Act may apply the 1994 Order and enable all petitions against the firm and the members to be heard together3. Questions of priority between creditors of the firm and creditors of the partner are considered in Chapter 23. 1 Or an insolvency petition against a corporate partner. 2 There is no obligation for a creditor merely to petition against the firm under the Insolvency Act 1986; he can also present a bankruptcy petition against one, some or all of the partners: Schooler v Customs and Excise Comrs [1995] 2 BCLC 610, CA, and the Insolvent Partnerships Order 1994, Art 19(5), as modified and amended as mentioned in para  22.2 above and printed in Appendix F below. 3 See the Insolvent Partnerships Order 1994, Art 14(2), as so modified and Official Receiver v Hollens [2007] 3 All ER 767.

C  The effect of bankruptcy (a)  The trustee in bankruptcy of the partner 22.14  Unless the firm is dissolved1 by bankruptcy or otherwise, the powers of a trustee in bankruptcy2 of an insolvent partner are very limited as regards the firm3. He has no right to interfere in the management or administration of the partnership business4 save (according to some old cases) if the surviving partners are guilty of misconduct, or dead or abroad5. He is entitled to an account6, and to a share of the partnership profits as they arise7, and the hope that circumstances will arise which will give rise to a dissolution. His position is akin to that of an assignee, which is discussed at para 10.10ff above. 1 As to this see Chapter  16. As to dissolution by the court on the grounds of insolvency, see para  17.22ff above. As to insolvency as a ground for dissolution out of court see Chapter 16. 2 And for this purpose the liquidator of an insolvent corporate partner is in the same position. 3 For the position of an assignee or chargee of a partnership share, see para 10.10ff above. 4 See the Partnership Act 1890, s 31(1). 5 Dutton v Morrison (1810) 17 Ves 193; Barker v Goodair (1805) 11 Ves 78. 6 Re Crawford (1873) 28 LT 244; Re Williams (1872) 21 WR 51. 7 Crawshay v Collins (1808) 15 Ves 218.

580

Bankruptcy 22.16

(b) Partnership stipulations purportedly restricting the bankruptcy laws 22.15  Any agreement between the partners to the effect that upon the bankruptcy of one of them his share shall pass to the others1, or his estate shall receive less than the true value of the share2, is void as against creditors (although binding on the partners) as a fraud on the bankruptcy laws. In Wilson v Greenwood3, the agreement was that in the event of bankruptcy the bankrupt’s share was to be taken at a valuation to be paid out over some years by his partners: as to whether this was void under the bankruptcy Acts, Lord Eldon was doubtful4. Probably today it would be. 1 2 3 4

Whitmore v Mason (1861) 2 John & H 204. Re Williams, ex p Warden (1872) 21 WR 51 at 52. (1818) 1 Swan 471. At (1818) 1 Swan 481 his Lordship considered whether the provision would be good, and said, ‘I will not say that it would not; but I have heard nothing to convince me that it would.’ The footnote to this part of the report helpfully cites 16 earlier authorities on the point and concludes: ‘The general distinction seems to be, that the owner of property may, on alienation, qualify the interest of the alienee, by a condition to take effect in bankruptcy; but cannot, by contract or otherwise, qualify his own interest by a like condition, determining or controlling it in the event of his own bankruptcy, to the disappointment or delay of his creditors.’

(c)  Powers of the insolvent partner on dissolution 22.16  When a partner is bankrupt and the firm is in dissolution either because of the bankruptcy or otherwise, the bankrupt partner ceases to have power to bind the firm1. The bankrupt ‘ceases to have any control or disposition over the joint property’2. His immediate right to share in the profits will have vested in his trustee in bankruptcy. He ‘ceased to have any interest in the partnership funds’3. In practice this means that responsibility for winding up the affairs of the partnership will largely fall upon his solvent partners. The loss of the partner’s rights on bankruptcy does not prevent others being held out as being his partner. Under section  38 of the Partnership Act 1890 a person (including a solvent former partner) may allow himself to become a partner of the bankrupt by estoppel if he is held out as such a partner: Provided that the firm is in no case bound by the acts of a partner who has become bankrupt; but this proviso does not affect the liability of any person who has after the bankruptcy represented himself or knowingly suffered himself to be represented as a partner of the bankrupt4. 1 2 3 4

See the Partnership Act 1890, s 38. Per Le Blanc J in Thomason v Frere (1808) 10 East 418 at 425. Per Tindal CJ in Craven v Edmondson (1830) 6 Bing 734 at 737. See the Partnership Act 1890, s 38, which is set out in full in Appendix A below.

581

22.17  Insolvency – winding up and similar procedures

(d)  Duty of the insolvent partner after dissolution 22.17  A partner against whom a bankruptcy order has been made has ceased to have a beneficial interest in the assets of the partnership, but has not ceased to be a partner and remains under a duty to the firm and so may not use his position as a former partner, or person in whom firm assets are vested, to his own advantage or to the disadvantage of the firm1. He must obey the demands of the continuing partners in relation to partnership property that he holds. Land vested jointly for a legal estate in himself and his partners will not cease to be so vested either as a result of his bankruptcy or as a result of the dissolution of the firm, but he will hold it upon trust to give effect to the interests of those continuing, or winding up, the partnership affairs2. The court would enforce his obligations if he were to refuse to comply, or may simply replace him as a trustee3 on the grounds that his bankruptcy has rendered him unfit to be a trustee4. 1 See para  11.13 above as to the duty of good faith continuing after dissolution: Metlej v Kavanagh [1981] 2 NSWLR 339 at 343–344; Chan v Zacharia (1983) 154 CLR 178, HC of A. 2 See the Partnership Act 1890, s 20(2); Wray v Wray [1905] 2 Ch 349. 3 Under the Trustee Act 1925, s 36. 4 Re Hopkins (1881) 19 Ch D 61 at 63.

(e) Powers and duties of the solvent partners after dissolution 22.18  The partners as a whole have a right and duty to wind up the affairs of the firm1 save that the bankrupt partner’s powers are severely circumscribed (but not removed as mentioned above), so in practice the responsibility falls upon the shoulders of the others. The general duties of partners on dissolution are discussed in Chapter 18. 1 See the Partnership Act 1890, s 38.

3 CREDITORS’ APPLICATIONS UNDER THE INSOLVENCY ACT 1986 A Creditors’ applications generally   22.19 B Creditors’ winding-up petitions where no concurrent bankruptcy or other insolvency petitions are presented against any members  22.28 C Concurrent petitions against firm and members   22.31 D Creditors’ applications for an administration order   22.41 582

Creditors’ applications under the Insolvency Act 1986 22.20

A  Creditors’ applications generally (a)  A creditor’s winding-up petition 22.19  A creditor may petition1 to wind up a partnership2 for alleged insolvency in similar circumstances to those in which a creditor may petition to wind up a company; Part IV of the 1994 Order applies Part V of the Insolvency Act 1986 (with extensive modifications) to enable the firm to be ‘wound up as an unregistered company’. The modifications depend to some extent upon whether or not any concurrent petition is presented against a member individually as well as against the firm, as will be shown below3. The right to petition may not be excluded by contract4. A successful petition results in the appointment of a liquidator who must make calls against the individual partners if the ‘joint’ estate (ie the partnership assets) is inadequate to meet the debts, liabilities and costs. This means that the creditors of the firm are put on a level of equality with the creditors of the partner which is not the bankruptcy rule, as is discussed at para 23.27ff below. An insolvent partnership in liquidation acts through its liquidator which can sue in the name of the firm and so the partnership acquires something akin to a legal personality5. 1 The petition is to be in the form specified by substituted Sch 9 to the 1994 Order (printed in Appendix F below). 2 The word ‘partnership’ here means a partnership as defined in the Partnership Act 1890, although Pt V extends more widely: see Re Senator Hanseatische Verwaltungsgesellschaft mbH [1996] 2 BCLC 562 and Re C & M Ashberg (1990) Times, 17 July. 3 Part V of the 1986 Act (‘Winding up of Unregistered Companies’) applies by virtue of the Insolvent Partnerships Order 1994, Arts 7 and 8, with the modifications specified in substituted Insolvent Partnerships Order 1994, Schs 3 and 4 respectively. All the winding-up provisions of the 1986 Act apply, subject to the exceptions and modifications incorporated into s 221(5) and (6) by para 3 of each Schedule, which are mentioned at para 22.20 below. 4 Exeter City AFC v Football Conference Ltd (HHJ Weekes QC 29 January 2004) Ch D. 5 The Connaught Income Fund v Capita Financial Managers [2014]  EWHC  3619 (Comm) para 26.

(b)  Territorial jurisdiction 22.20  The courts of England and Wales have jurisdiction to wind up the firm on a creditor’s petition only if the firm has either: (a) ‘a principal place of business’1 within their territory (which need not be its sole principal place of business)2; or (b) a ‘place of business’ in England or Wales at which business is or has been carried on in the course of which the relevant debt (or part of it) arose3. Even so the courts only have jurisdiction if the following conditions are satisfied: (a) if the firm has a principal place of business in Scotland or Northern Ireland, only if it has had another principal place of business in England 583

22.21  Insolvency – winding up and similar procedures

or Wales for one year (in the case of a firm with a principal place of business in Scotland) or three years (in the case of Northern Ireland)4; or alternatively (b) if the firm has carried on business in England and Wales at any time during the previous three years5. These rules are qualified by the EU  Regulation discussed at para  22.90 below which are to similar but not identical effect6. 1 The phrase ‘a principal place of business’ is borrowed from the Insolvency Act 1986, s 221, which relates to unregistered companies. 2 The phrase ‘carrying on business within the UK’ has been considered in Re a Company (No 007816 of 1994) [1995] 2 BCLC 539; affd [1997] 2 BCLC 685, CA; and Re a Debtor (No 784 of 1991) [1992] Ch 554; and Grant v Anderson [1892] 1 QB 108, CA. 3 Insolvency Act 1986, s 221, as modified by the Insolvent Partnerships Order 1994, Sch 3, para 3 and Sch 4, para 4, and the Insolvency Act 1986, s 117, as modified by Sch 3, para 6 and Sch 4, para 5 and by the Insolvency Act 1986 (Amendment) (No 2) Regulations 2002 which introduced the provisions of what is now the EU  Insolvency Regulation, discussed at para  22.90 below. ‘Carrying on business’ continues until all the debts are paid and all obligations performed: Re a Debtor (No  784 of 1991) [1992] Ch  554; Theophile v S-G [1950] AC 186. 4 See the Insolvency Act 1986, s 221(3), as so modified. 5 See the Insolvency Act 1986, s 221(2), as so modified. 6 Re Kaupthing Capital Partners [2010] EWHC 836 (Ch), Proudman J.

(c)  County court and High Court 22.21  The High Court has jurisdiction subject to the territorial limits mentioned above. The county court has concurrent jurisdiction1 if within its insolvency district the firm has either: (a) ‘a principal place of business’ (which need not be its sole principal place of business2); or (b) a ‘place of business’ in England or Wales at which business is or has been carried on in the course of which the relevant debt (or part of it) arose. The county court with such jurisdiction has the powers of the High Court3. 1 See the Insolvency Act 1986, s 117, as modified by the Insolvent Partnerships Order 1994, Sch 3, para 6 and Sch 4, para 5, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 Re Kaupthing Capital Partners [2010] EWHC 836 (Ch), Proudman J. 3 See the Insolvency Act 1986, s 117, as so modified, and subject to the EU Regulation discussed at para 22.90 below.

(d)  Grounds for winding up 22.22  The firm may be wound up: (a) if it is unable to pay its debts1; (b) if winding up is just and equitable2; 584

Creditors’ applications under the Insolvency Act 1986 22.23

(c) in the special circumstances mentioned at paras 22.28ff and 22.31ff below, depending upon whether or not any concurrent petition is brought against any member. However, as a result of a quirk of statutory drafting, it should be noted that the power to wind up on the grounds that it would be just and equitable to do so is limited to situations where there is a petition against the firm alone and no concurrent petition against its members3. Why the legislation should draw this distinction is obscure. 1 See the Insolvency Act 1986, s 221(7), as thus modified by the Insolvent Partnerships Order 1994, Sch  3, para  3 (in the case of petitions for winding up where there is no concurrent petition) and s 122(1) of the 1986 Act as incorporated by s 221(5) and (6), as modified by the Insolvent Partnerships Order 1994, Sch 4, para 3 (where there is a concurrent petition), as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. The phrase is discussed at para 22.23 below. 2 See note 1 above. 3 See the Insolvent Partnerships Order 1994, Sch 4, para 6. This point (and the error in previous editions of this book) was pointed out by Berry and Parry in Law of Insolvent Partnerships and Limited Liability Partnerships (1st edn), p 324.

(i)  Unable to pay its debts 22.23  The firm is deemed unable to pay its debts1 for the purpose of a creditor’s winding-up petition if a creditor who is owed more than £7502 makes a written demand for payment in the prescribed form3 and the firm fails to pay or satisfy it within three weeks. Where the debt is undisputed but the firm has a genuine cross-claim exceeding the debt, the court will stay or dismiss the petition4. The notice must be served5: (a) by leaving it in England and Wales at a principal place of business of the firm; or (b) by leaving it in England and Wales at a place of business at which business is carried on in the course of which all or part of the debt arose; or (c) by delivering it to an ‘officer of the partnership’, which means6 a partner or one held out to be a partner or a person who has management or control of the partnership business; or (d) as the court may approve or direct. The firm is also unable to pay its debts if: (a) any execution or process issued in respect of any judgment obtained either against the partnership or any partner in his capacity as partner is returned unsatisfied7; (b) it can be proved to the satisfaction of the court that the partnership is unable to pay its debts as and when they fall due8; (c) it can be proved to the satisfaction of the court that the liabilities of the partnership, whether such liabilities are actual, contingent or prospective, exceed the value of the partnership assets9. 585

22.24  Insolvency – winding up and similar procedures 1 See the Insolvency Act 1986, s 222, as modified by the Insolvent Partnerships Order 1994, Sch  3, para  4, as modified and amended as mentioned in para  22.2 above and printed in Appendix F below. 2 A sum which may be altered by the Secretary of State by statutory instrument under the Insolvency Act 1986, s 417: see s 222, as modified. 3 Form 4 of substituted Sch 9 to the 1994 Order, in Appendix F below. 4 Re Bayoil SA [1999] 1 WLR 147. 5 See the Insolvency Act 1986, s 222(2), as modified by the Insolvent Partnerships Order 1994, Sch 3, para 4, as modified. 6 See definitions in the Insolvent Partnerships Order 1994, Art 2(1). 7 See the Insolvency Act 1986, s 224(1), as incorporated by the Insolvent Partnerships Order 1994, Art 7(1), as modified. 8 See note 7 above; the fact that the partners may personally be able to pay the debt is irrelevant: Re HS Smith & Sons (1999) Times, 6 January (Park J). 9 See the Insolvency Act 1986, s 224(2), as incorporated by the Insolvent Partnerships Order 1994, Art 7(1), as modified. For such assets see Investment and Pensions Advisary Service Ltd v Gray [1990] BCLC 38 and note 7 above.

(ii)  Just and equitable ground for winding up 22.24  This ‘just and equitable’ ground under section 221(7)(c) as adapted and amended is not analogous to section 35(f) of the Partnership Act 1890 which empowers the court to wind up the firm where: Circumstances have arisen which, in the opinion of the Court, render it just and equitable that the partnership be dissolved.

The reason why section 221(7)(c) is not analogous to section 35(f) is that the latter section may only be invoked by a partner, who will presumably rely upon injustice or inequity to himself; by contrast a creditor’s petition under Part V will hardly be concerned with the position of the partner rather than that of the creditor. This ‘just and equitable’ ground is borrowed from company law, and will usually be invoked by the Secretary of State alleging that the business is not in the public interest, see para 22.88 below. A creditor will not want to rely upon this ground unless his debt is less than the statutory minimum or there is some other insurmountable difficulty in deeming the firm unable to pay its debts. As noted in para  22.22 above, this ground is available only where there is a petition against the firm but no concurrent petition against its members.

(e)  The effect of the petition (i) Generally 22.25  On a creditor’s petition: All the provisions of [the Insolvency Act 1986] and the Companies Act about winding up apply to the winding up of an insolvent partnership as an unregistered company … 1

586

Creditors’ applications under the Insolvency Act 1986 22.26

with some minor exceptions2. So the winding up is deemed to commence on the presentation of the petition, and thereafter any disposition of partnership assets or change of partners is of no effect unless approved by the court under section 127 of the Insolvency Act 1986, and the presentation of a winding up-petition prohibits any form of execution against partnership assets3. The partnership or any partner or creditor may apply to stay any proceedings against the partnership or any partner4. 1 See the Insolvency Act 1986, s 221(5), as modified by the Insolvent Partnerships Order 1994, Sch 3, para  3 and Sch  4, para  3. The Insolvent Partnerships Order 1994 incorporates this section referentially but oddly there is no explicit mention of them in Arts 7 or 8. 2 The exceptions are listed in s 221(5) as modified (in slightly different ways) by the Insolvent Partnerships Order 1994, Schs 3 and 4 as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 3 See the Insolvency Act 1986, s 128. 4 See the Insolvency Act 1986, ss 126 and 127.

(ii)  Public examination of partners or managers of partnerships 22.26  Where the firm is being wound up on a creditor’s petition the official receiver may apply to the court at any time before the winding up is complete for the public examination1 of any person who: (a) is or has been an ‘officer’ of the partnership, which includes2 a partner or one held out to be a partner or a person who has management or control of the partnership business; (b) has acted as a liquidator or administrator of the partnership or a receiver or manager of its property; or (c) has been concerned or has taken part in the formation of the partnership. The official receiver must apply for a public examination if requested3 to do so by one half in value of the creditors unless the court otherwise orders4. On an application the court must direct a day for the public examination of the person in question, and the following may take part5: (a) (b) (c) (d)

the official receiver; the liquidator of the partnership; any special manager of the partnership’s property or business; any creditor of the partnership who has tendered a proof in the winding up.

1 Under the Insolvency Act 1986, s 133 as modified by the Insolvent Partnerships Order 1994, Sch 3, para 8 and Sch 4, para 11, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 By the definitions in the Insolvent Partnerships Order 1994, Art 2(1). 3 For the form of the request see the Insolvency (England and Wales) Rules 2016, SI 2016/1024, r 7.99. 4 See the Insolvency Act 1986, s 133(2), as so modified. 5 See the Insolvency Act 1986, s 133(3) and (4), as modified by the Insolvent Partnerships Order 1994, Sch 3, para 8 and Sch 4, para 11, as modified.

587

22.27  Insolvency – winding up and similar procedures

(f)  The liquidator’s powers 22.27  The powers of a liquidator with or without the sanction of the court are virtually the same1 as those of the liquidator of a company that has been wound up2 save that the provisions relating to a voluntary winding up are inapplicable because a firm cannot be wound up voluntarily3. He may require a wide class of persons connected with the firm, including former employees and members, to give a statement of affairs in relation to it, verified on affidavit4. 1 The liquidator’s powers are set out in Sch 4, as modified, at the end of Pt II of Schs 3 and 4 to the Insolvent Partnerships Order 1994, as modified and amended as mentioned in para 22.2 above and printed as Appendix F below; see Pacific & General Insurance v Hazell [1997] LRLR 65. 2 Ie under the Insolvency Act 1986, ss 165 and 167 and Sch 4, and s 234 (as modified) and the general incorporation of the winding-up provisions of that Act by s 221(5) and (6) of the Act, as modified by the Insolvent Partnerships Order 1994, Sch 3, para 3 and Sch 4, para 3. 3 See the Insolvency Act 1986, s 221(4), as modified by the Insolvent Partnerships Order 1994, Sch 3, para 3 and Sch 4, para 3, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. Partnership voluntary arrangements with creditors (PVAs) are discussed at para 22.72 below. 4 See the Insolvency Act 1986, s 131, as modified by the Insolvent Partnerships Order 1994, Sch 3, para 7 and Sch 4, para 10.

B Creditors’ winding-up petitions where no concurrent bankruptcy or other insolvency petitions are presented against any members 22.28  The paragraphs above are concerned with creditors’ winding-up generally. Certain of the grounds for winding up depend upon whether a concurrent petition is presented against a member (see para 22.31 below). In addition to winding up on the just and equitable ground the following grounds for a winding up order are available where there is no such concurrent petition.

(a)  Defunct firms 22.29  A petition may be presented if the firm is dissolved or has ceased to carry on business or is carrying on business only for the purpose of winding up its affairs1. 1 See the Insolvency Act 1986, s 221(7), as modified by the Insolvent Partnerships Order 1994, Sch  3, para  3, as modified and amended as mentioned in para  22.2 above and printed in Appendix F below.

588

Creditors’ applications under the Insolvency Act 1986 22.32

(b)  Failure to indemnify a member 22.30  If proceedings for a partnership debt have been brought against a member who has notified the partnership of it and the firm has not satisfactorily indemnified him within three weeks, then it is deemed to be unable to pay its debts1, in addition to the other grounds mentioned above. 1 See the Insolvency Act 1986, s 223, as modified by the Insolvent Partnerships Order 1994, Sch 3, para 5, as modified. This also provides for the manner of the service of the notice.

C  Concurrent petitions against firm and members 22.31  Where a creditor’s winding-up petition is presented against a partnership1 and concurrently a petition is presented against one or more of the members as such (either an individual or a corporate partner, and including one held out as a partner2, and for these purposes a former partner also3), the intention is that a single trustee will be appointed over the estates of the firm and the member, and the insolvency procedure is modified in the following way. 1 Creditors’ applications generally are dealt with at para 22.19 above. 2 See the Insolvent Partnerships Order 1994, Art 2(1), as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 3 See the Insolvent Partnerships Order 1994, Art 8(9), as modified.

(a)  Jurisdiction and procedure on concurrent petitions (i) Jurisdiction 22.32  The court with jurisdiction to wind up the partnership has jurisdiction to bankrupt or wind up the member also1. The court may be the county court (see above) but in the High Court the petitions may not be presented in a District Registry (unless perhaps the concurrent petition is against a corporate member of the firm only)2. The petitions and advertisement must be in statutory form3. 1 See the Insolvency Act 1986, s 117(5), as modified by the Insolvent Partnerships Order 1994, Sch 4, Pt II, para 5, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 See the Insolvency Act 1986, s 117(6), as modified by to the Insolvent Partnerships Order 1994, Sch 4, Pt II, para 5, as modified. 3 See the Insolvency Act 1986, ss 124 and 264, as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 8, as modified. The petition forms are Forms 5, 6 and 7 and the advertisement Form 8, in Sch 9 to the Order, set out in Appendix F below.

589

22.33  Insolvency – winding up and similar procedures

(ii) Hearings 22.33  The petitions must particularise each other1 and be presented to the same court and (save as the court otherwise permits2) on the same day3, but the petition against the partnership must be heard first4. The intention is that if the petition against the firm is dismissed, for instance because the petition debt has been paid, the petitions against the members can be dismissed also, but see administration orders discussed in para 22.41 below. 1 See the Insolvency Act 1986, s 124(5), as modified by the Insolvent Partnerships Order 1994, Sch  4, para  8, as modified and amended as mentioned in para  22.2 above and printed in Appendix F below. 2 Smith & Williamson v Sims Pipes [2001] BPIR 401, CA. 3 See the Insolvency Act 1986, ss 124(3)(a) and 264, as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 8. 4 See the Insolvency Act 1986, ss 124(6) and 264, as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 8.

(iii)  If concurrent winding-up orders are made, the trusteeship is combined 22.34  The official receiver is the responsible insolvency practitioner for both1 until he or she appoints or the creditors elect another2. But if there is already an administration order or a voluntary arrangement in existence for the partnership, the court may appoint the relevant insolvency practitioner who is already acting to continue to act in place of the official receiver3. If he finds himself facing a conflict of interest he may apply to the court for directions4. If orders are made on both concurrent petitions, the respective public examinations may be combined5, as may be the meetings of creditors6. Schedule  4 to the Insolvent Partnerships Order 1994 incorporates and modifies most of the consequential provisions in the Insolvency Act 1986 relating to bankruptcy and winding up7. 1 See the Insolvency Act 1986, s 136, as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 12, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 See the Insolvency Act 1986, ss  135–140 and 293–300, as modified by the Insolvent Partnerships Order 1994, Sch 4, paras 12 and 13, as modified. 3 See the Insolvency Act 1986, s 140, as modified by the Insolvent Partnerships Order 1994, Sch 4, para 15, as modified. 4 See the Insolvency Act 1986, s 230A, as introduced by the Insolvent Partnerships Order 1994, Sch 4, para 26, as modified. 5 See the Insolvency Act 1986, s 133(5), as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 11, as modified. 6 See the Insolvency Act 1986, s 139, as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 13, as modified. 7 The provisions are listed in the Insolvent Partnerships Order 1994, Art 8, as modified, which is set out as Appendix F below.

590

Creditors’ applications under the Insolvency Act 1986 22.38

(iv)  If no concurrent orders are made 22.35  If no order against the member as such is made within 28 days of the making of a winding-up order against the partnership, then the two petitions proceed as if they had never begun concurrently; the petition against the member proceeds as an ordinary bankruptcy or winding-up petition, and the petition against the partnership proceeds as if it had been brought under Art 7 of the Insolvent Partnerships Order 1994 where no concurrent petition is brought1. See para 22.28 above. 1 See the Insolvency Act 1986, ss 125A(4) and 271, as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 9, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

(b)  Grounds for petition against the partnership 22.36  A creditor may only present concurrent petitions against the partnership and against a member where the petition against the partnership is based on the grounds that the partnership is unable to pay its debts1, a phrase considered at para 22.23 above. 1 See the Insolvency Act 1986, s 221(6), as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 8, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

(c)  The petition against the member as such (i)  The petition against a corporate member 22.37  The corporate member may only be wound up as unable to pay its debts1. This it will be deemed to be if both the member and the partnership have been served with a statutory demand for £750 in Form 42 and they have failed to comply with it within three weeks of service of it upon the last of them3. No petition in this category may be presented voluntarily or upon the ‘just and equitable’ principle. 1 See the Insolvency Act 1986, s 122, as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 6(a), as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 The Insolvent Partnerships Order 1994, Sch 9, Form 4, set out in Appendix F below. 3 See the Insolvency Act 1986, s 123, as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 7(a).

(ii)  The petition against an individual member 22.38  The member’s bankruptcy petition must be based upon a liquidated partnership debt1 rather than a debt of his own, and one he appears ‘unable to 591

22.39  Insolvency – winding up and similar procedures

pay’2. He will be deemed to be ‘unable to pay’ if he and the partnership have been served with a statutory demand for £750 in Form 43 and he has failed to apply to set it aside, and they have failed to comply with it, within three weeks of service of it upon the last of them4. 1 A ‘joint debt’ as so defined in the Insolvent Partnerships Order 1994, Art 2(1). 2 See the Insolvency Act 1986, s 267(2)(c), as so modified by the Insolvent Partnerships Order 1994, Sch  4, para  6(b), as modified and amended as mentioned in para  22.2 above and printed in Appendix F below. 3 See Form 4 in substituted Sch 9 to the Insolvent Partnerships Order 1994, as modified, set out in Appendix F below. 4 See the Insolvency Act 1986, s 268, as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 7(b), as modified.

(iii)  Limited partner 22.39  The court may dismiss a petition against a limited partner if he pays into court sufficient to meet his liability for the debts and obligations of the partnership1. 1 See the Insolvency Act 1986, ss 125A(7) and 271, as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 9, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below; see also para 24.42 below.

(iv)  The member as contributory 22.40  Such limited rights as a member has as a ‘contributory’ under the Insolvency Act are lost if the concurrent petition is presented against him1. 1 See the Insolvency Act 1986, s 221(7), as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 3, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

D Creditors’ applications for an administration order (a)  Administration orders generally 22.41  The Insolvent Partnerships Order 1994 (as amended by the Enterprise Act 2002) provides machinery whereby an insolvent partnership may be put into administration rather than statutorily wound up. This means that the affairs and business of the partnership and the partnership property are managed by an administrator appointed for the purpose by the court1. The advantage is that the partnership business will be preserved and protected from its creditors whilst efforts are made either to save the partnership or all or part of its business, or to dispose of its assets in an orderly way2. The disadvantage is the difficult referential legislation, as mentioned at para 22.2 above. 592

Creditors’ applications under the Insolvency Act 1986 22.42

The procedure of administration under Part II of the Insolvency Act 1986 was applied to partnerships referentially and with much consequential modification by the Insolvent Partnerships Order 1994. The 1986 Act was then substantially rewritten (in relation to administration) by the Enterprise Act 2002 and reapplied to partnerships with further amendment modification by the Insolvent Partnerships (Amendment) Order 2005, to which the reader is referred. 1 See the Insolvency Act 1986, s 8 and Sch B1, as modified by the Insolvent Partnerships Order 1994, Art 6(1), as modified and amended by the Insolvent Partnerships (Amendment) Order 2005, Art 7. 2 Re Greek Taverna [1999] BCC 153.

(b)  Creditors’ applications for an administration order 22.42  A creditor may apply for an administration order either alone or with other creditors or with the members1. But although the partnership may thus become subject to an administration order, the order will not extend to the estates of the members of the partnership themselves, even though they may be subject to insolvency proceedings. Article 6 of the Insolvent Partnerships Order 1994, as modified, applies to insolvent partnerships the following: (a) Part II of and Schedule B1 to the Insolvency Act 1986 (which provide for the making of administration orders against companies), subject to the modifications set out in Schedule 2 to the 1994 Order2; and (b) certain other related provisions3 in the amended 1986 Act, notably the following: (i) Qualification of administrators – Paragraph  6 of Schedule B1 to and Part XIII of the Insolvency Act 1986 as modified require the administrator to be a qualified insolvency practitioner. (ii) Adjustment of prior transactions and avoidance of charges – Under Part VI of the Insolvency Act 1986 as modified the administrator may apply to the court to set aside preferences by the firm, liens over its books, transactions at an undervalue and certain floating charges and extortionate credit transactions. 1 Under the Insolvency Act 1986, Sch B1, para 12. See Mummery J in Re International Bulk Commodities Ltd [1993] Ch  77 for a discussion of the application of the administrative receivership provisions of the Insolvency Act 1986 to unregistered companies, in that case to a foreign company rather than an English firm. The conclusions are criticised in Re Devon and Somerset Farmers Ltd [1994] Ch 57, Hague CCJ following Chadwick J in Re Dallhold Estates (UK) Pty Ltd [1992] BCLC 621 at 623. 2 The provisions as modified are set out in substituted Sch B1 to the Insolvency Act 1986, as modified by the substituted Sch 2 to the 1994 Order. 3 In full, these are s 176AZA in Pt IV; Pt VI; Pt VII (except s 250); Pt XII, Pt XIII; ss 411, 413, 414 and 419 in Pt XV, and Pts XVI to XIX (Art 6(3) of the Insolvent Partnerships Order 1994, as modified).

593

22.43  Insolvency – winding up and similar procedures

(c) The administration petition and its effect pending the making of an order (i)  Withdrawal or adjournment of the application 22.43  The application is by application which once presented, may not be withdrawn without permission of the court1. Because its effect is to restrict the rights of creditors, it will only be adjourned in exceptional circumstances2. 1 See the Insolvency Act 1986, Sch B1, para 12(3), as modified. 2 Re Kyrris [1998]  BPIR  103, following Re Chelmsford City Football Club (1980) Ltd [1991] BCC 133.

(ii)  Agricultural charges 22.44  If there is a qualifying agricultural floating charge1 then the holder of that charge has the right to appoint an administrator out of court, provided the charge is enforceable (i.e. some event which has occurred which would allow the holder to appoint a receiver)2. If an application for an administration order is made by another creditor or the members, the holder of the agricultural floating charge in effect takes priority and the application should result in the nominee of the charge holder being appointed3. If an agricultural receiver has already been appointed when the administration application is made, the application should ordinarily be dismissed unless the charge-holder agrees4. Further, as noted below, the moratorium which follows the making of an administration application does not prevent the appointment of a receiver under a qualifying agricultural floating charge, nor the carrying on of his functions5. These provisions mean that a lender who has the right to appoint an agricultural receiver over even a small part of the partnership property can effectively block or control the making of an administration order6. 1 The phrases ‘agricultural charge’ and ‘agricultural receiver’ are defined in Art 2(1) as meaning, in the former case, the same as in the Agricultural Credits Act 1928 and, in the latter case, a receiver appointed under an agricultural charge. The Agricultural Credits Act 1928 enables a farming partnership to create a floating charge over its assets as if it were a company: see para 8.48ff above. 2 Paragraph 14 of Schedule B1 to the Insolvency Act 1986. 3 See the Insolvency Act 1986, Sch B1, para 36, as so modified. 4 Paragraph 39 of Schedule B1 to the Insolvency Act 1986. 5 See para 22.46 below and paragraph 44 of Schedule B1 to the Insolvency Act 1986. 6 See Hamish Anderson ‘Insolvency Focus’ Law Society Gazette 91/45 (7 December 1994).

(iii)  Interim orders 22.45  An interim order may be made which may ‘restrict the exercise of any powers’ of the partners or other officers1. Subject thereto they remain in control of the firm, and personally liable for its debts. 1 See the Insolvency Act 1986, Sch B1, para 44, as modified.

594

Creditors’ applications under the Insolvency Act 1986 22.48

(iv)  Effect of pending application 22.46  Making an administration application means that a moratorium is imposed upon winding-up orders and the enforcement of security and execution against the firm, in as full a manner as if the administration order had been made1 (as to which see para  22.49 below). But these restrictions do not prevent the presentation of a winding-up petition or an Article  11 petition2 or the appointment of an agricultural receiver or the continuance of the functions of such a receiver. 1 See the Insolvency Act 1986, Sch B1, paras 42 and 43, as modified by the Insolvent Partnerships Order 1994, Sch 2, para 4, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 See para 22.67 below.

(d) Notification 22.47  As soon as reasonably practicable after an administration application is made, the applicant shall notify: (a) any person who has appointed or is entitled to appoint an agricultural receiver; and (b) any person who is or may be entitled to appoint an administrator1. After the order is made, every invoice, order for goods or business letter bearing the firm name shall also bear the administrator’s name and a statement that he is managing its affairs and business and property2. 1 See the Insolvency Act 1986, Sch B1, para 12(2), as amended. 2 See the Insolvency Act 1986, Sch B1, para 45, as modified by the Insolvent Partnerships Order 1994, Sch 2, para 6, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

(e)  When the order may be made 22.48  The court may make an administration order only where it is satisfied of both of the following1: (a) The firm is or is likely to become unable to pay its debts2. ‘Unable to pay its debts’ means that: (i) the firm has an unpaid creditor of more than £750 who has served a statutory demand which has been unsatisfied for three weeks3; or (ii) an action for a firm debt has been brought against a member who has notified the firm of it and the firm has not satisfactorily indemnified him within three weeks4; or (iii) execution against the firm has been returned unsatisfied5; or 595

22.49  Insolvency – winding up and similar procedures

(iv) it is otherwise proved that it is unable to pay its debts as they fall due6 or that its assets are less than the amount of its liabilities7. This will be the case where the partnership liabilities exceed its assets, even though all the debts could be paid by one partner from his own resources8. (b) The order is reasonably likely to achieve one of the following9: (i) rescuing the firm as a going concern; (ii) a more advantageous realisation of its property than would be effected on a winding up; or (iii) making a distribution to one or more secured or preferential creditors, providing that, in doing so, the interests of the creditors of the partnership as a whole are not unnecessarily harmed. No order may be made10 if: (a) an order has already been made for the statutory winding up of the partnership ‘as an unregistered company’11; or (b) a bankruptcy order has been made against its members jointly under Article 1112; or (c) it is an insurance company or a banking ‘authorised institution’13.  1 See the Insolvency Act 1986, Sch B1, para  11, as so modified; Re Greek Taverna (1999) BCC 153.   2 See the Insolvency Act 1986, Sch B1, para 11(a), as so modified.   3 See the Insolvency Act 1986, s 222, as modified.   4 See the Insolvency Act 1986, s 223, as modified.   5 See the Insolvency Act 1986, s 224(1)(a), as modified.   6 See the Insolvency Act 1986, s 224(1)(d), as modified.   7 See the Insolvency Act 1986, s 224(2), as modified.  8 Re H S Smith & Sons (1999) Times, 6 January (Park J).   9 See the Insolvency Act 1986, Sch B1, paras 3 and 11(b), as so modified. 10 See the Insolvency Act 1986, Sch B1, para 11, as modified by the Insolvent Partnerships Order 1994, Sch 2, para 2, as modified. 11 See the Insolvency Act 1986, Sch B1, para 8, as so modified. 12 See the Insolvency Act 1986, Sch B1, para 36, as so modified. See para 22.67ff below. 13 See the Insolvency Act 1986, Sch B1, para 9, as so modified.

(f)  The effect of the administration order 22.49  The effect of an administration order1 is to impose a moratorium so that any winding-up petition must be dismissed and any agricultural receiver of the partnership and any receiver of the partnership property must vacate office when required to do so by the administrator. It directs that the affairs and business of the firm and the firm property shall be managed by the administrator2. During the period of the administration order: (a) no order may be made for the winding up of the partnership; (b) no order may be made on the joint petition for bankruptcy of the members as such under Article  11 of the Insolvent Partnerships Order 1994, as modified3; 596

Creditors’ applications under the Insolvency Act 1986 22.50

(c) the court may not decree a dissolution of the partnership under the statutory provisions in the Partnership Act4 (this is a curiously wide restriction on the rights of the partners)5; (d) most enforcement proceedings including execution and repossession of goods and a landlord’s right of re-entry on forfeiture are barred save with the consent of the administrator or the leave of the court6. Such consent may be given retrospectively7. 1 By the Insolvency Act 1986, Sch B1, paras 42 and 43, as modified in the manner shown in the Insolvent Partnerships Order 1994, Sch  2, as modified and amended as mentioned in para 22.2 above and set out in Appendix F below. 2 See the Insolvency Act 1986, Sch B1, para 59, as modified by the Insolvent Partnerships Order 1994, Sch 2, para 2, as modified. 3 See the Insolvency Act 1986, Sch B1, para 36, as so modified. 4 Ie the Partnership Act 1890, s 35. 5 See the Insolvency Act 1986, Sch B1, para 36, as so modified. 6 By the Insolvency Act 1986, Sch B1, para 36, as modified in the manner shown in the Insolvent Partnerships Order 1994, Sch  2, and amended to reverse the effect of Re Lomax Leisure [1999] 1 BCLC 126. 7 Fulton v AIB Group (UK) plc (2014) [2014] NICH 8 and Governor of the Company of the Bank of Ireland v Colliers International (UK) plc (Administration) [2012] EWHC 2942 (Ch).

(g)  The administrator as manager 22.50  The administrator takes control of the partnership in the same manner as a company administrator and ‘may do anything necessary or expedient for the management of the affairs and business of’1 the partnership and the partnership property, as a company administrator may with regard to a company. He is deemed to be the agent of the members of the partnership in their capacity as such and is not personally liable for the debts and obligations of the partnership without his consent2. The issue as to the suitability of rival candidates for the role of administrator was considered by Horner J in Northern Irish Bank v Taylor3. The administrator acts under the direction of the court, although it would appear that the court will not give directions which are inconsistent with the proposals of the administrator which have been approved by the creditors of the partnership4. By Schedule  15 he is given an exhaustive range of powers relating to the partnership and its business and affairs (closely akin to those of a company administrator): … analogous with the position of a receiver appointed by the court in a partnership winding up, that is, the assets of the partnership, though held in the name of the individual partners … are under the control of the administrator to dispose of as he wishes for the purposes of the administration6.

Where, however, the administrator acts in a way which is not in the interests of the creditors or the constituency of creditors to whom he or she should most have regard, the administrator may be penalised in costs7. The Enterprise Act 2002 reduced the involvement of the court, so that (for instance) the assets can be sold without the court’s direction8. A person dealing with the administrator in good faith and for value is not concerned to inquire whether he is acting within his powers9. 597

22.51  Insolvency – winding up and similar procedures 1 See the Insolvency Act 1986, Sch B1, para 59, as modified by the Insolvent Partnerships Order 1994, Sch 2, para 7, as modified and amended as mentioned in para 22.2 above and set out in Appendix F below. 2 See the Insolvency Act 1986, Sch B1, para 69, as modified by the Insolvent Partnerships Order 1994, Sch 2, paras 1 and 8, as modified. 3 (2014) NI Ch 9. 4 Re Partnership of Isaacs [2018] BCC 551. 5 Of the Insolvency Act 1986, as amended and replaced by the Insolvent Partnerships Order 1994, Sch 2, para 10, as modified. 6 Per Evans-Lombe J in Re Kyrris [1998] BPIR 111, where he authorised an administrator to seek relief from forfeiture and compromise proceedings. 7 Re Partnership of Isaacs [2018] BCC 551. 8 Re Transbus Int [2004] EWHC 932 (Ch). 9 See the Insolvency Act 1986, s 14(2)(a), as substituted by the Insolvent Partnerships Order 1994, Sch 2, para 7, as modified.

(i)  Secured property 22.51  The administrator may dispose of secured partnership property subject to a floating charge (unless an agricultural receiver has been appointed) as if it were not secured1. With the consent of the court he may dispose of property subject to a fixed charge or subject to a hire-purchase agreement2. But in each case the creditor retains his priority. 1 Re Kyrris [1998] BPIR 111. 2 See the Insolvency Act 1986, Sch B1, paras 70 and 71, as modified by the Insolvent Partnerships Order 1994, Sch 2, para 9, as modified and amended as mentioned in para 22.2 above and set out as Appendix F below.

(ii)  The position of the partners 22.52  The administrator does not automatically remove the partners from their capacity as managers of the firm1, but has power ‘to prevent any person from taking part in the management of the partnership business’2, and their powers are not exercisable3. In return for this curtailment of his powers the member earns the valuable privilege of exemption from liability, for section 14(6)4 provides that he: … shall not, unless he otherwise consents, be personally liable for the debts and obligations of the partnership incurred during the period when the administration order is in force.

In effect the partners acquire limited liability in relation to continuing trading, without losing their entitlement to a share of the profits, which is satisfactory for them. They remain at liberty to dissolve the firm by consent or under the terms of the partnership agreement, which is odd since the court has lost its power to order dissolution. But the right is hardly a valuable one to the partners since a dissolution will not affect the administrator or the accrued rights of the creditors. 1 Contrast the wider effect of a statutory winding-up order: Pacific & General Insurance Co Ltd v Hazell [1997] LRLR 65.

598

Members’ applications under the Insolvency Act 1986 22.53 2 See the Insolvency Act 1986, Sch B1, para 61(a), as substituted by the Insolvent Partnerships Order 1994, Sch 2, para 8, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 3 See the Insolvency Act 1986, Sch B1, para 61(b); for their powers see Lawson v Hosemaster Machine Co Ltd [1966] 1 WLR 1300, CA. 4 See the Insolvency Act 1986, Sch B1, para 69(2), as modified by the Insolvent Partnerships Order 1994, Sch 2, para 8, as modified.

(h)  The replacement administrator 22.53  If the administrator is not appointed by the administration order itself, or if there is a vacancy by the death, resignation or otherwise of the administrator, the court may fill the vacancy1 on the application of: (a) any continuing administrator of the partnership; (b) if none, by the creditors’ committee; or (c) where there is none, by the partners2 or by any creditor or creditors of the partnership. The court may make a ‘block order’ removing or reinstating a specific insolvency practitioner from office as trustee in bankruptcy, liquidator, administrator or supervisor of companies, partnerships and individuals3. 1 Under the Insolvency Act 1986, Sch B1, para 90, as modified by the Insolvent Partnerships Order 1994, Sch 2, para 7, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 See the Insolvency Act 1986, Sch B1, para 93(1), as modified. Presumably acting by a majority or by the controlling committee of the partnership. See a similar discussion in relation to how many members need concur in a members’ application for a partnership voluntary arrangement, at para 22.72ff below. 3 Commissioners of Customs & Excise v Allen (6 February 2003) Ch D, Judge Gilliland QC.

4 MEMBERS’ APPLICATIONS UNDER THE INSOLVENCY ACT 1986 A Members’ winding up and administration applications   22.54 B Members’ applications for an administration order   22.55 C Members’ winding-up petitions where no bankruptcy or other insolvency petition is presented against any member   22.56 D Members’ winding-up petition where concurrent bankruptcy or other insolvency petitions are presented against all the members  22.59 E Article 11: members’ applications for joint bankruptcy without winding up the partnership   22.67 F Members’ applications for partnership voluntary arrangements with creditors – ‘PVAs’   22.72 599

22.54  Insolvency – winding up and similar procedures

A Members’ winding up and administration applications 22.54  In the circumstances mentioned below a member1 may petition to wind up the partnership. According to the circumstances he may do so either without presenting any concurrent petition, or by presenting a concurrent petition against all members of the partnership including himself. These alternatives will be discussed separately at paras 22.56 and 22.59 below. A successful petition results in the appointment of a liquidator who must make calls against the individual partners if the ‘joint’ estate (ie the partnership assets) is inadequate to meet the debts, liabilities and costs. This is discussed in Chapter 23. On a member’s petition: All the provisions of [the Insolvency Act 1986] and the Companies Act about winding up apply to the winding up of an insolvent partnership as an unregistered company …2

with some minor exceptions3. The right to present a petition gives minority members of a firm a powerful weapon where the partnership agreement gives them no right to dissolve the partnership. For instance many a professional firm has liabilities under its commercial lease and its overdraft which render it insolvent under the wide definition of ‘unable to pay its debts’, which includes where its assets are ‘less than the amount of its liabilities, taking into account its contingent and prospective liabilities’4. So a minority member’s petition based upon insolvency may be good even if in normal parlance the financial affairs of the partnership are sound. 1 Including a person liable as a member by holding out under the Partnership Act 1890, s 14: see the Insolvent Partnerships Order 1994, Art 2(1), definition of ‘Member’. 2 See the Insolvency Act 1986, s 221(5), as modified by the Insolvent Partnerships Order 1994, Sch 5, para 2 and Sch 6, para 4, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 3 The exceptions are of small interest but are listed in the Insolvency Act 1986, s 221(6), as modified (in slightly different ways) by the Insolvent Partnerships Order 1994, Schs 5 and 6, as set out in Appendix F below. 4 See the Insolvency Act 1986, s 224(2), applied by the Insolvent Partnerships Order 1994, Art 9(b), as modified, where no concurrent petition is presented against a member.

B  Members’ applications for an administration order 22.55  The Insolvent Partnerships Order 1994 by its Article 6 and substituted Schedule B1 extends to partnerships most of the machinery of company administration orders set out in Part II of the Insolvency Act 1986. The effect of the order is to impose a moratorium while the administrator investigates the firm’s affairs: see para 22.41ff above. Members may petition for an administration order1 (using2 Form 1B in substituted Schedule 9 to the 1994 Order) in similar circumstances to those in 600

Members’ applications under the Insolvency Act 1986 22.56

which creditors may petition3; the procedure is set out in substituted Schedule 2 to the 1994 Order (reprinted in Appendix F below). An administration order may be made even where the creditors oppose it4. ‘Members’ here means the members unanimously unless the partnership provides otherwise5. Where the firm is in dissolution because of the death of all but one partner, it can be said to be existing for the purpose of winding up and the single surviving member is competent to petition6. 1 Under the Insolvent Partnerships Order 1994, Sch B1, para 29(5) as modified, modifying Pt II of the Insolvency Act 1986, s 9, as amended by the Enterprise Act 2002, Pt 10. 2 The use of the wrong form may be fatal to this procedure: Re Kaupthing Capital Partners [2010] EWHC 836 (Ch), following Re G-Tech Construction Ltd (2007) BPIR 1275. 3 See para  22.48 above; members may abuse this useful process: Re West Park Golf and Country Club [1997] 1 BCLC 20. 4 DKLL Solicitors v HMRC [2007] EWHC 2067 (Ch). 5 See In Re Brake and others; Patley Wood Farm LLP v Brake [2017] 1 WLR 343. Compare the members’ application for a PVA: see para 22.73 below. 6 Loxton v Wassall (1  February 2002, unreported), Judge Alastair Norris QC, Ch High Court, Birmingham.

C Members’ winding-up petitions where no bankruptcy or other insolvency petition is presented against any member 22.56  One or more members of the partnership may1 elect to petition for its winding up without also petitioning against the members, if one or other of the following two conditions is satisfied: (a) Larger firms: A petition may be presented under this head by even a single partner where there are no fewer than eight members2 of the partnership3. (b) Leave of the court and a judgment debt against smaller firms: As regards smaller firms, a member may only petition if4 he obtains the leave of the court and satisfies the onerous conditions that: (i) he has served upon the partnership a statutory demand (in Form 105) in relation to a partnership debt that he has paid, and he has not received satisfaction; and6 (ii) he has obtained a ‘judgment, decree or order of any court against the partnership for reimbursement’ (this will be unusual unless the firm has been dissolved, because in general a member cannot get judgment against his own firm). 1 Under the Insolvent Partnerships Order 1994, Art 9, as modified. This applies Pt V of the Insolvency Act 1986 (Winding up of unregistered companies) subject to modification by Schs 3 and 5 to the Order: see Appendix F below. 2 ‘Members’ perversely includes non-members who are liable as partners under the doctrine of holding out by the Partnership Act 1890, s 14: see Art 2(1) of the 1994 Order, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 3 See the Insolvency Act 1986, s 221A, as introduced by the Insolvent Partnerships Order 1994, Sch 5, para 2, as modified.

601

22.57  Insolvency – winding up and similar procedures 4 See the Insolvency Act 1986, s 221A(2), as introduced by Sch 5, para 2 to the 1994 Order, as modified. 5 See Form 10, substituted Sch 9 to the 1994 Order: see Appendix F below. 6 Can this be a mistake for ‘or’?

(a) Jurisdiction 22.57  The High Court and county court jurisdiction1 is the same as in the case of a creditor’s winding-up petition (see paras 22.20 and 22.21 above) and subject to identical complicated conditions, save that the partnership must have had ‘a principal place of business’ within England and Wales or within the insolvency district of the relevant county court, as the case may be2. So there is no equivalent to the alternative in the case of a creditor’s petition that the partnership might merely have ‘a place of business’ where the relevant debt arose. The petition must be verified on affidavit in Form 23. 1 Under the Insolvency Act 1986, s 117, as modified by the Insolvent Partnerships Order 1994, Art 9 and Sch 5, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 Under the Insolvency Act 1986, s 117(1) and (2), as modified by the Insolvent Partnerships Order 1994, Art 9 and Sch 5, and the Insolvency Act 1986 (Amendment) (No 2) Regulations 2002, SI  2002/1240 which introduced the provisions of what is now the EU  Insolvency Regulation, discussed at para 22.90 below. 3 Form 2 of substituted Sch 9 to the 1994 Order, as modified, set out in Appendix F below.

(b)  Grounds for winding up 22.58  The partnership may not be wound up under this head voluntarily, but may be on the grounds1 that: (a) the partnership is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs; (b) it is unable to pay its debts; (c) the court is of the opinion that it is just and equitable that the partnership should be wound up. For the statutory meaning of ‘unable to pay its debts’ the reader is referred to para  22.23 above where the phrase is discussed within the context of a creditor’s petition, and the same provisions and principles apply. For the ‘just and equitable’ ground the case is different: a member’s ‘just and equitable’ petition is likely to succeed for the reasons that his application for dissolution on this ground would succeed under section 35(f) of the Partnership Act 1890 (see para 17.24ff above and contrast para 22.24 above). 1 Under the Insolvency Act 1986. s 221(4) and (7), as modified by the Insolvent Partnerships Order 1994, Art 9 and Sch 5, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

602

Members’ applications under the Insolvency Act 1986 22.61

D Members’ winding-up petition where concurrent bankruptcy or other insolvency petitions are presented against all the members 22.59  One or more members of the partnership may1 petition under Article 10 of the 1994 Order for its winding up whilst also petitioning against all (not merely some) of the members2 as such. The phrase ‘petition against the members as such’ means petition against them on a liability of the firm. The distinctive characteristics of this procedure are to be found in Sch 6 to the Order which is set out in Appendix F below. The provisions of the Insolvency Act 1986 are adopted as they relate to a creditor’s concurrent petition against either a corporate3 or an individual4 member as the case may be5, subject to some modification as set out below. 1 Under the Insolvent Partnerships Order 1994, Art 10. This applies Pt V of the Insolvency Act 1986 (Winding up of unregistered companies) subject to modification by Schs 4, 6 and 7 to the Order: see Appendix F below. 2 ‘Members’ here appears to include those held out as members (by the definition of ‘Member’ in Art 2(1) of the 1994 Order) but not former members; aliter in the case of a creditor’s petition: Art 8(9). 3 Ie the Insolvency Act 1986, Pts IV, VI, VII and XII to XIX. 4 Ie the Insolvency Act 1986, Pts IX (other than ss 273, 274, 287 and 297) and Pts X to XIX. 5 By Art 10(2) and (4) respectively.

(a)  Who may petition 22.60  A member may only present petitions in this category if every member ‘is willing for an insolvency order to be made against him’, and this must be stated in the petition1. 1 See the Insolvency Act 1986, s 124(2), as modified by the Insolvent Partnerships Order 1994, Sch  6, para  2, as modified and amended as mentioned in para  22.2 above and printed in Appendix F below.

(b) Jurisdiction 22.61  The High Court and the county court have the same jurisdiction as in the case of a member’s petition where no concurrent petition is presented1 (see para 22.56 above). The court with jurisdiction to wind up the partnership has jurisdiction to wind up the member also2. The court may be the county court (see above) but in the High Court the petitions may not be presented in a District Registry3. The petitions and advertisement must be in statutory form4. 1 See the Insolvency Act 1986, ss 220, 221 and 222, as modified by the Insolvent Partnerships Order 1994, Sch  4, Pt I; and s  117, as modified by Sch  6, para  1 both as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

603

22.62  Insolvency – winding up and similar procedures 2 See the Insolvency Act 1986, s 117(5), as modified by the Insolvent Partnerships Order 1994, Sch 6, para 1, as modified. 3 See the Insolvency Act 1986, s 117(6), as modified by the Insolvent Partnerships Order 1994, Sch 6, para 1, as modified. 4 See the Insolvency Act 1986, ss 124 and 264, as so modified by the Insolvent Partnerships Order 1994, Sch 6, para 2 and by the Insolvency Act 1986 (Amendment) (No 2) Regulations 2002, SI  2002/1240 which introduced the provisions of what is now the EU  Insolvency Regulation, discussed at para 22.90 below. The petition forms are Forms 11, 12 and 13, and the advertisement Form 8, in substituted Sch 9 to the Order, set out in Appendix F below.

(c)  Grounds for petition 22.62 A creditor may only present concurrent petitions in these circumstances, on the grounds that the partnership is unable to pay its debts1. The winding up is not a voluntary one2 notwithstanding that all members consent to it (see above). 1 See the Insolvency Act 1986, s 221(4), as so modified by the Insolvent Partnerships Order 1994, Sch 6, para 4, and s 124(2), modified by para 2 and modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 See the Insolvency Act 1986, s 221(4), as so modified by the Insolvent Partnerships Order 1994, Sch 4, para 4, as modified.

(d) Hearings 22.63  Both petitions must be presented to the same court and (save as the court otherwise permits) on the same day1, but the petition against the partnership must be heard first2. 1 See the Insolvency Act 1986, s 124(4)(a), as so modified by the Insolvent Partnerships Order 1994, Sch 6, para 2, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 See the Insolvency Act 1986, s 124(6), as so modified by the Insolvent Partnerships Order 1994, Sch 6, para 2.

(e)  No concurrent orders 22.64  If no order against any member as such is made within 28 days of the making of a winding-up order against the partnership, then the matters proceed as if they had never begun concurrently; the petition against the member proceeds as an ordinary bankruptcy or winding-up petition, and the petition against the partnership proceeds as if it had been brought under Article 7 of the Insolvent Partnerships Order 1994 where no concurrent petition is brought1. 1 See the Insolvency Act 1986, s 125A(4), as so modified by the Insolvent Partnerships Order 1994, Sch 6, para 3, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

604

Members’ applications under the Insolvency Act 1986 22.67

(f)  Limited partner 22.65  The court may dismiss a petition against a limited partner if he pays into court sufficient to meet his liability for the debts and obligations of the partnership1. 1 See the Insolvency Act 1986, s 125A, as inserted by the Insolvent Partnerships Order 1994, Sch  6, para  3, as modified and amended as mentioned in para  22.2 above and printed in Appendix F below.

(g)  The member as contributory 22.66  Such limited rights as a member has as a ‘contributory’ under the Insolvency Act 1986 are lost if concurrent orders are made against him1. 1 See the Insolvency Act 1986, s 221(7), as so modified by the Insolvent Partnerships Order 1994, Sch 6, para 4, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

E Article 11: members’ applications for joint bankruptcy without winding up the partnership (a)  Article 11 petitions generally 22.67  Under Article 11 of the Insolvent Partnerships Order 1994 the individual members as such may jointly petition for their own bankruptcy, and the winding up of the partnership business, without the partnership being wound up. The intention is that the official receiver (and subsequently a single insolvency practitioner) will be both trustee of the estates of the partners and ‘trustee of the partnership’. The machinery is useful to members because: (a) it is simpler and cheaper than statutory winding up with the appointment of a liquidator; (b) it gives the court no power to disqualify a member from acting in the future either as a company director or as a partner under the Company Directors Disqualification Act 19861. Such a petition is made2: (a) by all the members3; (b) for the bankruptcy of each member as such4; and (c) for the ‘winding up of the partnership business and administration of its property’; but (d) not for the statutory winding up of the partnership. Instead the Order allows the appointment of a ‘trustee of the partnership’ to administer its affairs. 605

22.68  Insolvency – winding up and similar procedures

The provisions of the Insolvency Act 1986 applicable to such a petition are Parts IX to XIX (other than sections 273, 274 and 287) as modified in the manner set out in Schedule  7 to the Insolvent Partnerships Order 1994, as discussed below5. Where all the partners in a firm have presented individual bankruptcy petitions without making an Article 11 application6 the court may treat them7 as having made an Article 11 application8. 1 See above for such disqualification orders. 2 See the Insolvent Partnerships Order 1994, Art 11(1), as modified. 3 Which surely must mean here ‘members’ properly so called and not persons held out as members who are included in the definition of ‘members’ in Art 2(1) of the 1994 Order, as modified. 4 Bankruptcy of each member ‘in his capacity as a member of the partnership’ (Art 11(1) of the 1994 Order, as modified) is a curious concept, but means no more than that the petition as against the members must be based on a partnership debt: see para 22.68 below. 5 See the Insolvent Partnerships Order 1994, Art 11(2) and (3), as modified. 6 Because a mere individual bankruptcy petition would entitle the bankrupt to claim business assets were exempt assets under the Insolvency Act 1986, s  286, which partners as such cannot do. 7 Under the wide procedural discretion given in the Insolvency Act 1986, s 303(2A) (2C). 8 O R v Hollens [2007] 3 All ER 767.

(b)  The petition 22.68  The petition must be presented by all the members who must be individuals rather than corporate members, and none a limited partner1. This rule of unanimity may be waived by the court if impractical2. The petition and its accompanying affidavit and the Bankruptcy Order and the Statement of Affairs of the member and of the partnership must be in statutory form3. No affidavit is necessary if the petition is actually signed by all the members4. The petition must be accompanied by the Statement of Affairs, comprising a list of the creditors, debts and other liabilities and assets and the other information required in the statutory forms5. The only grounds for the petition are that the partnership is unable to pay its debts6. 1 See the Insolvency Act 1986, s  264(1), as modified by Sch  7 to the Insolvent Partnerships Order 1994, as modified and amended as mentioned in para  22.2 above and printed in Appendix F below. 2 See the Insolvency Act 1986, s 266(1), as so modified. 3 Ie Forms 14, 15, 16, 17 and 18 in substituted Sch 9 to the 1994 Order, which is set out in Appendix F below. 4 See the Insolvency Act 1986, s  264(3) and (4), as modified by Sch  7 to the Insolvent Partnerships Order 1994, as modified. 5 See the Insolvency Act 1986, s 272(2) and (3), as so modified. 6 See the Insolvency Act 1986, s 272(1), as so modified.

606

Members’ applications under the Insolvency Act 1986 22.71

(c) Jurisdiction 22.69  Subject to the provisions of the EU Regulation discussed at para 22.90 below, an Article 11 petition may be presented to the court if: (a) the partnership has been carried on1 in England and Wales at any time during the period of three years before presentation2; and (b) the partnership has at any time had a principal place3 of business in England and Wales (in the case of a High Court petition) or within the insolvency district of the county court (in the case of a county court petition)4. No such petition may be presented in a District Registry5. 1 Re A Company (No 007816 of 1994) [1995] 2 BCLC 539; affd [1997] 2 BCLC 685, CA. 2 See the Insolvency Act 1986, s  265(2), as modified by the Insolvent Partnerships Order 1994, Sch  7, as modified and amended as mentioned in para  22.2 above and printed in Appendix F below. 3 ‘A principal place’ evidently means ‘any principal place’ not ‘its only principal place’ of business: see the Insolvency Act 1986, s  117(4), as modified by the Insolvent Partnerships Order 1994, Sch 3, para 6, as modified. 4 See the Insolvency Act 1986, s 265(1), as modified by the Insolvent Partnerships Order 1994, Sch 7, as modified. 5 See the Insolvency Act 1986, s  265(1)(a) 1986, as modified by the Insolvent Partnerships Order 1994, Sch 7, as modified.

(d)  Modifications to general bankruptcy law 22.70  The important modifications to bankruptcy law as regards the members are these1: (a) The tools and other equipment of the member’s trade or business, and clothes and basic domestic furniture, which are excluded from the definition of ‘the bankrupt’s estate’ by section  283 of the Insolvency Act 1986, are only excluded in so far as they are not partnership property2. (b) Property held by him upon trust and disposed of by him to a beneficiary under the trust, which is excluded from the class of property as to which the disposition is void under section 284 of the Insolvency Act 1986, does not include property held upon trust for the partnership3. 1 These are set out in the Insolvent Partnerships Order 1994, Sch 7, as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 See the Insolvency Act 1986, s 283, as modified by the Insolvent Partnerships Order 1994, Sch 7, as modified. 3 See the Insolvency Act 1986, s 284(6), as so modified.

(e)  The trustee 22.71  When an Article 11 Order is made the official receiver becomes: 607

22.72  Insolvency – winding up and similar procedures

(a) trustee of the estate of the member; and (b) trustee of the partnership. The scheme of Article 11 is that these two functions should as far as possible be united. If the trustee finds that there is a conflict of interest between his two functions he may apply to the court which may appoint one or more insolvency practitioners to act jointly with him or alone1. Although he is not a liquidator, he has a duty to get in, realise and distribute the estates of the members and the partnership property2 and in relation to the partnership property he has all the powers of a trustee in bankruptcy in relation to insolvent members3. 1 See the Insolvency Act 1986, s 292A, as so modified. 2 See the Insolvency Act 1986, s 305(1), as so modified. 3 See the Insolvency Act 1986, s 305(2), as so modified.

F Members’ applications for partnership voluntary arrangements with creditors – ‘PVAs’ (a) Generally 22.72  The Insolvent Partnerships Order 1994 extends to partnerships most1 of the machinery of company voluntary arrangements set out in Part I of the Insolvency Act 1986, but not including the ‘Interim Order’ whereby in the case of an individual debtor the court may order2 that: (a) no bankruptcy order may be presented or proceeded with; and (b) no other proceedings, and no execution or other legal process, may be commenced or continued against the debtor or his property without the leave of the court. The provisions of Part I of the Insolvency Act 1986 which enable companies to enter into voluntary arrangements are modified and extended to partnerships by Article 4 and Schedule 1 to the 1994 Order, and the partners may enter into individual voluntary arrangements for themselves, in parallel to that of their firm, under Article 53. So the partners have a choice of seeking a partnership voluntary arrangement (‘PVA’ – which will protect partnership property but will not protect their individual estates from their separate creditors) or seeking individual voluntary arrangements (‘IVAs’) or both. For a large partnership a PVA will be necessary, but for a small partnership interlocking IVAs (with the same insolvency practitioner as nominee) will suffice. 1 By Art 4(3) they are the provisions of the Insolvency Act 1986, Pt I, which after modification are set out in substituted Sch  1 to the 1994 Order, and s  233 in Pt VI, Pt VII (with the exception of s 250), Pt XII, Pt XIII, ss 411, 413, 414 and 419 in Pt XV, and Pts XVI to XIX of the Insolvency Act 1986. 2 See the Insolvency Act 1986, s 252, as modified.

608

Members’ applications under the Insolvency Act 1986 22.74 3 This reflects the Court of Appeal interpretation of the Insolvency Act 1986, s 253(1) in Re Cupit (7 April 1993, unreported), CA cited in Schooler v Customs and Excise Comrs [1995] 2 BCLC 610.

(b)  The members’ proposal (i)  How many members need concur? 22.73  The phrase ‘the members’ equates to ‘the directors’ in the parts of the Insolvency Act 1986 which contain equivalent provisions relating to companies properly so called. The phrase ‘the members’ might therefore mean ‘the controlling members’ rather than all members1, were it not that the Partnership Act 18902 empowers every partner to take part in the management of the business. Whether a simple majority will therefore have power to make a members’ application, or whether the decision is to be taken by those given control of the ordinary (or extra-ordinary?) management of the firm by its governing partnership deed or agreement is left unstated. The Partnership Act 1890 lays down what matters (in the absence of agreement to the contrary) shall be decided unanimously, and that ‘ordinary matters connected with the partnership business’3 may be decided by a simple majority of the members. To petition is not such an ‘ordinary matter’, so ‘the members’ means ‘all partners’ unless there is agreement to the contrary: something a well-drawn partnership agreement should provide for. When members who are less than unanimous have power (for instance in their partnership agreement) to propose a PVA, the nominee may yet call a meeting to approve it, and again it appears that their approval must be unanimous4. 1 This is particularly so granted the expanded definition of ‘member’ as including one held out as a partner under the Partnership Act 1890, s 14: see the Insolvent Partnerships Order 1994, Art 2(1). 2 See the Partnership Act 1890, s 24(5). 3 See the Partnership Act 1890, s 24(8). 4 See the Insolvent Partnerships Order 1994, Arts 2(2)(a), 4(1) and Sch  1, as modified and amended as mentioned in para 22.2 above and set out in Appendix F below.

(ii)  The proposal 22.74  The members may make a proposal to the creditors for a voluntary arrangement1 provided that: (a) no administration order is in force (see paras 22.41ff and 22.54ff above), but in that case a proposal may be made by the administrator2 (and it is grounds for the making of an administration order that it makes the approval of a Part I voluntary arrangement more likely3); (b) the firm is not being wound up under the Act, but if it is, a proposal may be made by the liquidator4; and (c) no order has been made for the joint bankruptcy of each of the partners without the partnership being wound up, under Article 11 (see para 22.67ff 609

22.75  Insolvency – winding up and similar procedures

above), but if it has, then a proposal may be made by the trustee of the partnership5. The proposal must provide for an insolvency practitioner to supervise its implementation6; he is called the ‘nominee’ until the proposal is approved, when he becomes the ‘supervisor’. The proposal is put to the creditors who may approve it. The procedure for this and its consequences are closely analogous to those relating to company voluntary arrangements in Part I of the Insolvency Act 1986. They are set out in full in substituted Schedule 1 to the Insolvent Partnerships Order 1994 which may be found in Appendix F below, and need not be summarised here. When approved, the voluntary arrangement takes effect so as to bind every person who has had notice of and was entitled to vote at the creditor’s meeting, whether or not he was a party to it7. 1 The Insolvent Partnerships Order 1994, Art 4, Sch 1, Pt I, para 1(1), as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 See the Insolvency Act 1986, s 1(3)(a). 3 See the Insolvency Act 1986, s 8, as modified by the Insolvent Partnerships Order 1994, Sch 2, para 2. For administration orders see paras 22.41ff and 22.54ff above. 4 See the Insolvency Act 1986, s 1(3)(b). 5 See the Insolvency Act 1986, s 1(3)(c). 6 See the Insolvency Act 1986, s 1(2). 7 See the Insolvency Act 1986, s 5(1), as modified by the Insolvent Partnerships Order 1994, Art 4(1) and substituted Sch 1, as modified.

5 APPLICATIONS BY OTHERS UNDER THE INSOLVENCY ACT 1986 AND COMPANY DIRECTORS DISQUALIFICATION ACT 1986 A Applications by the liquidator or other responsible insolvency practitioner  22.75 B Financial services partnerships   22.78 C Applications by the Secretary of State   22.81 D The court of its own motion   22.89

A Applications by the liquidator or other responsible insolvency practitioner (a)  Voluntary arrangements with creditors 22.75  Where an administration order is in force or where the partnership is being wound up as an unregistered company or where an order has been made for the joint bankruptcy of each of the partners without the partnership being wound up, under Article 11, the administrator, liquidator or trustee (as the 610

Applications by others under the IA 1986 and CDDA 1986 22.77

case may be) may propose a voluntary arrangement1. Voluntary arrangements are discussed at para 22.72ff above. 1 Under the Insolvency Act 1986, s 1, as modified by the Insolvent Partnerships Order 1994, Sch  1, Pt I, as modified and amended as mentioned in para  22.2 above and printed in Appendix F below.

(b)  Public examination of ‘officers’ 22.76  Where a firm is wound up on a creditor’s petition the official receiver may apply for a public examination of the ‘officers’ of the partnership; this is considered under creditors’ petitions in para 22.26 above.

(c)  Petitions to wind up the firm 22.77  A petition may be presented1 by an insolvency practitioner who holds one of the following offices in relation to it2: (a) liquidator or administrator of a corporate member or former corporate member; (b) administrator of the partnership3; (c) trustee of an individual member’s, or of a former individual member’s, estate; or (d) the supervisor of a voluntary arrangement approved under Part I of the Insolvency Act 1986 in relation to a corporate member, or under Part VIII in relation to an individual member. The petition must be on the grounds that4: (a) the partnership is dissolved or has ceased to carry on business or is carrying on business only for the purpose of winding up its affairs; (b) the partnership is unable to pay its debts, or to indemnify a member against whom proceedings have been brought for a firm debt5; (c) the court is of the opinion that it is just and equitable that the partnership should be wound up. The petitioning insolvency practitioner may be appointed liquidator or provisional liquidator by the court6. 1 In Form 3 in the Insolvent Partnerships Order 1994, Sch 9 (as substituted), as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 See the Insolvency Act 1986, s 221A(1), as incorporated by the Insolvent Partnerships Order 1994, Sch 3, para 3, as modified. 3 For the costs of a petition in such a case see Re a Company (No 005174 of 1999) [2000] 1 WLR 502. 4 See the Insolvency Act 1986, ss 221A(1) and 221(7), as modified by the Insolvent Partnerships Order 1994, Sch 3, para 3, as modified. 5 See the Insolvency Act 1986, s 223, as modified by the Insolvent Partnerships Order 1994, Sch 3, para 5, as modified. 6 See the Insolvency Act 1986, s 221A(4) and (5), as modified by the Insolvent Partnerships Order 1994, Sch 3, para 3, as modified.

611

22.78  Insolvency – winding up and similar procedures

B  Financial services partnerships (a)  The petition 22.78  The Financial Conduct Authority may petition1 for the winding up of a partnership which is an authorised person2 or which carries on unauthorised a regulated activity by way of business and in relation to investment or which is any ‘appointed representative’ of any such body3. 1 See the Financial Services and Markets Act 2000, s 367 and the Insolvent Partnerships Order 1994, Art 7, as modified and amended as mentioned in para 22.2 above and as extended by the Insolvent Partnerships (Amendment) Order 1996 (England and Wales). 2 See the Financial Services and Markets Act 2000, s 31. 3 See the Financial Services and Markets Act 2000, s 367.

(b) Grounds 22.79  The petition must show either that: (a) the partnership is unable to meet its debts within the meaning of section  123 or 221 of the Insolvency Act 1986 as amended (whether following a statutory demand or otherwise); or (b) the court is of the opinion that it is just and equitable that the partnership should be wound up1, in which case the Insolvency Act 1986 as amended applies as if the partnership were an unregistered company within section 220 of that Act2. In the case of an insurance or reinsurance undertaking the cancellation of its permission to carry out insurance business is also a ground for its winding up3. 1 See the Financial Services and Markets Act 2000, s 367(3). This will usually be for breach of statutory regulations: see Nicholls LJ in Re Walter L Jacob & Co Ltd [1989] BCLC 345, CA. 2 See the Financial Services and Markets Act 2000, s  367(6), (7). There is a close analogy between this application and the application made by the Secretary of State mentioned in para 22.88 below: Re Inertia Partnership LLP [2007] All ER (D) 316 (Feb), Ch D (Jonathan Crow QC). 3 Financial Services and Markets Act 2000, s 367(3)(za).

(c) Procedure 22.80  Where a winding-up order has been made, the court may make directions for the future conduct of the insolvency proceedings, and may apply the provisions of the Insolvent Partnerships Order 19941. It is common for disgruntled limited partners or other investors to assign their causes of action against the fund to the liquidator2. 1 See the Insolvent Partnerships Order 1994, Art 14(1), as modified and amended as mentioned in para 22.2 above and printed in Appendix F below.

612

Applications by others under the IA 1986 and CDDA 1986 22.82 2 Financial Services Compensation Scheme v Abbey National Treasury Services plc (2009) Bus LR  465, cited in The Connaught Income Fund v Capita Financial Managers [2014] EWHC 3619 (Comm) at para 43.

C  Applications by the Secretary of State (a) Disqualification 22.81  The Secretary of State may seek a disqualification order against a partner where the partnership is statutorily wound up1. The following paragraphs consider that jurisdiction. 1 Under the Insolvent Partnerships Order 1994, Art 16, which incorporates the Company Directors Disqualification Act 1986, ss  6–10, 15, 19(c) and 20 and Sch  1, as modified by the Insolvent Partnerships Order 1994, Sch  8, as modified and amended as mentioned in para 22.2 above and which is set out in full as Appendix F below.

(i) Disqualification under the Company Directors Disqualification Act 1986 generally 22.82  The Insolvent Partnerships Order1 applies certain provisions of the Company Directors Disqualification Act 1986, with consequential modifications. A partner (or shadow partner) will be disqualified from being a director of a limited company if a company director’s disqualification order is made against him2. An individual or corporate person may be disqualified from being a director or being directly or indirectly concerned, or taking part, in the promotion, formation or management of a company under the terms of a disqualification order made by the court under the Company Directors Disqualification Act 1986 as applied to insolvent partnerships. The legislation as it applies to partnerships is not well-aligned. Whereas an order under the 1986 Act made against an insolvent partner will disentitle him or her from relevant involvement in a company, it will not prevent involvement in an LLP3. But an order against a former member of an LLP will prevent relevant involvement in both an LLP and a limited company4. 1 Insolvent Partnerships Order 1994, Art 16. The provisions that are applied (some of which are in modified form) are Company Directors Disqualification Act 1986, ss 1, 1A, 5A, 6–10, 13–15, 17, 19(c), 20 and Sch 1: Insolvent Partnerships Order 1994, SI 1994/2421, Art 16, Sch 8. 2 See the Company Directors Disqualification Act 1986, s 1. As modified by the 1994 Order the statute uses the curious term ‘officer’ of the partnership, which for present purposes is taken to mean ‘partner’. 3 Whittaker & Machell, The Law of Limited Partnerships (4th edn), para  37.2. A contrary view is taken by Berry & Parry, The Law of Insolvent Partnerships and LLPs at para 10.8 and the editor of Lindley and Banks on Partnership (20th edn) at para 27-65 and, apparently, the Insolvency Service in its guide to the Effects of a Disqualification Order. 4 See para 25.100 below and Whittaker & Machell, The Law of Limited Partnerships (4th edn) para 37.2.

613

22.83  Insolvency – winding up and similar procedures

(ii)  The making of a disqualification order – general 22.83  A disqualification order in relation to a partner can be made either under sections 2–6 or 8 of the 1986 Act1. Under sections 2–5 an order may be made if the partner is guilty of a criminal offence or default in his statutory duties. Orders under sections 6 and 8, which are considered next, both involve the existence of a statutory winding-up order or an administration order against the partnership. Accordingly the 1986 Act as modified will not apply to a partnership that is dealt with on insolvency by the members presenting a joint bankruptcy petition, under Article 11 of the 1994 Order. A person against whom a disqualification order is sought may agree to give a ‘disqualification undertaking’ instead2. The effect of giving such an undertaking is identical in all respects to the making of a disqualification order3. 1 As for the procedure, note in particular the amended Companies (Disqualification Orders) Regulations 2009 and the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987, and Practice Direction (Directors Disqualification Proceedings) (available on the Ministry of Justice website). 2 Company Directors Disqualification Act 1986, s  7(2A) (as applied and modified by SI 1994/2421, Art 16, Sch 8). 3 Company Directors Disqualification Act 1986, ss  13, 15 (as applied and modified by SI 1994/2421, Art 16, Sch 8).

(iii)  Section 6 – insolvency applications 22.84  Under section  6(1) the court shall make an order against a person where his conduct as partner in the partnership in question (with or without consideration of his conduct as a company director or member of any other partnership) renders him unfit to be concerned in the management of an LLP or company. The matters to be taken into account in determining unfitness are contained in section 12C of and Schedule 1 to the 1986 Act1. The official receiver (if the partnership is being wound up) or the administrator (if there is an administration order in force) has a duty to report to the Secretary of State if it appears to them that the conditions for an order are satisfied2. The Secretary of State or the official receiver may require a liquidator or former liquidator or administrator or former administrator to provide him with information and documents in relation to a person’s conduct3. The partnership must have become insolvent either when the person was a member or subsequently4, and ‘insolvent’ here has the narrow meaning that either an administration order has been made or the partnership went into insolvency ‘at a time when its assets are insufficient for the payments of its debts and other liabilities and the expenses of the winding up’. Strictly, ‘other liabilities’ includes the partnership’s liabilities to its own members. An application for an order may not (without leave) be made more than three years after the partnership became insolvent5. The minimum period of disqualification under this section is two years, and the maximum is 15 years6. The court with jurisdiction under this section of the 1986 Act is, where the partnership is being wound up, the court having jurisdiction to wind it up 614

Applications by others under the IA 1986 and CDDA 1986 22.86

(which may be either the High Court or the county court), and otherwise the High Court7. But where winding-up proceedings in the county court have been completed, that court still has jurisdiction to make a disqualification order8. 1 As introduced and amended respectively by the Small Business, Enterprise and Employment Act 2015. 2 See the Company Directors Disqualification Act 1986, s 7(3). 3 See the Company Directors Disqualification Act 1986, s 7(4) and (5). 4 See the Company Directors Disqualification Act 1986, s 6(1)(a). 5 See the Company Directors Disqualification Act 1986, s 7(2). 6 See the Company Directors Disqualification Act 1986, s 6(5). 7 See the Company Directors Disqualification Act 1986, s 6(3). 8 Re Working Project Ltd; Re Foster-down Ltd; Re Davies Flooring (Southern) Ltd [1995] 1 BCLC 226, Carnwath J.

(iv)  Section 8 – public interest applications 22.85  If it appears to the Secretary of State (in practice, the Department for Business, Innovation and Skills) as a result of certain statutory investigations that ‘it is expedient in the public interest’ that an order should be made against a member or former member, he may apply to the court accordingly1. The court may make the order if satisfied that the person’s conduct in relation to the partnership makes him unfit to be concerned in the management of a partnership. The conduct in question may either be in relation to the partnership alone or taken together with his conduct as member (or shadow member) of any other partnership or director (or shadow director) of any other company2. The court with jurisdiction is the High Court alone; the maximum period of disqualification is 15 years and there is no minimum. 1 See the Company Directors Disqualification Act 1986, s 8(1). 2 See the Company Directors Disqualification Act 1986, s  8(2), as amended by the Small Business, Enterprise and Employment Act 2015.

(v)  The making of a disqualification order – grounds 22.86  Section 12C and Schedule 11 state the matters to which the court is to have regard when determining whether a person’s conduct as a member of the partnership makes him unfit to be concerned in the management of a company. The matters are listed in Schedule 1. Its provisions follow those relating to company directors2. 1 See the Company Directors Disqualification Act 1986, as modified by the Limited Liability Partnerships Regulations 2001, reg 4. 2 As regards company directors, it has been held that ordinary commercial misjudgement is insufficient to justify disqualification, provided that the misbehaviour is short of gross negligence or extreme incompetence: Re Lo-Line Electric Motors Ltd [1988] Ch 477 at 486.

615

22.87  Insolvency – winding up and similar procedures

(vi)  The effect of disqualification 22.87  A disqualification order will prohibit a person from directly or indirectly being concerned or taking part in the promotion, formation or management of a company. Any breach of the order by the member will be a criminal act1. Furthermore the disqualified member renders himself or herself personally responsible for all the debts and liabilities of the company incurred at the time when the disqualified person was involved in its management, contrary to the order2. 1 Company Directors Disqualification Act 1986, s 13 (as applied and modified by SI 1994/2421, Art 16, Sch 8). 2 Company Directors Disqualification Act 1986, s 15 (as applied and modified by SI 1994/2421, Art 16, Sch 8).

(b)  Public interest petitions 22.88  The Secretary of State may1 petition to wind up the partnership on the grounds that it is expedient in the public interest, and the court may make such an order if it thinks it just and equitable to do so2 and on the basis of information from a company, or FCA report or a fraud investigation); or from overseas regulatory authorities3. 1 Insolvent Partnerships Order 1994, Art 7(1) and Sch  3, modifying the Insolvency Act 1986, s 221(5), as modified and amended as mentioned in para 22.2 above and printed in Appendix F below. 2 The principles upon which the court makes an order under the ‘just and equitable principle’ on an application by the Secretary of State were discussed by Nicholls J in Re Walter L Jacob & Co Ltd [1989] BCLC 345, CA, and by Blackburne J in Re Companies (Nos 004088 and 004089 of 1986), Titan L G and Titan International Inc New Law Digest 13 August 1996. The activity of the company or partnership will usually be illegal but not necessarily so: Re Senator Hanseatische Verwaltungsgesellschaft mbH [1997] 1 WLR 515, CA. 3 By the Insolvency Act 1986, s 124A, which was introduced by the Companies Act 1989, s 60(3). There is a close analogy between this application and the application made by the FSA mentioned in para 22.79 above: Re Inertia Partnership LLP [2007] All ER (D) 316 (Feb), Ch D (Jonathan Crow QC).

D  The court of its own motion 22.89  To the surprise of the purists, Neuberger J in Lancefield v Lancefield1 made a winding-up order against an insolvent partnership on an application to the court for directions, even though no petition had been presented. He drew an analogy between an insolvent partnership and an unregistered company. The case was an exceptional and urgent one. 1 [2002] BPIR 1108, Ch D.

616

EU regulation of insolvency proceedings 22.90

6 EU REGULATION OF INSOLVENCY PROCEEDINGS 22.90  With effect (in England and Wales) from 26  June 20171 Council Regulation (EU) No  2015/848 regulates collective insolvency proceedings within member states. It is unclear what the fate of this piece of legislation will be so far as UK partnerships are concerned after the UK’s exit from the European Union. The important articles in the Regulation are these: Article 1: Scope 1 This Regulation shall apply to public collective insolvency proceedings, including interim proceedings, which are based on laws relating to insolvency and in which for the purpose of rescue, adjustment of debt, reorganisation or liquidation: (a) a debtor is totally or partially divested of its assets and an insolvency practitioner is appointed; (b) the assets and affairs of a debtor are subject to control or supervision by a court; or (c) a temporary stay or individual enforcement proceedings is granted by a court or by operation of law, in order to allow for negotiations between the debtor and its creditors, provided that the proceedings in which the stay is granted provide for suitable measures to protect the general body of creditors, and, where no agreement is reached are preliminary to one of te proceddings referred to in point (a) or (b). 2  This Regulation shall not apply to proceedings referred to in paragraph 1 that concern: (a) insurance undertakings, (b) credit institutions, (c) investment firms and other firms, institutions and undertakings to the extent that they are covered by Directive 2001/24/EC; or (d) collective investment undertakings. Article 3: International jurisdiction 1  The courts of the Member State within the territory of which the centre of the debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings … 2  Where the centre of a debtor’s main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if he possesses an establishment within the territory of that other Member State. The effect of these proceedings shall be restricted to the assets of the debtor situated in the territory of the latter Member State. 3 Where insolvency proceedings have been opened in accordance with paragraph 1, any proceedings opened subsequently under paragraph 2 shall be secondary proceedings.

617

22.90  Insolvency – winding up and similar procedures 4  The territorial insolvency proceedings referred to in paragraph 2 may only be opened prior to the opening of main insolvency proceedings in accordance with paragraph 1 where: (a) insolvency proceedings under paragraph 1 cannot be opened because of the conditions laid down by the law of the Member State within the territory of which the centre of the debtor’s main interests is situated; or (b) the opening of territorial insolvency proceedings is requested by: (i) a creditor whose claim arises from or is in connection with the operation of an establishment situated within the territory of the Member State where the opening of territorial proceedings is requested; or (ii) a public authority which, under the law of the Member State within the territory of which the establishment is situated, has the right to request the opening of insolvency proceedings. Article 7: Law applicable 1 Save as otherwise provided in this Regulation, the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened …

The Regulation therefore draws a distinction between a debtor firm’s ‘main centre of interests’ in one state and his mere ‘establishment’ in another. Insolvency proceedings in the former state are ‘main insolvency proceedings’ and in the latter are ‘territorial insolvency proceedings’ which can relate only to assets within the latter state and in general may not be commenced until after ‘main’ proceedings, save by a creditor whose claim arises from the debtor’s establishment in the latter state. Where ‘main’ proceedings have already commenced, any subsequent proceedings in the other state are called ‘secondary’. The ‘centre of the debtor’s main interests’ (‘COMI’) is the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties. In the case of an individual exercising an independent business or professional activity (as opposed to a company or legal person) the COMI is established as follows2: (a) there is a rebuttable presumption that it is the state where the individual’s principal place of business is located; (b) this presumption only applies if the place of business has not been moved to another Member State within the three-month period prior to the request for the opening of insolvency proceedings. The terms ‘main’, ‘secondary’ and ‘territorial’ are chiefly important because the prescribed form of insolvency application form3 and the evidence in its support require a statement as to which of these insolvency proceedings is being commenced. The form also requires a statement of the debtor’s ‘main interests’ and (if the latter is not in the UK) his ‘establishment’ and whether the Regulation will apply4. 1 The Insolvent Partnerships (Amendment) Order 2002, SI 2002/1308 amended the Insolvent Partnerships Order 1994 as from that date to accord with the Council Regulation,

618

Applications by others under the IA 1986 and CDDA 1986 22.90 principally by altering the prescribed forms. The 1994 Order (as so amended) is printed in Appendix F below. 2 Re Kaupthing Capital Partners [2010] EWHC 836 (Ch), Proudman J, following Re Eurofood IFSC Ltd [2007] 2 BCLC 151 and Re Stanford International Bank Ltd [2010] EWCA Civ 137. 3 The amended forms in the Insolvent Partnerships Order 1994, Sch  9 (which is printed in Appendix F below). 4 Or is, for instance, excluded because the business of the firm is a ‘collective investment undertaking’ within para  2 of Art 1, as will almost certainly be the case with any limited partnership.

619

23 The insolvent firm’s debts Contents

para 1 Priority of debts generally�����������������������������������������������������������������23.1 2 Postponement of the claims of partners and others connected with the insolvent firm A Partners��������������������������������������������������������������������������������������23.2 B The partner’s spouse�������������������������������������������������������������������23.3 C Lenders, vendors and others with an interest in a profit share����23.4 D Which debts are postponed?�������������������������������������������������������23.9 3 Set-off A General������������������������������������������������������������������������������������23.10 B Joint debts of the firm and separate debts of partners���������������23.11 4 Secured creditors A General������������������������������������������������������������������������������������23.14 B The joint estate of the firm and the separate estate of the partner�������������������������������������������������������������������������������������23.15 5 The partner’s lien A The priority of the partner’s lien�����������������������������������������������23.18 B Registration and protection of liens over land��������������������������23.19 6 Costs and expenses in insolvency proceedings A Partner’s bankruptcy or insolvency�������������������������������������������23.20 B Dissolution and winding up of the firm without statutory winding up�������������������������������������������������������������������������������23.21 C Statutory winding up of the partnership alone�������������������������23.22 D Statutory winding up of the partnership and a member or members concurrently, with single trustee for both������������������23.24 7 Relative priority of creditors of the firm and creditors of partners A General������������������������������������������������������������������������������������23.27 B Priorities where the Insolvent Partnerships Order 1994 applies23.28 C The rule as to priorities where the Insolvent Partnerships Order 1994 does not apply������������������������������������������������������23.33 8 Adjustment of liabilities between partners A All partners solvent������������������������������������������������������������������23.43 621

23.1  The insolvent firm’s debts

B Statutory winding up: the liquidator’s powers��������������������������23.44 C The partner’s rights against an insolvent partner’s estate����������23.45 D An insolvent partner’s estate seeking a contribution against a solvent partner�������������������������������������������������������������������������23.50 9 An insolvent member of a solvent firm A A member’s insolvency�������������������������������������������������������������23.51 B No dissolution��������������������������������������������������������������������������23.52 C Dissolution�������������������������������������������������������������������������������23.53 10 The estate of a dead partner A General������������������������������������������������������������������������������������23.54 B Death does not halt bankruptcy proceedings����������������������������23.55 C Priorities in relation to an insolvent estate��������������������������������23.56 D The position of the personal representatives�����������������������������23.57

1  PRIORITY OF DEBTS GENERALLY 23.1  When considering various classes of debts due by a firm or any of its members, the following matters need to be considered: (a) Is the debt a firm debt at all, or the separate debt of a member, or a joint and several debt? Joint and several liability is discussed above at para 20.1ff. (b) Is the debt a postponed debt? This is discussed at para 23.24 below. (c) Is the debt secured, or has it the benefit of any set-off? This is considered at paras 23.14 and 23.10 below. (d) Has a petition for statutory winding up been presented under the Insolvent Partnerships Order 1994? If so, this will affect priorities between creditors and partners. (e) Is the property in question property of the firm or of the partner? This is discussed at para 8.16ff above, and the circumstances in which assets may be transferred from the firm to a partner or vice versa is discussed at para 8.28ff above.

2 POSTPONEMENT OF THE CLAIMS OF PARTNERS AND OTHERS CONNECTED WITH THE INSOLVENT FIRM A Partners  23.2 B The partner’s spouse   23.3 C Lenders, vendors and others with an interest in a profit share   23.4 D Which debts are postponed?   23.9 622

Postponement of the claims of partners and others 23.3

A Partners 23.2  Partners are not creditors of their own firm; sums that are due to them whether by way of repayment of capital, return of advances or payment of an unpaid profit share do not rank against any claim by any outside creditor or even a postponed creditor, but can only be paid after all creditors have been paid in full1, save in the limited circumstances mentioned at para 23.34ff below, or indirectly where he is entitled to a set-off as mentioned at para 23.10 below. As against outsiders a partner is not a creditor at all. His interest in the partnership is an interest in the residue after all liabilities of the firm (postponed or otherwise) have been discharged. He cannot enforce against his partners the rights of a creditor of the firm by subrogation after he has discharged that creditor himself2. Nor is a partner’s trustee in bankruptcy in any better position than the partner vis-à-vis the firm’s assets3. The exception is where a partner has rescinded the partnership agreement for the fraud or misrepresentation of one of his partners4. Then he may rank with the creditors for anything that he may have paid towards partnership obligations; in effect he is to be subrogated to the rights of the creditor he has discharged. Section 41 of the Partnership Act 1890 provides that in those narrow circumstances: (b) [the partner may] … stand in the place of the creditors of the firm for any payment made by him in respect of the partnership liabilities. 1 Nanson v Gordon (1876) 1 App Cas 195, HL. The question of adjustment of the ultimate liabilities between partners is considered at para 23.43ff below. 2 R v Connor (1906) 10 Exch CR 183. 3 Re Dent Co (a partnership) (in administration) [2017] 3 WLR 198. 4 This is discussed at para 14.7ff above.

B  The partner’s spouse 23.3  A true ‘postponed debt’1 in the partner’s (but not the firm’s) bankruptcy is a debt owed to a partner’s spouse. Debts owed in respect of credit provided by a person who, whether or not the bankrupt’s spouse at the time the credit was provided, was the bankrupt’s spouse at the commencement of the bankruptcy2, rank in priority after the debts which are not preferential debts and interest on ordinary and preferential debts. They are payable with interest for the period during which they have been outstanding since the commencement of the bankruptcy3. The postponement applies equally to marriage settlement trustees as to spouses4, but only to their claims against the separate estate of the partner and not to those against the joint estate of the firm5. 1 Article 2(1) of the Insolvent Partnerships Order 1994 (Appendix F below) defines postponed debt as ‘a debt the payment of which is postponed by or under any provision of the Act or of any other enactment’ so it evidently excludes debts postponed at common law if indeed any exist. ‘The Act’ is the Insolvency Act 1986: Art 2(1). 2 Ie when the bankruptcy order is made: Insolvency Act 1986, s 278. 3 See the Insolvency Act 1986, s 329.

623

23.4  The insolvent firm’s debts 4 Re Cumming and West, ex p Neilson and Craig v Trustee [1929] 1 Ch 534. 5 Re Tuff, ex p Nottingham (1887) 19 QBD 88; Re Tuff (1887) 19 QBD 88 at 91; Re Cumming and West, ex p Neilson and Craig v Trustee [1929] 1 Ch 534 at 547.

C Lenders, vendors and others with an interest in a profit share 23.4  A person with an interest in the net profits of the firm will often be a partner but may not necessarily be so1. If he is not a partner his claim is postponed to that of other creditors by statutory postponement under Bovill’s Act 18652 as re-enacted by section 3 of the Partnership Act 1890 and carried forward by the Insolvency Act 1986 as adapted by the Insolvent Partnerships Order 19943. Sections 2(3) and 3 of the Partnership Act 1890 provide: 2(3) (a) The receipt by a person of a debt or other liquidated amount by instalments or otherwise out of the accruing profits of a business does not of itself make him a partner in the business or liable as such; (b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such; (c) A person being the widow or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such; (d) The advance of money by way of loan to a person engaged or about to engage in any business on any contract with that person that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such. Provided that the contract is in writing, and signed by or on behalf of all the parties thereto; (e) A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by him of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such. 3 In the event of any person to whom money has been advanced by way of loan upon such a contract as is mentioned in the last foregoing section, or of any buyer of a goodwill in consideration of a share of the profits of the business, being adjudged a bankrupt, entering into an arrangement to pay his creditors less than [one hundred pence] in the pound, or dying in insolvent circumstances, the lender of the loan shall not be entitled to recover anything in respect of his loan, and the seller of the goodwill shall not be entitled to recover anything in respect of the share of the profits contracted for, until the claims of the other creditors of the borrower or buyer for valuable consideration in money or money’s worth have been satisfied.

So those who are not partners but have an interest in the profits of the firm are postponed by section 34 ‘until the claims of the other creditors of the 624

Postponement of the claims of partners and others 23.7

borrower or buyer’ [or firm] ‘for valuable consideration in money or money’s worth have been satisfied’. ‘Money’s worth’ is any consideration as understood in the law of contract and additionally the satisfaction of an existing debt5. 1 See the Partnership Act 1890, s 2(3) and Chapter 2. 2 The Law of Partnership Act 1865, although repealed in 1890, is set out for convenience in Appendix I below. 3 Under the modified s 328 dealing with priorities within statutory winding up. 4 Of the Partnership Act 1890 (quoted above). 5 59  LQR  208 (Sir Robert Megarry) citing Thorndike v Hunt (1859) 3 De G & J  563 and Midland Bank Trust Co Ltd v Green [1981] AC 513, HL.

(a)  Who are the postponed creditors? 23.5  Those creditors who are postponed by sections  2(3) and 3 of the Partnership Act 18901 are outlined below. 1 Another postponed creditor is a person who (although not a partner) allows his money to be used for the business of the person who becomes bankrupt: Re Meade [1951] Ch  774, following Re Beale (1876) 4 Ch D 246.

(i) Vendor of goodwill in consideration of a share in the profits of the business1 23.6  In Re Gieve, ex p Shaw2 a widow sold her late husband’s business in consideration of (inter alia) a fixed annuity from the purchaser. The Court of Appeal rejected a contention that this amounted to a share in the profits of the business, because the annuity was fixed and did not vary with profits. Held that her claim was not postponed to the general creditors of the purchaser in his bankruptcy. 1 This category is curiously mentioned both in slightly different terms in s 3 and s 2(3)(e), but there is no useful distinction between the two provisions. They are both set out above and in Appendix A below. 2 (1899) 80 LT 737.

(ii) Creditor who has advanced money by way of loan in consideration of a share or a payment contingent on or varying with the profits of the business 23.7  This category1 is expressed2 to include the following sub-categories: (i) such a creditor receiving payment ‘by instalments or otherwise out of the accruing profits of a business’3. The ‘business’ means the particular venture rather than the partnership venture generally4; (ii) a servant or agent receiving remuneration by a share in the profits5; 625

23.7  The insolvent firm’s debts

(iii) a creditor entitled to receive a rate of interest varying with the profits, or a share of profits6. Such a person is not a creditor at all but a partner, unless his contract is in writing and signed by or on behalf of all the parties thereto to the effect that he is indeed a creditor7, as discussed at para 2.35 above. The category has been extended to include a creditor entitled to a fixed sum ‘out of the profits’8. But a creditor is not postponed merely because he has agreed not to call in his debt in consideration of payment of a share of the profits to another9. Nor does it jeopardise any security that he may have taken, and which naturally will put him ahead of the general unsecured creditors10, nor does it apply to further advances made outside the ambit of the section11. The courts have not been over-anxious to impose the postponement provisions of the statutes12 in doubtful cases. Thus in Re Vince, ex p Baxter13 a loan was at fixed interest but if the borrower was unable to meet a payment ‘by reason of the deficiency of profits’ then an unspecified allowance was to be made. The Court of Appeal held that the provisions relating to profit were void for uncertainty and accordingly that section 3 of the Partnership Act 1890 did not apply. See also the facts of Re Gieve mentioned above. On the other hand mere informality in the making of the loan agreement will not take the loan out of section 314.   1 The categories are unhappily defined in some referential drafting: s 3, the ‘postponement’ section, refers back to s 2 which mentions persons who are not partners notwithstanding their interest in profits. Section 3 does not embrace all such persons, but only those who have ‘advanced money by way of a loan upon such a contract as is mentioned in the last foregoing section’. So some of such persons (such as widows entitled to an annuity, s 2(3)(c)) although specifically not partners, are not postponed by s 3 because they have no ‘contract’.   2 See the Partnership Act 1890, s 2(3) (quoted above).   3 See the Partnership Act 1890, s 2(3)(a); Re Young [1896] 2 QB 484.  4 Re Abenheim (1913) 109 LT 219.   5 See the Partnership Act 1890, s 2(3)(b).   6 See the Partnership Act 1890, s 2(3)(d).   7 Writing and a signature are required by the Partnership Act 1890, s 2(3)(d): see Smith LJ in Re Fort, ex p Schofield [1897] 2 QB 495, CA. Several writers of eminence have cast doubt upon this interpretation of the statutory requirement of writing (see in particular Underhill’s Principles of the Law of Partnership (12th edn, 1986), p 9).  8 Re Young [1896] 2 QB 484. But contrast the facts of Re Gieve given above.  9 Re Pinto Leite & Nephews, ex p Visconde des Olivaes [1929] 1 Ch 221. 10 Badeley v Consolidated Bank (1888) 38 Ch D 238 at 254 and 261 where Lindley LJ suggested that the contrary was ‘too absurd’. 11 Re Mason [1899] 1 QB 810; Re Tew, ex p Mills (1873) 8 Ch App 569. 12 Cases under the Partnership Act 1865 (‘Bovill’s Act’ printed in Appendix  I below) are Re Beale, ex p Corbridge (1876) 4 Ch  D  246 and Badeley v Consolidated Bank (1888) 38 Ch D 238. 13 [1892] 2 QB 478, and on the question whether a violation in the arrangement takes the loan out of the section in any particulars see Re Mason [1899] 1 QB 810; Re Hildesheim [1893] 2 QB 357; Re Stone (1886) 33 Ch D 541 and Re Grason, ex p Taylor (1879) 12 Ch D 366. 14 Re Fort [1897] 2 QB 495, CA. The loan agreement was not in writing.

626

Set-off 23.9

(iii)  A creditor entitled to a share in gross returns 23.8  It is uncertain whether a creditor who is entitled to a share in gross profits rather than net profits is a postponed creditor. Section  3, the ‘postponement’ section, refers back to section 2. Section 2(2) states: The sharing of gross returns does not of itself create a partnership …

Section  3 does not embrace all persons mentioned in section  2, but only those who have ‘advanced money by way of a loan upon such a contract as is mentioned in the last foregoing section’. Whether these last words are intended to include reference to section  2(2) where no express contract is mentioned must be doubtful.

D  Which debts are postponed? 23.9  The postponed creditor is postponed to the general creditors1 regardless of the fact that his debt may have come into existence long before theirs. The postponement of his debt does not prevent him taking a setoff against what the firm owes him2. If his loan is partly at interest outside section 3, and partly in consideration of a share of profit, only the part of the loan attributable to the share of profit will be postponed3. If a loan is caught by the section, further advances are similarly caught, even if they are agreed to be at a fixed rate of interest and apparently outside the section4, unless it can be said that an entirely new transaction has come into existence which replaces the old profit-sharing one. Thus in Re Abenheim5 a lender advanced money at a return which included a proportion of profits, but no profits were ever made and the firm went into financial difficulties. The lender then released the firm from the loan, in consideration for the partners accepting liability at fixed interest and the firm guaranteeing it. Held that the release had taken the loan outside section 3, and the lender was not postponed. 1 Re Mason, ex p Bing [1899] 1 QB 810. 2 Per James LJ obiter in Re Lonergan, ex p Sheil (1877) 4 Ch D 789 at 791, but the contrary was held on the construction of an Australian statute in Atlantic Acceptance Corpn Ltd v Burns & Dutton Construction (1962) Ltd (1970) 14 DLR (3d) 175. 3 Re Mason [1899] 1 QB 810; Re Tew (1873) 8 Ch App 569. 4 Re Mason [1899] QB 810; Re Grason, ex p Taylor (1879) 12 Ch D 366. 5 (1913) 109 LT 219.

3 SET-OFF A General  23.10 B Joint debts of the firm and separate debts of partners   23.11 627

23.10  The insolvent firm’s debts

A General 23.10  The law of insolvency with which we are now concerned requires setoff by way of mutual debts and credits1, but it operates on a different principle from the right of set-off between solvent parties2. The mutual liabilities may arise from separate transactions3. But they must be due in the same right4, they must both be money demands5 and must have arisen before the presentation of the bankruptcy petition6. Then the statutory set-off is ‘mandatory, automatic and immediate’7. An arrangement between the parties as to a set-off may be binding between them but will not bind creditors unless these statutory requirements of mutuality are fulfilled8. There is no authority in one partner to set off his separate debts against debts due to the firm9, nor may a creditor set off a debt that he has agreed to postpone10. In Hurst v Bennett11 the trustees of the partnership lease served a statutory demand based on their right of indemnity against a former partner. He claimed to be able to set off what he said was due to him under the dissolution accounts. The Court of Appeal rejected the set-off because mutuality required a set-off to be in the same right as the claim, and the claim by the trustees was not a claim by all partners.   1 See the Insolvency Act 1986, s  323; Stein v Blake [1996]  AC  243, where Lord Hoffmann urged caution on reliance upon New Quebrada Co Ltd v Carr (1869)  LR  4  CP  651 and other authorities on the earlier statutes. The rules relating to proprietory claims are different: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669; Anglo Corporation Ltd v Peacock Ag [1997] EWCA Civ 992, following Barclays Bank Ltd v Quistclose Investments [1970] AC 567.   2 Per Balcombe LJ in Stein v Blake [1994] Ch 16 at 22 where the Court of Appeal explained the Insolvency Act 1986, s 323, but its reasoning was not adopted on appeal [1996] AC 243 where the House of Lords followed Farley v Housing and Commercial Developments Ltd [1984] BCLC 442. Set-off between solvent parties is discussed by Morris LJ in Hanak v Green [1958] 2 QB 9 at 23 but hardly arises between partners whose mutual financial arrangements are settled by an account being taken. It is considered at para 21.10ff above.   3 Whereas equitable set-off only arises within the same transaction: Ashley Guarantee plc v Zacharia [1993] 1 WLR 62, CA; Bank of New Zealand v Harry M Miller & Co Ltd (1992) 26 NSWLR 48.  4 National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd [1972] AC 785 at 821, and see MS Fashions Ltd v Bank of Credit and Commerce International SA (No 2) [1993] Ch 425 discussed in Bank of Credit and Commerce International SA (No 8) [1996] Ch 245.  5 Re Charge Card Services Ltd [1989] Ch 497, CA; British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758.   6 See the Insolvency Act 1986, s 323(1) and the Insolvency (England and Wales) Rules 2016, r 14.25.   7 Per Rose LJ in Bank of Credit and Commerce (No  8) [1996] Ch  245 at 255A–B citing National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd [1972] AC 785 and Stein v Blake [1996] AC 243, HL.   8 See National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd [1972] AC 785, HL and cases discussed therein.  9 Re Pennington and Owen Ltd [1925] Ch 825; Piercy v Fynney (1871) LR 12 Eq 69; see also para 23.11 below. 10 Atlantic Acceptance Corpn Ltd v Burns & Dutton Construction (1962) Ltd (1970) 14 DLR (3d) 175. 11 [2001] EWCA Civ 182.

628

Set-off 23.12

B Joint debts of the firm and separate debts of partners (a)  The general rule 23.11  There is no set-off for joint against separate debts1 as discussed at para 21.10 above and save as mentioned at para 23.13 below. Thus in Ex p Twogood2 Messrs Elderton and Wilcox owned a patent for a ‘fire or steam engine’ (sic) and they took into partnership two bankers who were partners in a bank which soon failed. Elderton had private accounts with the bank, but it was held that there was no set-off between the sums due from him on his overdrawn accounts and the sums due to him as a partner, as joint and separate debts could not be set off against each other at law. In Watts v Christie3 the two Watts brothers were wine merchants in partnership who owed their bank £333. One of the Messrs Watts had in his separate account the sum of £478. The bank ceased payment. Mr Watts assigned the balance in his account to himself and his brother and they purported to set this off against what was due from the firm to the bank. Lord Langdale MR dismissed their claim as there could be no set-off between the joint firm account and the separate debt4.

Mutuality is judged not according to the legal ownership of the debts but according to their nature in equity5. 1 2 3 4 5

New Quebrada Co v Carr (1869) LR 4 CP 651. (1805) 11 Ves 517. (1849) 11 Beav 546. Before him were cited Ex p Christie (1804) 10 Ves 105 and Addis v Knight (1817) 2 Mer 117. Tapper v Matheson (1884) 3 NZLR (SC) 312.

(b) Legatees 23.12  Any rule of general law, whereby if a legatee is indebted to his testator’s estate, the executor may decline to hand over the legacy save in so far as the debt is paid1, in effect setting off the one against the other, does not apply if the debt is owed by a firm of which the legatee is a partner2. Conversely where a legatee is indebted to the firm of which the testator is a member, the executors cannot appropriate the debt to the firm as payment of the legacy3. 1 Cherry v Boultbee (1839) 4 My & Cr 442 but the ‘rule’ in Cherry v Boultbee is excluded in insolvency by the rule against double-proof: Mills, Bloom and Burton v HSBC  Trustee [2011] UKSC 48; Re Kaupthing Singer & Friedland Ltd (No 2) [2013] 3 WLR 939. 2 Turner v Turner [1911] 1 Ch 716, CA; and see the cases discussed there. 3 Jackson v Yeats [1912] 1 IR 267.

629

23.13  The insolvent firm’s debts

(c)  Exceptions for joint and several liability 23.13  Where the partner is liable to the creditor not just jointly but jointly and severally, as in the case of negligence or other torts, then the creditor may set off his debt against him and he against the creditor1, and such set-off will take place automatically on the bankruptcy of one of them2. 1 Owen v Wilkinson (1858) 5 CBNS 526; Re Last, ex p Butterell (1994) 124 ALR 219. 2 MS Fashions Ltd v Bank of Credit and Commerce International SA (No 2) [1993] Ch 425; see also the Insolvency Act 1986, s 323 and the Insolvency (England and Wales) Rules 2016, r 14.25.

4  SECURED CREDITORS A General  23.14 B The joint estate of the firm and the separate estate of the partner  23.15

A General 23.14  The rule is that if a secured creditor realises his security, he may prove for the balance of his debt after deducting the value of his security1 or the amount realised2. If he voluntarily surrenders his security for the general benefit of creditors, he may prove for the whole debt as if it were unsecured3. But without releasing his security he may not prove for the whole of the secured debt. If he relies upon his security alone he is not affected by the bankruptcy rules4. The meaning and effect of the ‘partner’s lien’ is discussed at para  10.6ff above, and its priority at 23.18 below. 1 2 3 4

See the Insolvency (England and Wales) Rules 2016, r 14.15. See the Insolvency (England and Wales) Rules 2016, r 14.41. See the Insolvency (England and Wales) Rules 2016, r 14.19(2). Richards v Kidderminster Overseers [1896] 2 Ch 212.

B The joint estate of the firm and the separate estate of the partner (a)  Joint and separate estates treated separately (i)  Statutory winding up 23.15  When considering the position of the secured creditor of either the firm or a partner or both, it will be remembered that the ‘joint’ assets of the 630

Secured creditors 23.17

firm are normally treated differently from the ‘separate’ (ie non-partnership) assets of one or more of the partners1. The exception is where concurrent petitions have been presented2 for statutory winding up of the firm, or where an ‘Article  11’ petition has been presented by all members for their own bankruptcy without statutory winding up of the firm. Priority of debts is then governed by the statutory rules discussed below. In those circumstances he will not be able to prove for a debt against either firm or partner if the debt is secured against the assets of the other. Subject to this exception, where a creditor has security over an asset of the firm, this in no way prejudices his claim against one or more partners for a separate debt that they owe him outside the ambit of the partnership; he need not release his security or give credit for its value against any part of the separate debt3. Similarly where a creditor has security over an asset of one or more partners (or all the partners, but outside the partnership, and so ‘separate’4), he need not bring this into account when proving for a ‘joint’ debt against the partnership5. 1 The circumstances in which assets may be transferred from the firm to a partner or vice versa are discussed at para 8.28ff above. 2 Under the Insolvent Partnerships Order 1994, Arts 8 or 10, as discussed in the previous chapter. 3 Re Fraser (1868) 4 Ch App 49; Rolfe and Bank of Australasia v Flower, Salting & Co (1865) LR 1 PC 27. 4 Re Rushton [1972] Ch 197; Re Turner (1881) 19 Ch D 105, CA. 5 Re Dutton [1924] 2 Ch 199, CA; Re Hart (1884) 25 Ch D 716, CA; Re Turner (1881) 19 Ch D 105, CA.

(ii)  The rule looks at the reality of the security 23.16  The treatment of partnership assets and a partner’s separate assets as distinct as regards a secured creditor will only be true if the distinction is a genuine one. So a creditor with security over shares held by one partner and a claim against his firm, need not bring his security into account in proving for his debt against the firm; but it is otherwise if in fact the secured shares were partnership property vested merely for convenience in the name of the one partner1. 1 Re Clarke (1838) 3 Deac 201; Re Collie, ex p Manchester & County Bank (1876) 3 Ch D 481.

(b) Exception where separate security has been given for a partnership debt 23.17  Old cases establish that the rule that a partnership creditor cannot retain his security and prove for the whole of his debt is subject to an exception (justified mainly by its own antiquity), where his security is not derived from the joint estate but from an outsider, perhaps a partner: then the creditor may hold to his security and prove for the whole debt1. So where a creditor has debts both from the firm and from a partner separately, and has been 631

23.18  The insolvent firm’s debts

given one security for both, then he need not give credit for his security when proving against either the firm or the partner; he may enforce his security and appropriate the proceeds to one debt entirely and retain any balance in his favour in a suspense account whilst proving for the whole of his other debt2. Whether this rule has survived the overhaul of the law now embodied in the Insolvency Act 1986 is uncertain. We doubt it. As Hoffmann LJ observed in Heath v Tang3: The insolvency law has of course changed a great deal since the time of Lord Eldon and Re Smith4 is authority for taking a fresh look at the construction of the Insolvency Act 1986 in modern conditions. 1 Re Hallett & Co, ex p Cocks, Biddulph & Co [1894] 2  QB  256; Re Rushton (Bankrupt) [1972] Ch 197; Re Bishton, ex p Bate (1838) 3 Deac 358. 2 Re Walker (1880) 42 LT 516; Re Foster (1875) LR 20 Eq 767. 3 [1993] 1 WLR 1421 at 1427. 4 [1990] 2 AC 215, HL.

5  THE PARTNER’S LIEN A The priority of the partner’s lien   23.18 B Registration and protection of liens over land   23.19

A  The priority of the partner’s lien 23.18  The partner’s lien is explained in para 10.6 above. The lien is subject to the rights of the creditors but is binding upon a liquidator, trustee in bankruptcy1, or partner winding up the partnership affairs, subject only to the prior rights of creditors2. The lien gives a partner priority in relation to partnership assets over a later and even an earlier mortgagee of a partnership share3: A judgment creditor in execution against one partner his debtor, takes only the interest of the debtor subject to his co-partner’s equities … Irrespective of the doctrine of notice they cannot take the benefit of … the profits of the concern handed over to them without first satisfying the lien of his co-adventurer for what may be due to him on taking the accounts of the adventure4.

If the firm is solvent but the partners insolvent, the lien takes priority over the rights of the separate creditors of the individual partner5. 1 Re Butterworth, ex p Plant (1835) 4 Deac & Ch 160. 2 United Builder Pty Ltd v Mutual Acceptance Ltd (1980) 144  CLR  673. I am indebted to Michael Twomey Partnership Law (2000) for this reference. 3 Cavander v Bulteel (1873) 9 Ch App 79. 4 Per Sir W Page Wood LJ giving the judgment of the Court of Appeal in Chancery in Kelly v Hutton (1868) 3 Ch App 703 at 709. 5 Re King (1810) 17 Ves 115.

632

Costs and expenses in insolvency proceedings 23.21

B  Registration and protection of liens over land 23.19  A lien is within the definition of a ‘mortgage’ in the Law of Property Act 19251. A lien over partnership land must therefore be protected by registration2, or it may be void against a purchaser. Mere retention by the partner of the deeds by way of deposit will not suffice3. To protect his lien over land a partner should therefore ensure: (a) that his name is on the deeds or register as proprietor; (b) that he remains in possession of the land; or (c) that he has registered a notice or a land charge. 1 See the Law of Property Act 1925, s 205(1). 2 See the Land Charges Act 1972, ss 2 and 4 and the Land Registration Act 2002, s 27(2)(f). 3 Unilateral notice of deposit does not satisfy the Law of Property (Miscellaneous Provisions) Act 1989, s 2: United Bank of Kuwait v Sahib [1997] Ch 107, CA.

6 COSTS AND EXPENSES IN INSOLVENCY PROCEEDINGS A Partner’s bankruptcy or insolvency   23.20 B Dissolution and winding up of the firm without statutory winding up  23.21 C Statutory winding up of the partnership alone   23.22 D Statutory winding up of the partnership and a member or members concurrently, with single trustee for both   23.24

A  Partner’s bankruptcy or insolvency 23.20  If a bankruptcy order is made against a partner, the expenses of the bankruptcy rank in his bankruptcy in priority before all debts including preferential debts1. Such expenses rank amongst themselves in the order2 laid down in the Insolvency (England and Wales) Rules 2016. 1 See the Insolvency Act 1986, s 328(2). 2 By the Insolvency (England and Wales) Rules 2016, SI 2016/1024, r 10.149.

B Dissolution and winding up of the firm without statutory winding up 23.21  Costs of winding up rank ahead of all creditors even if incurred by a partner, for instance by a partner winding up the affairs of the business where the partnership is in dissolution without a winding-up order. The cost 633

23.22  The insolvent firm’s debts

of realisation of any assets in the winding up of the firm is a first charge over that asset, for on dissolution the property of the partnership must be applied in payment of the debts and liabilities1, and the actual proceeds of realisation are to be brought into account rather than any valuation or book value2. 1 See the Partnership Act 1890, ss 39 and 44(b) (set out in Appendix A below). 2 Re Bridgewater Navigation Co [1891] 2 Ch 317 at 329 per Lindley LJ.

C  Statutory winding up of the partnership alone (a)  Costs generally 23.22  If the partnership is statutorily wound up under the amended Insolvent Partnerships Order 1994, without there being any concurrent petition against any partner, the company winding-up provisions in the Act and in the rules1 apply subject to some specific modifications mentioned in the amended Order2 and discussed in the previous chapter, and in particular: (a) references in the provisions of the Insolvency Act 1986 applied by the 1994 Order to ‘companies’ are construed as references to insolvent partnerships3; (b) references to shares of a company are equated to rights in the firm; (c) other expressions appropriate to companies are construed, in relation to an insolvent partnership, as references to the corresponding persons, officers, documents or organs (as the case may be) appropriate to partnership4. The consequence is that on statutory winding up a liquidator is appointed and the firm is treated very much as a company in liquidation. 1 2 3 4

Ie the Insolvency (England and Wales) Rules 2016. Printed in Appendix F below. See the Insolvent Partnerships Order 1994, Art 3(2). Ibid Art 3(4).

(b)  Petitioner’s and other legal costs 23.23  The expenses of the liquidation are a first call upon the assets of the firm, payable in the order of priority mentioned in Insolvency (England and Wales) Rules 6.42 and 7.108, subject only1 to alteration in this priority by the court under section 156 of the Insolvency Act 1986. Such ‘expenses’ do not include litigation costs payable to outsiders2. The costs of a petitioning member or creditor will be dealt with by the court at the hearing of the petition, and are discretionary; but almost invariably the costs of an unsuccessful petitioner will not be allowed against the firm, whereas the usual order when a petition succeeds is that the petitioner’s costs will be allowed as costs in the winding up, ranking ahead of even the preferential creditors3. If the firm’s assets are 634

Costs and expenses in insolvency proceedings 23.25

insufficient to satisfy the petitioning creditor’s costs they may be charged against the members as expenses of getting in the assets of the member4. Where the purpose of a company administration order failed and the administrator petitioned for directions for winding up, the priority of his costs were regarded by Neuberger J as being a matter for his discretion under Part II of the 1986 Act5. A partner who has been allowed his legal costs of the dissolution proceedings against the firm out of partnership assets cannot (without special order of the court) claim them ahead of the creditors, for section  44(b)6 puts the rights of creditors ahead of any claim by the partners to any part of the assets of the firm. Re Toshuku Finance (UK) plc [2002] 1 WLR 671. Re M T Realisations [2004] 1 WLR 1678. See the Insolvency Act 1986, ss 175 and 328. See the Insolvency Act 1986, s 221A(6), as introduced by the Insolvent Partnerships Order 1994, Sch 3, para 3. 5 Re a Company (No 005174 of 1999) [2000] 1 WLR 502. 6 Of the Partnership Act 1890 (which is set out in Appendix A below). Section 328(6) of the Insolvency Act 1986 provides that the priority is subject to the provisions of ‘this Act or any other Act’. 1 2 3 4

D Statutory winding up of the partnership and a member or members concurrently, with single trustee for both 23.24  The Insolvent Partnerships Order 1994 envisages the statutory winding up of a partnership in the various ways discussed in the previous chapter, and in two cases envisages the trustee of the firm and the trustee in bankruptcy of the member being the same: (a) where concurrent insolvency orders are made, both against a partner and winding up the partnership, on a creditor’s petition under Article 81; and (b) where an order is made under Article  11 for the bankruptcy of all the individual members of a partnership without statutory winding up of the partnership itself2. 1 Of the Insolvent Partnerships Order 1994 (which is set out in Appendix F below). 2 See Chapter 22.

(a) Priority 23.25  In each of the above two cases1 priority of expenses and debts as between the estates of the firm and the partner or partners is helpfully declared in the Insolvent Partnerships Order 19942. As regards expenses incurred by the relevant trustee or responsible insolvency practitioner this may be summarised as follows: 635

23.26  The insolvent firm’s debts

(a) the partnership ‘joint’ estate and each partner’s ‘separate’ estate shall primarily bear its own expenses; (b) insufficiency of the partnership estate shall be borne by the separate estates of those members against whom insolvency orders have been made, apportioned equally3; (c) if a separate estate is insufficient, the unpaid balance is apportioned equally between the other separate estates; if all such estates are insufficient, the expenses abate equally between all estates; (d) without prejudice to the above, the trustee or responsible insolvency practitioner may with the leave of the court or the sanction of the creditor’s committee: (i) pay out of the joint estate as part of the expenses to be paid out of that estate any expenses incurred for any separate estate of an insolvent member; (ii) pay out of any separate estate of an insolvent member any part of the expenses incurred for the joint estate which affects that separate estate. 1 Not when concurrent members’ petitions lead to orders against both partnership and members under Art 10, because in that case it is not envisaged that the roles of trustee in bankruptcy of the members and liquidator of the partnership will be combined. 2 Respectively the Insolvent Partnerships Order 1994, Sch  4, para  23 (Art 8 petitions) and Sch 7, para 21 (Art 11 petitions), which are printed in Appendix F below. 3 Not in proportion to their profit share, which is how the members would share the debts if they were solvent: Partnership Act 1890, s 44(a).

(b)  Statutory limit on fees 23.26  Fees are regulated by the Insolvency Proceedings (Fees) Order 20161 and neither the official receiver, the Secretary of State nor a responsible insolvency practitioner2 is entitled3 to remuneration or fees for: (a) the transfer of a surplus from the firm to a member’s estate; (b) distribution from the member’s estate to that of the firm; (c) distribution from the estate of a separate partnership to its members. 1 SI 2016/692. 2 Ie the liquidator or trustee in bankruptcy: the Insolvent Partnerships Order 1994, Art 2(1). 3 By the Insolvency Act 1986, s 175C(8), as modified by the 1994 Order.

7 RELATIVE PRIORITY OF CREDITORS OF THE FIRM AND CREDITORS OF PARTNERS A General  23.27 B Priorities where the Insolvent Partnerships Order 1994 applies   23.28 C The rule as to priorities where the Insolvent Partnerships Order 1994 does not apply   23.33 636

Relative priority of creditors of the firm and creditors of partners 23.29

A General 23.27  As mentioned above1 a debt may be a joint and several one, owed by both the firm and the member, in which case the creditor may elect to pursue either the ‘joint’ estate or the ‘separate’ estate of the member or both, as discussed below. Or a question of fact may arise as to whether the liability was that of the firm or the member. This question is a different one from the question how the debt should rank after its true nature has been established. Because all partners have unlimited liability for all the debts of the firm whether secured or unsecured or preferred or postponed, no question of priority amongst those debts will arise unless the partners are in default. How the firm’s debts are paid as between the partners when all are solvent is considered in Chapter 18. When some or all of the partners are in default, difficult questions arise as to priority between the various classes of creditor of the firm, and between creditors of the firm and creditors of the individual partners. The position is different according to whether the firm is being statutorily wound up under the new procedures discussed in the previous chapter. These points will be now considered in turn. 1 See para 20.1ff above.

B Priorities where the Insolvent Partnerships Order 1994 applies (a) Orders made on petitions where there is no concurrent petition against a member (i)  The liquidator 23.28  In the ordinary case of a partnership winding-up petition there will be no concurrent petition against a member. The procedure is discussed in Chapter 22. If the petition succeeds the firm is wound up as an unregistered company under Part V of the Insolvency Act 1986 and a liquidator is appointed. He will wind up the affairs of the firm and pay its creditors. Where the available assets (‘the joint estate’) of the firm are inadequate to meet the liabilities of the firm and the incidental costs, the liquidator makes a call upon the partners as contributories to settle the outstanding debts and liabilities. (ii)  Calls on members as contributories 23.29  A partner, as a ‘person liable to contribute to the assets of [an insolvent partnership1] in the event of it being wound up’ is a ‘contributory’ within the 637

23.30  The insolvent firm’s debts

Insolvency Act 19862. Those who are held out as partners3, and ex-partners who have not yet shed their liability to outsiders4 are also within this definition, but may be partly protected by their right to indemnity from the real partners. The liquidator must make a list of the contributories and make calls upon them5. He must adjust their contributions as between themselves6 in accordance with the partnership agreement or the principles of the Partnership Act 1890 (as the case may be)7. They are liable even if he omits them from his list8. The estate of a deceased contributory or the trustee of a bankrupt contributory remains liable9 for what is unpaid. The liability accrues when the call is made and is a specialty debt in respect of which the limitation period is 12 years10. The call will be enforced by order of the court11.   1 The words in brackets imported by the Insolvent Partnerships Order 1994, Art 3(2).   2 See ss 79(1) and 226.   3 See Chapter 5.   4 See para 20.17ff above.   5 See the Insolvency Act 1986, ss 148, 150 and 160 and the Insolvency (England and Wales) Rules 2016, rr 7.79–7.86.   6 See the Insolvency Act 1986, s  154 and the Insolvency (England and Wales) Rules 2016, rr 7.117–7.118.   7 See the Insolvency Act 1986, s 226.   8 See the Insolvency Act 1986, ss 81 and 82.   9 See the Insolvency Act 1986, ss 81, 82 and 226. 10 See the Insolvency Act 1986, s 80 and the Limitation Act 1980, s 8(1). 11 See the Insolvency Act 1986, s 228 and the Insolvency (England and Wales) Rules 2016, r 7.91.

(iii)  Priority of calls as against the partner’s creditors 23.30  Nothing in the Insolvency Act states explicitly that a call upon a contributory ranks otherwise than equally with the general creditors of the contributory, or that the old bankruptcy rule1 that separate debts rank ahead of ‘joint’ debts in the partner’s bankruptcy still applies where the firm is wound up statutorily without concurrent petitions. So implicitly the rule is gone (as it patently has where a firm is wound up with concurrent petitions as mentioned in the next paragraph2), and that as a consequence the separate creditors of a partner no longer take priority over the joint creditors of the firm after the joint estate has been exhausted, as remains the case where the 1994 Order does not apply. They rank equally. 1 Discussed at para 23.33 below in relation to priorities where the 1994 Order does not apply. 2 See para 23.31 below, and the Insolvency Act 1986, s 175A(5)(b), incorporated by Pt II, Sch 4 to the 1994 Order.

(b) Orders made on petitions against the firm where concurrent petitions are presented against members 23.31  The purpose of the procedure set out in Articles  8 and 10 of the Insolvent Partnerships Order 19941 (creditors’ petitions and members’ 638

Relative priority of creditors of the firm and creditors of partners 23.31

petitions respectively) is to enable both the firm and the partner or partners to be put into insolvency concurrently, with the same trustee administering the estates of firm and partner alike. The rules as to priorities2 (which seem intended to declare rather than alter the law save in one important respect3) are helpfully set out in the 1994 Order and can be summarised thus: (a) Section 9 of the Partnership Act 1890 applies as respects the liability of the estate of a deceased member, so a dead partner’s estate is liable for the firm’s debts subject to ‘the prior payment of his separate debts’, but the separate debts of a living partner or ex-partner enjoy no such priority. (b) No claim against the firm’s assets may be made by any partner in competition with any creditor unless the partner’s debt arises from a separate business or from fraud. (c) Expenses4 of the responsible insolvency practitioner5 take priority over the firm’s creditors. (d) Preferential debts6 rank next, then ordinary debts, then interest7 upon each of those8, then postponed debts9, then interest upon postponed debts. The Crown’s right to preference for Revenue and VAT debts etc was abolished by section 251 of the Enterprise Act 2002. (e) The responsible insolvency practitioner shall adjust the rights of the contributories between themselves (making allowance for any partner’s lien10), but a partner against whom an insolvency order has been made by virtue of a concurrent petition shall not be treated as a contributory11. (f) If the assets of the firm (‘the joint estate’) are insufficient to pay all the preferential and ordinary debts, and they are not ‘capable of being satisfied’ (ie because of apparent insolvency of partners) then a claim for the whole shortfall is to be made against the separate estate of each partner against whom an insolvency order has been made, and it shall rank not after his separate creditors12 but equally with his separate creditors of the same type. (g) Any similar shortfall in assets available for payment of the interest upon the preferential and ordinary debts, or for payment of the postponed joint debts, or of the interest upon such, is a debt provable in each such member’s estate, ranking equally with his own separate debts of the same type. (h) Any actual payment of any such provable debt from a member to the firm becomes part of the joint estate of the firm. (i) Creditors of a sub-partnership are treated as if separate creditors of a member13.   1 As to this procedure see Chapter 22.   2 For creditors’ petitions and members’ petitions they are to be found in the Insolvency Act 1986, s 175A, as inserted by the Insolvent Partnerships Order 1994, Sch 4, Pt II, as introduced by Arts 8(8) and 10(6) of the 1994 Order respectively, as set out in full in Appendix F below.  3 The important exception is as to the ranking of the joint creditors against the separate creditors of the partner, as discussed in the text.   4 See para 23.20ff above.   5 Ie the official receiver, liquidator or trustee in bankruptcy.   6 Preferential debts rank and abate equally. A surety who discharges such a debt is entitled to the same priority (Re Lamplugh Iron Ore Co Ltd [1927] 1 Ch 308). Preferred creditors

639

23.32  The insolvent firm’s debts (see the Insolvency Act 1986, s 386 and Sch 6) comprise: (a) HMRC debts; (b) Customs and Excise debts including VAT; (c) social security and occupational pension contributions; (d) debts to employees, subject to statutory limits.   7 Under the Insolvency Act 1986, s 189, as modified by the Insolvent Partnerships Order 1994, Sch 4, Pt II, para 24. Interest runs from the date of the winding-up order on any debt proved, which may itself constitute interest, in which case interest upon interest is allowed (s 189(1), as modified). The rate is the judgment rate or any higher rate applicable to the particular debt (s 189(2), as modified).   8 See the Insolvency Act 1986, s 175C(4), as thus modified.   9 Subject to ‘any provision of this Act [Insolvency Act 1986, as modified] or of any other enactment concerning the ranking between themselves of postponed debts and interest thereon’ per s 175C(5); see s 175A(7) and (8), as so modified by Sch 4 and set out in Appendix F below. Postponed debts are considered at para 23.9ff above. 10 See para 10.6ff above. 11 See the Insolvency Act 1986, s 221(7), as modified by the Insolvent Partnerships Order 1994, Sch 4, para 3. 12 As was previously the law; see Art 10 of the 1986 Order (revoked). 13 See the Insolvency Act 1986, s 175C(6), as so modified.

(c)  Orders made on Article 11 petitions 23.32  Article  11 of the Insolvent Partnerships Order 1994 provides machinery (discussed in the previous chapter) for the individual members of a firm to petition for their own bankruptcy, without applying to wind up the firm statutorily. No liquidator is appointed but the affairs of the firm are wound up by the ‘trustee of the partnership’ appointed by the members’ creditors’ committee. He implicitly falls within the definition of ‘responsible insolvency practitioner’1 whose duty is to administer the estates of the firm and the members, as discussed in Chapter 22. As regards priorities he must follow the statutory formulae2 which are identical to those summarised as (a)–(g) in para 23.31 above save that the section and paragraph numbers are different. The reader is therefore referred to the summary above and to the statutory provisions set out in Appendix F below. 1 Article  2(1) of the Insolvent Partnerships Order 1994 does not include ‘trustee of the partnership’ within the definition of ‘responsible insolvency practitioner’ but does include the trustee in bankruptcy and official receiver when so acting. In practice, the effect of an Art 11 order will be to appoint the official receiver to be both trustee in bankruptcy and trustee of the partnership. 2 See the Insolvency Act 1986, ss 328A–328D, which are introduced by the Insolvent Partnerships Order 1994, Art 11 and Sch 7, para 21.

C The rule as to priorities where the Insolvent Partnerships Order 1994 does not apply (a)  The rule as to separation of estates 23.33  As between the creditors of the firm and the creditors of the individual partner the pre-1986 rule1 remains: the firm’s assets (‘the joint estate’) go 640

Relative priority of creditors of the firm and creditors of partners 23.34

primarily to the firm’s creditors and the partner’s own free estate (‘the separate estate’) goes to his own creditors, with any surplus accruing to the other, and in the event of an ultimate deficit then the creditors of the relevant class bear the loss pro rata. The rule applies equally to insolvent corporate partners as it does to insolvent individual partners2. The effect of the rule is that a separate creditor of a partner may be paid in full whilst a partnership (‘joint’) creditor may only be paid in part or not at all, because he ranks after all the separate creditors in the bankruptcy of that partner, after all the ‘joint’ (or partnership) assets have been exhausted. The rule thus treats partnerships as akin to legal persons for insolvency purposes. Likewise it will treat sub-partnerships and group partnerships as each distinct. But it does nothing to render a partner liable for his partners’ own separate debts, as opposed to liable for partnership debts as such. Granted the potential for confusion, the law has long allowed restitutionary claims where a payment to a creditor has been made inadvertently in breach of the rule3. 1 Section  33(6) of the Bankruptcy Act 1914 followed authority as old as Lord King in Ex p Cook (1728) 2  P  Wms 500 as embodied in the order made by Lord Loughborough on 8 March 1794 set out in Re Levey, ex p Topping (1865) 4 De GJ & Sm 551 at 554 which declared the existing law in these terms: ‘In the case of partners the joint estate shall be applicable in the first instance in payment of their joint debts, and the separate estate of each partner shall be applicable in the first instance in payment of his separate debts. If there is a surplus of the separate estates, it shall be dealt with as part of the joint estate. If there is a surplus of the joint estate, it shall be dealt with as part of the respective estates in proportion to the right and interest of each partner in the joint estate.’ See Nourse LJ in Re Rudd & Son Ltd [1984] Ch 237 at 241H. 2 Re Rudd & Son Ltd [1984] 1 Ch 237. 3 Re Hind, ex p Hind (1890) 62 LT 327.

(b)  The exceptions to the rule 23.34  The rule as stated above leads to these consequences: (a) Where a creditor of the firm believes that the only assets likely to lead to a dividend are in the separate estate of a partner who himself has large debts, the creditor will try to argue that he is also a separate creditor of that partner, so that he has equal priority with the separate creditors of that partner. (b) Where a separate creditor of a penniless partner believes that there are assets in the firm, he will claim to be a ‘joint’ creditor of the firm. Usually whether the debt is a joint or separate one is a simple matter of fact, and the rule applies to the benefit or detriment of the creditor accordingly; but on occasion exceptions to the rule apply. The rule is an ancient one and the exceptions equally so; some may be extinct1. 1 The question which of the old principles of bankruptcy law have survived the new wording of the Insolvency Act 1986 was discussed by Robert Walker LJ in Cadbury Schweppes plc v Somji [2001] 1 WLR 615, CA.

641

23.35  The insolvent firm’s debts

(i)  Statutory winding up 23.35  Different rules apply to a statutory winding up under the Insolvent Partnership Order 1994, as mentioned above. (ii)  Agreement with creditor 23.36  A creditor cannot agree with the firm or a partner to improve the particular status of his debt, because to do so would be a fraud upon the other creditors. On the other hand he may have reached an agreement with the firm and the partners which incidentally has the effect of improving his position. For instance they may agree that he release the firm and take security from a partner alone, an arrangement which will be binding upon all parties unless it is a ‘preference’1 or transfer at an undervalue2 or otherwise impeachable by a trustee in bankruptcy. Thus his status as creditor may be altered with his consent to his advantage or disadvantage. But he cannot be prejudiced by an arrangement between the firm and the partners reached without his consent3. His position may be varied with the consent of the firm, the partners and all the other creditors, and with the consent of the firm alone he may agree that his debt may be postponed to others. 1 See the Insolvency Act 1986, s 340. 2 See the Insolvency Act 1986, s 339. 3 Scarf v Jardine (1882) 7 App Cas 345.

(iii)  Debt owed by both the firm and the partner 23.37  If the debt is owed by both the firm and the partner, the creditor may of course prove against the estates of both, and receive a dividend in each, as long as he receives finally no more than his full debt1. The previous doctrine of election was abolished by the Bankruptcy Act 18612 and the point was repeated in the 1914 Act3. It has not featured in subsequent legislation but this should not lead us to suppose that the doctrine of election has been revived4. 1 2 3 4

Re Jeffery (1871) 7 Ch App 178. See note 1 above. Sch 2, para 19. For these thoughts I am grateful to my friend Carolyn Walton.

(iv)  Where the firm represents itself to be a single trader 23.38  If sleeping partners allow those dealing with the firm to hold the belief that the only active partner is in fact a sole principal then a debt owed to the firm by the person dealing with it may be set off against a debt owed by the active partner; the firm is estopped from denying him the status he appeared to have1. 1 Harper v Marten (1895) 11 TLR 368, CA; Stacey, Ross, etc v Decy (1789) 7 Term Rep 361n.

642

Relative priority of creditors of the firm and creditors of partners 23.41

(v)  Fraudulent conversion of partnership or separate property 23.39  Where a partner has misappropriated partnership assets, a creditor of the firm can claim against the separate estate of that partner in competition with the partner’s separate creditors1. He is in effect following partnership property; and the remedy is useful where the property cannot strictly be traced in the hands of the partner. Conversely where the firm has defrauded a partner of his separate property, his separate creditors may prove against the joint property of the firm2. 1 Moore v Knight [1891] 1 Ch 547; Re Collie (1878) 8 Ch D 807 at 819–20; Read v Bailey (1877) 3 App Cas 94 at 102. 2 Re Goodchilds & Co, ex p Sillitoe (1824) 1 Gl & J 374. No doubt his separate creditors can also follow his claim to rank equally with the creditors of the firm under s 40(b) where he rescinds the partnership agreement for the fraud or misrepresentation of one of his partners, a matter discussed at the very beginning of this chapter.

(vi)  Distinct trade 23.40  A creditor of the firm may prove equally with the creditors of a partner where his debt has been incurred by that partner carrying on a separate business within the ambit of the firm as a whole1; the position is analogous to the right of a partner to prove against the separate estate of a partner who is carrying on a distinct trade, a right recognised in the Insolvent Partnerships Order 1994, as discussed at para 23.49 below. 1 Re Wakeham, ex p Gliddon (1884) 13 QBD 43.

(vii)  The petitioning creditor 23.41  In Lord Eldon’s day it had long been established that the particular joint creditor of the firm who took bankruptcy proceedings against a partner for the partnership debt could claim against his separate estate in parity with his separate creditors, although the other joint creditors of the firm of course could not. In Re Corson, ex p De Tastet1 his Lordship rightly commented upon this: The observation that this is very singular has frequently been made: but the rule is so settled.

It is doubtful whether the rule still exists2. A petitioning creditor should be content with the usual order that his costs be costs in the winding up, ranking ahead of even preferential creditors, as discussed at para  23.20 above. Certainly the old rule finds no echo in the Insolvency Act 1986 or the Insolvent Partnerships Order 1994. 1 (1810) 17 Ves 247 at 248, following Ex p Ackerman (1808) 14 Ves 604. See also Re Blake, ex p Burnett (1842) 2 Mont D & De G 357.

643

23.42  The insolvent firm’s debts 2 The question which of the old principles of bankruptcy law have survived the new wording of the Insolvency Act 1986 was discussed by Robert Walker LJ in Cadbury Schweppes plc v Somji [2001] 1 WLR 615, CA.

(viii)  No joint estate 23.42  Equally curious was the old rule that where the firm had no assets whatsoever available to its creditors, they ceased to rank after the separate creditors of the partner and ranked equally with them1. It was essential that there be no available joint assets at all2, but this easily occurred if all the firm’s property was fully charged3. This rule was still alive in 18944 but little has been heard of it since. 1 Re Entwisle, ex p Kennedy (1852) 2 De GM & G  228. The rule was explained by Lord Loughborough in Ex p Elton (1796) 3 Ves 238. 2 See note 1 above. 3 Re Sill, ex p Geller (1817) 2 Madd 262; Re Dawes, ex p Willcock (1816) 2 Rose 392; Ex p Smith (1813) 2 Rose 63. 4 Re Budgett [1894] 2 Ch 557.

8 ADJUSTMENT OF LIABILITIES BETWEEN PARTNERS A B C D

All partners solvent   23.43 Statutory winding up: the liquidator’s powers   23.44 The partner’s rights against an insolvent partner’s estate   23.45 An insolvent partner’s estate seeking a contribution against a solvent partner  23.50

A  All partners solvent 23.43  Where all the partners are solvent, the adjustment of the insolvent firm’s liabilities between them is not simple, but is governed by section 44 of the Partnership Act 18901 discussed at para  18.60 above. Ultimately losses are borne by the partners individually in the proportion in which they were entitled to share profits2. We discuss below the difficulty that arises when a partner is insolvent and consequently unable to pay his due share or to pay a separate debt he owes his partner. 1 See Appendix A below. 2 See the Partnership Act 1890, s 44(a).

644

Adjustment of liabilities between partners 23.44

B  Statutory winding up: the liquidator’s powers 23.44  In certain circumstances the effect of the Insolvent Partnerships Order 1994 will be that a single trustee (under whatever name) administers the insolvent estate of both the firm and of the partner: (a) under Article  81, where creditors’ concurrent petitions have succeeded against the firm and a partner; (b) under Article 10, where a member’s petition has succeeded against a firm and all its partners; or (c) under Article 11, where an order has been made on the petition of all the individual members for their own bankruptcy without statutory winding up of the firm. In each of these cases the 1994 Order envisages that the trustee (under whatever name) of both member and firm will be a single individual, and he comes under a statutory obligation to: Adjust the rights among themselves of the members of the partnership as contributories and shall distribute any surplus to the members or, where applicable, to the respective estates of the members, according to their respective rights and interests in it2.

Whether this provision is procedural only is a moot point: on the one hand what the ‘rights among themselves’ of the members are, must be a matter of substantive law which we turn to below; on the other hand the Order3 gives guidance as to such rights in rather cursory terms as follows: No member of the partnership shall prove for a joint or separate debt in competition with the joint creditors, unless the debt has arisen: (a) as a result of fraud, or (b) in the ordinary course of a business carried on separately from the partnership business.

This provision is mandatory, but does it mean that: (a) the draftsman intended such a trustee to deal with the question of priorities differently from how such priorities would fall if he had not been appointed; or (b) the draftsman regarded his own words as a fair summary of the existing law as regards such questions of priority? It could only be a summary, since the words ‘as a result of fraud’ beg many questions. Probably the second answer is right, and the draftsman’s are the only exceptions to the general rule stated next below. 1 Of the Insolvent Partnerships Order 1994, discussed in Chapter  22 and printed in Appendix F below. 2 In the case of Arts 8 and 10, by virtue of the Insolvency Act 1986, s 175A(3), as introduced by the Insolvent Partnerships Order 1994, Sch 4; in the case of Art 11, by virtue of the Insolvency Act 1986, s 328A(3), as introduced by Sch 7 to the 1994 Order. 3 For Arts 8 and 10, by s 175C(2), as incorporated by Sch 4 to the Insolvent Partnerships Order 1994; for Art 11, by s 328C(2), as incorporated by Sch 7.

645

23.45  The insolvent firm’s debts

C The partner’s rights against an insolvent partner’s estate 23.45  When a firm is insolvent and is being wound up, a member (whether he is himself insolvent or not) may find that he has been compelled to contribute to the joint debts more than his fair share, and he will seek to prove for the deficit in the bankruptcy of his insolvent partner. In the circumstances mentioned in the last subparagraph the joint trustee may ‘adjust’ their rights. Or the firm itself may seek what is due to it from the insolvent partner’s estate. In each case the question arises what claim may be made by a partner or partners or their representatives against the insolvent estate of another.

(a)  The general rule 23.46  A partner in an insolvent firm (or those representing him1) cannot prove against his insolvent partner in competition with the firm’s own creditors2. The reason is that by proving in competition with the firm’s creditors he would be reducing debts owed by himself3. The rule extends to those who are merely partners by holding out4, and also wherever by linkage and overlap of partnerships, a claimant partner tries to compete with an outside creditor of a linked partnership5. It is subject to some apparent exceptions which may help to clarify it. As mentioned in the last paragraph above, we believe that these exceptions are recognised in the Insolvent Partnerships Order 1994. 1 Re Beale, ex p Corbridge (1876) 4 Ch D 246. 2 Nanson v Gordon (1876) 1 App Cas 195; Ex p Topping (1865) 4 De GJ & Sm 551; Re Oliver, ex p Williams (1843) 3 Mont D & De G 433; Re Dent Co (a partnership) (in administration) [2017] 3 WLR 198. 3 Re Blythe (1881) 16 Ch D 620. 4 Re Wright, ex p Sheen (1877) 6 Ch D 235, CA. 5 Re Campion, ex p Brown (1842) 2 Mont D & De G 718.

(b)  The exceptions (i) Where the claimant partner has ceased to be in competition with the joint creditors 23.47  A claimant partner has ceased to be in competition with the joint creditors in the following cases (which may not exhaust the principle)1: (i) Where the claimant partner has paid all the firm’s creditors2, or these have been in some other way discharged3. (ii) Where there are no assets available in any estate of any other partner to pay the joint creditors after payment of those partners’ separate debts, a partner who has a separate debt ‘from an undisputed contract apart from the co-partnership’4 (see para 23.49 below) against a partner may prove 646

Adjustment of liabilities between partners 23.49

for it. But his proof will be set aside if it later transpires that the assets might have sufficed to yield a dividend for the joint creditors after all5. (iii) Where the Limitation Acts have barred the claims of the creditors, or the claimant partner has been discharged from bankruptcy and is accordingly freed from the debts or if he is a limited partner6. Conversely the last surviving member of a firm can set off a partnership claim against his personal liability to the creditor if he has first settled up with the representatives of his former partners7. 1 See Lord Westbury C in Re Levey, ex p Topping (1865) 4 De GJ & Sm 551 at 556: ‘It has been laid down as a general rule that a partner cannot be permitted to prove against the estate of his co-partner until the joint debts are satisfied. The question here is whether … that rule … should be carried out to the letter when the reason or purpose ceases to have any application.’ 2 Re Elgar (1814) 2 Rose 175. The principle is considered further, in relation to limited partnerships, at para 24.48 below. 3 Re Douglas [1930] 1 Ch 342; Re Wilcoxon (1884) 25 Ch D 505. 4 Per Lord Westbury C in Re Levey, ex p Topping (1865) 4 De GJ & Sm 551 at 557. 5 Re Head, ex p Head [1894] 1 QB 638; Re Levey, ex p Topping (1865) 4 De GJ & Sm 557. 6 Re Hepburn (1884) 14 QBD 394; Royal Norwegian Government v Constant [1960] 2 Lloyd’s Rep 431. For limited partners see para 24.56 below. 7 McClean v Kennard (1874) 9 Ch App 336; Slipper v Stidstone (1794) 5 Term Rep 493.

(ii)  Where the debt has arisen as a result of fraud1 23.48  The defrauded partner can claim against the estate of the partner who has defrauded him, in competition with joint creditors, in two instances: (i) where he has been induced to contribute capital to the firm (whether or not also to become a member) by fraud2; or (ii) where he has been fraudulently deprived of his own separate property by the firm3. 1 To quote the Insolvency Act 1986, ss 175C(2)(a) and 328C(2)(a), as introduced by the Insolvent Partnerships Order 1994, Schs 4 and 7 respectively. 2 Bury v Allen (1845) 1 Coll 589. 3 Re Goodchilds & Co, ex p Sillitoe (1824) 1 Gl & J 374. The effect of his right to rescind where he has been induced to enter into partnership by fraud or misrepresentation (Partnership Act 1890, s 41(b)) is discussed at para 14.7 above.

(iii) Where the debt has arisen in the ordinary course of a business carried on separately from the partnership business1 23.49  If the debt has been incurred between two persons who, although partners, have as regards the transaction in question been involved in an entirely different business, the debt is admissible to proof against the separate estate of the one who incurred it2. Thus where the partnership businesses were that of oilmen, insurance brokers, dealers and chapmen3, and the trades were carried on in separate premises with separate bankers, a debt incurred by the single partner who carried on the insurance broking business was provable against his separate estate.

647

23.50  The insolvent firm’s debts

For this purpose banking will not be regarded as a separate trade if its effect is to finance the other partnership business4. 1 To quote the Insolvency Act 1986, ss 175C(2)(b) and 328(2)(b), as introduced by the Insolvent Partnerships Order 1994, Schs 4 and 7 respectively. 2 Re Petherbridge, ex p Cook (1831) Mont 228. 3 Ex p St Barbe (1805) 11 Ves 413. 4 Re Braginton (1867) 2 Ch App 550.

D An insolvent partner’s estate seeking a contribution against a solvent partner 23.50  The liquidator or trustee in bankruptcy of an insolvent member can pursue any contribution claim that the member would have had if he had not been overtaken by insolvency1. But a claim on behalf of an insolvent cannot be made without bringing into account what he may owe the firm; so a bankrupt who has never paid his capital must allow a full set-off for this when claiming his share in dissolution2, because the share of any partner is a share in the net assets after all mutual accounting has been done, as discussed in Chapter 10. 1 Such claims are discussed at para 14.56ff above. 2 Holderness v Shackels (1828) 8 B & C 612 at 618; Ex p Williams (1805) 11 Ves 3, 5–6; West v Skip (1749) 1 Ves Sen 239 at 242; Re Ward (a Bankrupt) [1985] 2 NZLR 352, NZCA not following Smith v De Silva (1776) 2 Cowp 469.

9 AN INSOLVENT MEMBER OF A SOLVENT FIRM A A member’s insolvency   23.51 B No dissolution  23.52 C Dissolution  23.53

A  A member’s insolvency 23.51  Subject to contrary agreement, a member’s bankruptcy dissolves the firm1. If a member ‘suffers his share of the partnership property to be charged’, then the firm may be dissolved at the option of the other partners2, or the other partners may invoke their statutory right to redeem the share3. A well-drawn partnership agreement should provide that the bankruptcy of a member will not dissolve the firm but will empower a specific majority of the other members to dissolve the firm at their option. 1 See the Partnership Act 1890, s 33(1); see para 16.29 above. 2 See the Partnership Act 1890, s 33(2). 3 See the Partnership Act 1890, s 23(3).

648

An insolvent member of a solvent firm 23.53

B  No dissolution 23.52  If a sale of a partner’s charged share is ordered by the court, the other partners have a statutory right to purchase it1. But any agreement between the partners that purportedly forfeits the bankrupt’s share or gives him less than its true value will be void as a fraud on the bankruptcy Acts2. If no dissolution occurs, the insolvent member’s creditors cannot secure for themselves a debt due to the firm3. His trustee in bankruptcy is only entitled to the share of profits and other rights that the member had in the partnership as a continuing entity4. A judgment creditor may apply under section 23(2)5 for: (a) a charge6 over the partner’s interest in the partnership property and profits; or (b) a receiver over his share of profits, whether declared or accruing, and any other money which may be coming to him in respect of the partnership; and (c) a direction for all accounts and enquiries and orders and directions that might have been given if the partner had voluntarily charged his share. These matters are further discussed elsewhere7. 1 See the Partnership Act 1890, s 23(3); Perens v Johnson (1857) 3 Sm & G 419. 2 See para 18.34 above, and Lord Eldon’s doubts in Wilson v Greenwood (1818) 1 Swan 471 at 481 there cited. 3 See the Partnership Act 1890, s  23(1); Macdonald v Tacquah Gold Mines Co (1884) 13 QBD 535, CA. 4 For a creditor’s right to serve an old-style bankruptcy petition on a partner without invoking the Insolvent Partnerships Order 1994, see para 22.10 above. For the rights of a chargee of a partnership share and of a partner’s trustee in bankruptcy, see Chapter 10. 5 Of the Partnership Act 1890; see Appendix A below. 6 A charging order against a partner has the same effect as if the partner had executed a document charging his share with the debt: Brown, Janson & Co v A  Hutchinson & Co [1895] 2 QB 126 at 131, CA. 7 For the position of the trustee in bankruptcy of a member of a solvent partnership and for the duties of the solvent partners see para 22.14ff above; for the charging of a partnership share and appointing a receiver over it see para 10.4 above.

C Dissolution 23.53  The effect of a dissolution will be that the insolvent member (or his trustee in bankruptcy) will become entitled to a share in the net assets of the firm after winding up and payment of all the firm’s debts, so no question will arise as to the priorities between his creditors and those of the firm. The separate estate of the bankrupt partner has a lien over the surplus available and due to him out of the joint estate1. 1 Ex p King (1810) 17 Ves 115; see para 10.6ff above.

649

23.54  The insolvent firm’s debts

10  THE ESTATE OF A DEAD PARTNER A General  23.54 B Death does not halt bankruptcy proceedings   23.55 C Priorities in relation to an insolvent estate   23.56 D The position of the personal representatives   23.57

A General 23.54  The estate of a deceased partner stands in the same position as regards his accrued rights and liabilities as he did himself1, save that his estate is severally liable2 where before his death he had been jointly liable, but this distinction is now of little importance3. Section 9 of the Partnership Act 1890 provides: Every partner in a firm is liable jointly with the other partners, and in Scotland severally also, for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in a due course of administration for such debts and obligations, so far as they remain unsatisfied, but subject in England or Ireland to the prior payment of his separate debts.

So his personal representatives may not prove against another partner in competition with the creditors of the firm, but this is subject to the same exceptions as are mentioned above4. The position of his personal representatives generally is discussed at para  10.17ff above. His death may or may not dissolve the partnership according to the terms of the partnership agreement5. His liability for debts contracted after his death is restricted6. 1 2 3 4

For the position of personal representatives generally see para 10.17ff above. Kendall v Hamilton (1879) 4 App Cas 504, HL. See para 20.1ff above. See para 23.33 above. But for s 9, the effect of the liability in debt being a joint one is that on death a partner is discharged from the liability, which accrues to the survivors: White v Tyndall (1888) 13 App Cas 263, HL. 5 See the Partnership Act 1890, s 33 and para 16.28 above. 6 See the Partnership Act 1890, s 36(3) and para 20.17ff above.

B  Death does not halt bankruptcy proceedings 23.55  If a debtor by or against whom a bankruptcy petition has been presented dies, the proceedings continue unless the court otherwise orders, with consequential modifications to the procedure as set out in Schedule  2 to the Administration of Insolvent Estates of Deceased Persons Order 19861. 1 See the Administration of Insolvent Estates of Deceased Persons Order 1986, SI 1986/1999, Art 5(1), as amended by the Administration of Insolvent Estates of Deceased Persons (Amendment) Order 2002.

650

The estate of a dead partner 23.57

C  Priorities in relation to an insolvent estate 23.56  If his estate is insolvent, it is subject to the same priorities as regards his partners as when he was alive, save that his reasonable funeral and testamentary expenses have priority over all debts including preferential debts1. If the estate is insolvent but is not being administered in bankruptcy, reasonable administration expenses also rank with that priority2. 1 See the Administration of Insolvent Estates of Deceased Persons Order 1986, Art 5(1). 2 See the Administration of Insolvent Estates of Deceased Persons Order 1986, Art 4.

D  The position of the personal representatives 23.57  The executors of a partner who (as such) do no more than carry on the partnership business for the purpose of winding it up are not themselves partners and cannot be adjudicated bankrupt for a firm debt1. It will be otherwise if they carry on the business with continuing partners who accept them as partners; their position then is considered at para 10.17ff above. 1 Re Fisher & Sons [1912] 2 KB 491.

651

24 Limited partnerships Contents

para 1 Limited partnerships generally A The nature of limited partnerships���������������������������������������������24.1 B Sham limited partnerships����������������������������������������������������������24.4 C ‘Business’ and ‘business in common’������������������������������������������24.5 D The limited partner’s financial position��������������������������������������24.6 E Venture capital or private equity funds, collective investment schemes and private fund limited partnerships���������������������������24.7 F Foreign firms and foreign recognition�����������������������������������������24.8 G Discrimination���������������������������������������������������������������������������24.9 2 Management of the business A Powers of the general partner(s) and the limited partners���������24.10 B Involvement by limited partners�����������������������������������������������24.11 C Conflict between the limited partners, the general partner and the operator�����������������������������������������������������������������������24.17 3 Incoming and outgoing partners and their assignees A Introduction of partners�����������������������������������������������������������24.22 B An assignment, charge, nomineeship or trusteeship of a limited partner’s share��������������������������������������������������������������24.23 C The number of partners and their nature����������������������������������24.24 4 The limited partner’s capital A Limited partners in an ordinary limited partnership�����������������24.25 B Limited partners in a private fund limited partnership�������������24.26 5 Registration and advertisement A Default in registration��������������������������������������������������������������24.27 B The details to be registered initially������������������������������������������24.32 C The changes to be registered subsequently��������������������������������24.33 D The register������������������������������������������������������������������������������24.34 E Advertisement of changes���������������������������������������������������������24.36 F The firm name and the Companies Act������������������������������������24.37 6 Regulation of the business A Financial services����������������������������������������������������������������������24.38 653

24.1  Limited partnerships

B Collective investment schemes��������������������������������������������������24.39 C Private fund limited partnerships����������������������������������������������24.40 D Successor partnerships��������������������������������������������������������������24.41 E Alternative authorisation for legal professionals�����������������������24.42 7 Dissolution and winding up A Dissolution without court order�����������������������������������������������24.43 B Dissolution by court order�������������������������������������������������������24.47 C Winding up after dissolution����������������������������������������������������24.49 8 Execution and insolvency A Judgment and execution against a limited partnership�������������24.50 B Bankruptcy and petitions for statutory winding up������������������24.51 C The priority of a limited partner’s claim against his insolvent firm������������������������������������������������������������������������������������������24.57

1  LIMITED PARTNERSHIPS GENERALLY A B C D E

The nature of limited partnerships   24.1 Sham limited partnerships   24.4 ‘Business’ and ‘business in common’   24.5 The limited partner’s financial position   24.6 Venture capital or private equity funds, collective investment schemes and private fund limited partnerships   24.7 F Foreign firms and foreign recognition   24.8 G Discrimination  24.9

A  The nature of limited partnerships (a) Generally 24.1  Limited partnerships are creatures of the Limited Partnerships Act 1907, which is reprinted in Appendix B below. They must not be confused with limited liability partnerships, which are a species of corporation and creatures of the Limited Liability Partnerships Act 2000 which is discussed at Chapter 25. Under English law a limited partnership is a partnership in which some of the members have liability limited to the amount of capital or property they have advanced to the firm. The purpose is to encourage investment in firms by giving protection to the sleeping partners. Limited partnerships are widely used as vehicles for investment or for joint ventures in property. As such, they are likely to constitute ‘unregistered collective investment schemes’ and consequently ‘private fund limited partnerships’ as discussed below1. The limited liability of the limited partners lasts for so long as they comply with two rules: (1) they must take no part in the partnership business2; (2) they must comply with the statutory obligations as to registration3. 654

Limited partnerships generally 24.2

Those partners with limited liability are called ‘limited’ partners4. Unless their partnership is a private fund limited partnership they must contribute a fixed amount of capital and may not withdraw it5. In practice this will usually be a nominal amount. Because they are unable to take part in the management of the business it is necessary that there is at least one partner to run the business who is not a limited partner, and he is called a ‘general’ partner6 and is subject to the same unlimited liability as a partner in an ordinary partnership. If the general partners are themselves limited companies, as they usually are, then something akin to limited liability is achieved for the whole firm. There is no objection to the general partners being companies owned by the limited partners or vice versa, provided that the limited partners do not thereby take part in the management of the business of the firm7, as to which see para 24.11 below. 1 2 3 4 5 6 7

See para 24.40 below. See the Limited Partnerships Act 1907, s 6 (which is reprinted in Appendix B below). See the Limited Partnerships Act 1907, ss 5, 8, 8A and 9. See the Limited Partnerships Act 1907, s 4(2). See the Limited Partnerships Act 1907, s 4. See the Limited Partnerships Act 1907, s 3. PWA  Corpn v Gemini Group Automated Distribution Systems Inc (1993) 103  DLR (4th) 609, Ont CA; Madsen v Canada 196/332 (FCA) (Canada).

(b)  Proposed law reform 24.2  The legislation discussed in this chapter represents the law as at the date that this book goes to press, but the reader should be aware that the Government intends to introduce amending legislation as soon as parliamentary time allows in order to limit the potential misuse of limited partnerships, particularly for money laundering1. The intention is: (i) to require a presenter of a limited partnership for registration to provide evidence that they are registered with an anti-money-laundering supervisory body; (ii) to require limited partnerships to give information about their connection with the UK and to identify a proposed Principal Place of Business within the UK; (iii) to require contact information on all limited and general partners, and to register changes in the limited partnership; (iv) to give the Registrar power to strike off those that are dissolved or not carrying on business. 1 See DBEIS ‘Government Response’ to consultation on reform of limited partnership law, 10/12/2018.

655

24.3  Limited partnerships

(c)  Contrast with ordinary partnerships 24.3  A limited partnership is a species of ordinary partnership and lacks legal personality: for instance, it may not own land in its own name1. It differs from an ordinary partnership2 only in that: (a) the limited partners take no part in the management of the business and are not agents for their partners because the general partner acts for all of them as well as for himself; (b) the limited partners in a partnership which is not a private fund limited partnership3 must contribute capital of a fixed amount and character; (c) they are liable for debts and obligations up to, but not beyond, the amount so contributed. (d) there are a few accountancy differences: for instance, relief for income losses is restricted4 a small LP may not use the cash basis of accounting5, and there is no income tax relief on interest or borrowings for funds for capital6. English limited partnerships are not legal entities7, at least until they are put into liquidation8. Scottish limited partnerships by contrast are, like all Scottish firms, separate legal persons9. Both are a creation of statute10. Partnership law generally applies to limited partnerships save where it is excluded by the provisions of the Limited Partnerships Act 1907. Section  7 of that Act provides: Subject to the provisions of this Act, the Partnership Act 1890, and the rules of equity and common law applicable to partnerships, except so far as they are inconsistent with the express provisions of the last-mentioned Act, shall apply to limited partnerships.

‘Firm’ and ‘firm name’ have the same meanings as in the Partnership Act 189011. But the difference between an ordinary partnership and a limited partnership raises the implication that there may be more differences than are spelled out in the 1907 Act. For instance the meaning of ‘business in common’ may be different12 and there seems to be no reason why a limited partnership cannot be repudiated even if an ordinary partnership cannot13 and the mutual agency which is fundamental to an ordinary partnership may not exist in a limited partnership where the limited partners are not agents of anyone. But each of the partners in a limited partnership are said to owe the others a duty of good faith in relation to the partnership business; this principle is said to apply as much to limited partnerships as to ordinary partnerships notwithstanding the absence of general agency14. For partnerships registered on or after 1 October 2009 the fact of limited liability must be disclosed in the firm name, though previously there was no such requirement15. Limited partnerships, whether created before or after 1 October 2009, must be registered and registration requirements are discussed in further detail below.  1 Vanquish Properties (UK) Ltd Partnership v Brook Street (UK) Ltd [2016] EWHC 1508 (Ch), but see Wray v Wray [1905] 2 Ch 349.   2 For this analysis see Peter Gibson LJ in Memec v IRC [1998] STC 754 at 764.

656

Limited partnerships generally 24.4   3 See the Legislative Reform (Private Fund Limited Partnerships) Order 2017 at para 24.40 below.   4 FA 2013, ss 17–18 and Schs 4 and 5.   5 Income Tax Act 2007, s 105; Finance Act 2007, s 26 and Sch 4.   6 ITA 2007, s 399(2) and (3).  7 Mephistopheles Debt Collection Service v Lotay [1995] 1 BCLC 41 at 45g; Kucor Construction & Developments & Associates v Canada Life Assurance Co (1998) 167  DLR (4th) 272, Ontario CA.   8 An insolvent partnership in liquidation acts through its liquidator which can sue in the name of the firm: The Connaught Income Fund v Capita Financial Managers [2014] EWHC 3619 (Comm), para 26.   9 Partnership Act 1890, s 4(2). 10 See the Limited Partnerships Act 1907, s 1. The United Kingdom was one of the last European countries to pass such legislation. A Limited Partnerships Act was passed in Upper Canada in 1849 (upon which the 1907 Act is modelled) and itself derives from the French Société en Commandite Simple in which the Commanditaires enjoy limited liability only so long as they take no part in the outward management of the company. Similar Acts had been passed in New South Wales in 1892 and in Queensland (The Mercantile Act 1867). Bovill’s Act (the Law of Partnership Act 1865) was sometimes misleadingly called the Limited Partnership Act, but was not to comparable effect. It is reprinted in Appendix I below. 11 See the Limited Partnerships Act 1907, s 3. 12 See para 24.5 below. 13 See para 14.12 above. 14 See Norris J in BBGP Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch), para 11. 15 A requirement of the original draft Bill before Parliament was that the words ‘limited firm’ would have to be included in the firm name, but this requirement was deleted by amendment in the course of debate in the House of Lords (16  July 1907). However, a new s 8B was introduced by the Legislative Reform (Limited Partnerships) Order 2009, SI 2009/1940, which provides that, in the case of a limited partnership registered on or after 1 October 2009, its name must end either with the words ‘limited partnership’ or the letters ‘LP’ (or, for limited partnerships with the principal place of business in Wales, their Welsh equivalents).

B  Sham limited partnerships 24.4  Before 1  October 2009 the limited partnership might be a sham if its partners in fact intended that their relation was different from those in a real limited partnership1 but not merely if it was set up for some unusual purpose such as legally to evade the effects of the Agricultural Holdings Acts2. Since 1 October 2009 a certificate of registration is conclusive evidence that a limited partnership came into existence on the date of registration3, and so it is difficult to see how a registered limited partnership can ever be a sham. If a limited partner exceeds his very restricted right to take part in the management, he loses the limitation on his liability as explained below, but the partnership will not be a sham. The question whether a limited partner is in fact a nominee for another is considered at para 10.22 above. 1 Snook v London and West Riding Investments Ltd [1967] 2 QB 786. 2 MacFarlane v Falfield Investments Ltd 1996  SCLR  826. For ‘sham’ partnerships see para 2.5 above. 3 Limited Partnerships Act 1907, s 8C, introduced by the Legislative Reform (Limited Partnerships) Act 2009.

657

24.5  Limited partnerships

C  ‘Business’ and ‘business in common’ 24.5  It is the view of the BIS and HMRC1 that limited partnership can exist merely for ‘raising funds for investment into companies’. This might not satisfy the requirement of ‘business’ activity sufficiently to create an ordinary partnership2. In a limited partnership there may not be the same requirement of ‘business in common’3 that is necessary in an ordinary partnership4 because the carrying on of business by an active general partner and an inactive limited partner cannot be done ‘jointly’ in the same way as joint activity in an ordinary partnership. So the phrase ‘carrying on business in common with a view of profit’ in section 1(1) of the 1890 Act may have to be interpreted rather differently5. 1 See the agreed Statement of the British Venture Capital Association (26 May 1987), set out in Appendix J below. 2 See the Partnership Act 1890, s 2(1) and para 2.39 above. 3 See the Partnership Act 1890, s 1(1), discussed at para 2.15ff above. 4 MacCarthaigh v Daly [1986] IRLM 116. 5 Contrast the requirement of ‘business’ in the LLP legislation, discussed at para 25.18 below.

D  The limited partner’s financial position 24.6  The limited partner’s liability for the ‘debts and obligations of the firm’1 (which means the firm’s liability to outsiders) is limited to the amount of the fixed capital that he contributes (according to s 4(2) and (2B) of the 1907 Act as amended2) or, in the case of a private fund limited partnership, limited to the property available to the general partners to meet the partnership debts and obligations3. His capital is discussed at para 24.25 below. If the firm is unable to pay its debts from its own resources, his liability is capped so that he may lose his share in the partnership assets to the extent of his own capital in the firm but is not liable to contribute from his own resources to make up any deficit. So when a limited partnership becomes insolvent the limited partners are liable only to this limited extent, and thereafter the general partner is liable. They all have a right of indemnity out of the partnership assets, as discussed at para 12.33 above. A slightly different question is the limited partner’s liability for income losses on profit and loss account: The partnership’s trading losses are conceptually quite distinct from the debts and liabilities of the firm and from the assets which are available to meet them4.

Under section  24(1) of the Partnership Act 1890 the partners are liable to ‘contribute equally to the losses’ of the firm. Until the time when the partnership is insolvent each limited partner will have to meet his share of the trading losses of the business. Because his liability to contribute is capped, he may decline to pay all his share of a loss which is otherwise attributable to his share. In that case the firm will carry the deficit over and charge it against his profit in a subsequent year. 658

Limited partnerships generally 24.7

It is arguable that a limited partner is personally liable also where statute has imposed a liability upon him in relation to some illegality5. 1 See the Limited Partnerships Act 1907, s 4(2) (which is reprinted in Appendix B below). 2 As amended by the Legislative Reform (Private Fund Limited Partnerships) Order 2017. 3 Limited Partnerships Act 1907, s 4(2B) which is reprinted in Appendix B below, as amended by the Legislative Reform (Private Fund Limited Partnerships) Order 2017. 4 Per Lord Oliver in Reed v Young [1986] 1 WLR 649 at 653, HL. 5 For illegality see Chapter 4.

E Venture capital or private equity funds, collective investment schemes and private fund limited partnerships 24.7  Today the most common example of a limited partnership is a venture capital or private equity fund, through which investors (the limited partners) advance money to be placed for them in commercial ventures or unlisted companies1. The manager and the operator will be appointed by the general partner and will charge a fee. Both the operator and the manager will usually require to be authorised under the Financial Services and Markets Act 2000 by the FCA as discussed at para 24.39ff below. One of the limited partners may be controlled by the management team and be called a ‘founder partner’ and be entitled to a share in the profits of the venture on dissolution (‘carried interest’) for which it has made little or no financial contribution2. The Privy Council (in a BVI case) has defined ‘carried interest’ as a ‘bonus or success fee payable to interests associated with the management’3. Any limited partner may itself be a Scottish limited partnership, which can be both tax transparent and have the legal personality to enable it to be a member of the English limited partnership. Until recently the limited partners’ nominal capital might be small so as to limit narrowly their liability; then their substantial advances to the partnership would be by loan. But with effect from 6 April 2017, amendment4 to the 1907 Act put such financial vehicles upon a different footing which required no capital. Such ‘collective investment schemes’5, if constituted by an agreement in writing, are called private fund limited partnerships6. 1 A limited partnership ‘established for the purpose of raising funds for investment into companies’ is (rightly or wrongly) recognised as a partnership by HMRC and the Department for Business, Innovation and Skills: see the agreed Statement of the British Venture Capital Association (26 May 1987), set out in Appendix J below. There was a question as to whether its members could be described as ‘carrying on business in common’ so as to satisfy the test of partnership in the Partnership Act 1890, s  1(1): see Smith v Anderson (1880) 15 Ch D 247 CA and paras 24.5, 2.16 and 25.18. No doubt the purpose of the Statement was to resolve this issue, at least to the satisfaction of the parties to the Statement. 2 Rowella Pty Ltd v Abfam Nominees Pty Ltd (1989) 168 CLR 301 (High Court of Australia). 3 Krys v KBC Partners LP [2015] UKPC 46. 4 Legislative Reform (Private Fund Limited Partnerships) Order 2017. 5 See para 24.39 below. 6 See para 24.40 below.

659

24.8  Limited partnerships

F  Foreign firms and foreign recognition 24.8  The English courts will recognise the status of a foreign limited partner if the limited partnership has a corporate nature1 and probably also if it has no corporate nature but has its own ‘legal personality’2 and has an appearance similar to that of a UK limited partnership3. Otherwise the limited nature of the limited partner’s liability will not be recognised in England, unless perhaps an estoppel arises because the claimant creditor has dealt with the firm on the basis of its partners’ limited liability and implicitly accepted that liability. Whether a foreign jurisdiction would recognise the protected status of a limited partner in an English limited partnership (which lacks separate legal personality, as opposed to a Scottish one4) will depend upon the law of the jurisdiction in question. For English purposes, the legal personality of Scottish firms is specifically recognised by section 4(2) of the Partnership Act 1890. A limited partnership exists only by virtue of national legislation, and may be restricted by that law in its right to move its seat of establishment without changing its defining law5. 1 Per Lord Oliver in J H Rayner Ltd v Department of Trade [1990] 2 AC 418 (the Tin Council case) at 509A. 2 A body which has separate personality from its members but is not a corporation is an odd beast. The present editors of Palmer on Company Law state at para  1.205: ‘Associations which have legal personality are called corporations or bodies corporate.’ This clear statement is too general. Quasi-corporations, such as registered friendly societies, have legal personality and a name and power to sue and be sued, and to hold contractual obligations, without being corporations. Scottish partnerships were described by Lord Templeman in the Tin Council case at para 79G in a manner suggesting they are not corporate: ‘Section 4 of the Partnership Act 1890 … preserves for a Scottish partnership some of the benefits of incorporation and some of the attributes of an unincorporated association …’ Similarly the Law Commission and the Scottish Law Commission, in their report on partnership law laid before Parliament in November 2003, proposed a new partnership bill in which section 1(3) would provide, rather obscurely, ‘A partnership is a legal person but not a body corporate’. See further the cases cited in note 1 above and note 3 below. 3 Oxnard Financing SA v Rahn [1998] 1 WLR 1465; Memec v IRC (1998) STC 754, CA; The Kommunar (Lloyd’s Law Reports 1997) 18; The Gilbert Rowe (1997) 2 Lloyd’s Rep 218; Bumper Corp v Commissioner of Police of Metropolis [1991] 1 WLR 1362. 4 See para 1.11 above. 5 Application by Cartesio [2009] Ch 354, ECJ.

G Discrimination 24.9  The rules against discrimination (in its many forms) which apply to partners in ordinary partnerships and which are discussed in Chapter 13 are applied to limited partnerships but as if references to ‘partner’ is a reference to the general partner, so the legislation does not apply to limited partners as such1. 1 The legislation is thus applied to limited partnerships by the Equality Act 2010, s 44(8).

660

Management of the business 24.10

2  MANAGEMENT OF THE BUSINESS A Powers of the general partner(s) and the limited partners   24.10 B Involvement by limited partners   24.11 C Conflict between the limited partners, the general partner and the operator  24.17

A Powers of the general partner(s) and the limited partners 24.10  The scheme of the 1907 Act is that the limited partners should be sleeping partners (with rights akin to those of the shareholders in a limited company), upon pain of forfeiture of their limited liability status if they interfere in the management of the business. The Limited Partnerships Act 1907 does not so much describe what the general partners can do as what the limited partners cannot do. The limited partners have no power to bind the firm1, nor will notice to them be notice to the firm2. The management of the business is in the hands of the general partners only, as it is in the hands of all of the partners in an ordinary partnership by section 24(8) of the Partnership Act 18903. A deed binding the partnership may be executed by the general partners alone4. They are liable without limit for any partnership debt or bill of exchange drawn on the firm5. But they are not trustees for the firm6. Disputes on matters of management of the business are resolved by them alone. Section 6(5)(a) of the Limited Partnerships Act 1907 echoes this in these terms: Subject to any agreement expressed or implied between the partners – (a) Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the general partners.

This means that a general partner in a limited partnership is more akin to a managing director than to an ordinary partner on equal terms with his other partners7 and it raises questions as to the requirement that the business is carried on by all partners ‘in common’. In the absence of contrary agreement, the contracts that he makes will be made by himself on behalf of the partnership and will not be his separate liability (see paras 20.1 and 20.4 above). The limited partners in a private fund limited partnership are entitled to take a larger part in the management than ordinary limited partners, as discussed in para 24.110 below. 1 See the Limited Partnerships Act 1907, s 6(1) (which is reprinted in Appendix B below). 2 The Partnership Act 1890, s 16 provides that notice to a partner is notice to the firm only where he ‘habitually acts in the partnership business’. 3 Discussed in Chapter  12. Section  24(8) of the Partnership Act 1890 provides that subject to contrary agreement: ‘Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners, but no change may be made in the nature of the partnership business without the consent of all existing partners.’ 4 Elevated Construction Ltd v Nixon [1970] 1 OR 650 (Canada).

661

24.11  Limited partnerships 5 Re Barnard, Martin’s Bank Ltd v Trustee [1932] 1 Ch 269. 6 Per Lane J in Colvill-Reeves v Canadian Home Publishers (1989) No B289/93 1993 Ont C J Lexis 3037. 7 337965 BC Ltd v Tackama Forest Products Ltd (1992) 91 DLR (4th) 129, BC CA.

B  Involvement by limited partners (a)  Permitted involvement 24.11  The general partners have control over ‘ordinary matters connected with the partnership business’, but do not control ‘the firm’ itself: so matters such as profit shares, dissolution, expulsion of partners, alteration in the nature of the partnership business and variation in the partnership agreement, cannot be determined by them without the agreement of the limited partners. A limited partner has the right to ensure that the firm is properly registered and may apply to the court for its dissolution1, for instance on the grounds that the general partner is taking excess pay or otherwise misbehaving. As mentioned in section 6(1) quoted below, he is entitled to all information about the firm2. But he will not be granted an injunction ordering disclosure unless he can show that what is being withheld from him does in fact exist and would be helpful to him in his purpose to ‘inspect the books of the firm and examine into the state and prospects of the partnership business, and advise with the partners thereon’3. The limited partners should not be directors, or share directors, with the general partner or with any company managing or operating the business, and it is unwise for limited partners to be represented upon a board which advises the general partner or operator or manager: In Hutchinson v Bowes, McDonnell and Cotton4 the purportedly limited partner became chairman of what described itself as an advising committee. Held (per Robinson CJ)5: ‘They did more than advise, they directed and acted, and while they did that they could not escape the consequence of interfering in the transaction of the business by calling themselves an advising committee.’6

But the Legislative Reform (Private Fund Limited Partnerships) Order 2017 amendments to the 1907 Act have clarified or confused what management roles are permitted, by listing as permissible a variety of activities and declaring them permissible as regards private fund limited partnerships, but not (rather oddly) as regards ordinary limited partnerships. The amended section is best quoted in full: 6A  (1) A limited partner in a private fund limited partnership is not to be regarded as taking part in the management of the partnership business for the purposes of section 6(1) merely because the limited partner takes any action listed in subsection (2). (2) The actions are – (a) taking part in a decision about – (i) the variation of, or waiver of a term of, the partnership agreement or associated documents;

662

Management of the business 24.11 (ii) whether the general nature of the partnership business should change; (iii) whether a person should become or cease to be a partner; (iv) whether the partnership should end or the term of the partnership should be extended; (b) appointing a person to wind up the partnership pursuant to section 6(3B); (c) enforcing an entitlement under the partnership agreement, provided that the entitlement does not involve a limited partner taking part in the management of the partnership business; (d) entering into, or acting under, a contract with the other partners in the partnership, provided that the contract does not require, or the action under the contract does not involve, a limited partner taking part in the management of the partnership business; (e) providing surety or acting as guarantor for the partnership; (f) approving the accounts of the partnership; (g) reviewing or approving a valuation of the partnership’s assets; (h) discussing the prospects of the partnership business; (i) consulting or advising with a general partner or any person appointed to manage or advise the partnership about the affairs of the partnership or about its accounts; (j) taking part in a decision regarding changes in the persons responsible for the day-to-day management of the partnership; (k) acting, or authorising a representative to act, as a director, member, employee, officer or agent of, or a shareholder or partner in – (i) a general partner in the partnership; or (ii) another person appointed to manage or advise the partnership in relation to the affairs of the partnership, provided that this does not involve a limited partner taking part in the management of the partnership business or authorising a representative to take any action that would involve taking part in the management of the partnership business if taken by a limited partner; (l) appointing or nominating a person to represent the limited partner on a committee, authorising such a person to take any action in that capacity that would not involve taking part in the management of the partnership business if taken by the limited partner, or revoking such an appointment or nomination; (m) taking part in a decision about how the partnership should exercise any right as an investor in another collective investment scheme as defined in section 8D(4) (‘master fund’), provided that the partnership’s exercise of the right would not cause the partnership to be liable for the debts or obligations of the master fund beyond the amount contributed, or agreed to be contributed, by the partnership to the master fund; (n) taking part in a decision approving or authorising an action proposed to be taken by a general partner or another person appointed to manage the partnership, including in particular a proposal in relation to – (i) the disposal of all or part of the partnership business or the acquisition of another business by the partnership; (ii) the acquisition or disposal of a type of investment or a particular investment by the partnership; (iii) the exercise of the partnership’s rights in respect of an investment; (iv) the participation by a limited partner in a particular investment by the partnership;

663

24.12  Limited partnerships (v) the incurring, extension, variation or discharge of debt by the partnership; (vi) the creation, extension, variation or discharge of any other obligation owed by the partnership. (3) The fact that a decision that affects or relates to a private fund limited partnership involves an actual or potential conflict of interest is not of itself a reason to regard a limited partner in the partnership who takes part in the decision as taking part in the management of the partnership business for the purposes of section 6(1). (4) Nothing in this section – (a) limits the circumstances in which a limited partner in a private fund limited partnership is not to be regarded as taking part in the management of the partnership business; or (b) affects the circumstances in which a limited partner in a limited partnership that is not a private fund limited partnership may, or may not, be regarded as taking part in the management of the partnership business.

This provision is unhelpful because its pays lip-service to the principle that the limited partner should take no part in the management, whilst permitting him (for instance, at s 6A(2)(n)(v) and (vi)) actions which look plainly managerial. 1 See para 24.44 below; Re Hughes & Co [1911] 1 Ch 342. 2 Jim Bates v Brownstones East III  Properties Ltd (1993) Ont C  J Lexis 8/1/93 and see para 22.24 above. 3 See s  6(1) quoted at para  24.12 below, and (1) Inversiones Frieira SL  (2) Inversiones Valea SL  v (1) Colyzeo Investors II LP  (2) Colyzeo Investment Management Ltd [2012] EWHC 1450 (Ch). 4 An example of this in Canada is PWA Corpn v Gemini Group (1993) 103 DLR (4th) 609, Ont CA where the point was not argued but it was assumed that the limited partnership was valid where the general partner was wholly owned by the three limited partners and they nominated its directors. 5 (1857) 15 UCR 156 (Canada), a case on the wording of the Limited Partnerships Act of Upper Canada 1849 (12 Vic Cap 75) in which the limited partner is called a ‘special’ partner: 14 … a special partner may from time to time examine into the state and progress of the partnership concerns, and may advise as to their management; but he shall not transact any business on account of the partnership, nor be employed for that purpose as Agent, Attorney or otherwise; and if he shall interfere, contrary to these provisions, he shall be deemed a general partner. 6 (1857) 15 UCR 156 at 157.

(b)  Prohibited interference 24.12  The limited partner will have agreed a profit share or (in default of agreement) he will be entitled to a share equally with the general partners, under section  24(1) of the Partnership Act 1890. As to the duties of good faith owed to him by all the partners including the general partners see para 24.17 below. He is not an agent of his partners or of the firm and has no power to bind the firm1, but he can legitimately interest himself in the fortunes of the business and discuss it with the general partners, provided that 664

Management of the business 24.13

the ‘management’ of the business is left to them as discussed in the previous paragraph. Section 6(1) of the Limited Partnerships Act 1907 commences: 6(1) A limited partner shall not take part in the management of the partnership business, and shall not have power to bind the firm: Provided that a limited partner may by himself or his agent at any time inspect the books of the firm and examine into the state and prospects of the partnership business, and may advise with the partners thereon.

So a limited partner is free to involve himself in what the Partnership Act 1890 calls partnership ‘affairs’2 provided that he does not involve himself in ‘management of the … business’, and it is clear that to avail himself of his statutory right to information does not amount to ‘taking part in the management’3. He must not embark upon litigation on behalf of the firm even in a derivative action4. He may organise a meeting of partners but may not speak at a meeting of salesmen. Limited partners may nominate the directors of the general partner or own it themselves, provided that they take no part in its management5. If the partnership is a professional practice a partner will not himself be in practice merely by being a limited partner, so his lack of qualifications will not render illegal his firm if it is a firm whose members must all be qualified in order that they may practise6. Section 6(1) provides for access to the business by the limited partner ‘or his agent’, whereas the 1890 Act7 makes no specific mention of agents. Probably no distinction is intended. The Law Commissions recommended that the law on the extent of permitted management be clarified and further defined8 and this has been done by the 2017 amendments as regards limited partners in a private fund limited partnership but not as regards other limited partners as explained above. It remains to be seen whether the changes are helpful. 1 So he can supply no goods or services so as to become responsible for VAT: H Saunders and TG Sorrell v Customs and Excise Comrs [1980] VATTR 53. 2 See the Partnership Act 1890, ss 16, 31(1) and 39. He may sue the general partner; in Canada he must do so in the firm name: Watson v Imperial Financial Services (1994) 111  DLR (4th) 643. 3 Inversiones Frieira SL v Colyzeo Investors II LP [2011] EWHC 1762 (Ch) at para 23(e). 4 Certain Partners in Henderson PFI Secondary Fund II LLP v Henderson PFI Secondary Fund II LP (a firm) [2012] EWHC 3259, paras 56, 62. See para 24.16 below. 5 In the French Société en Commandite Simple, the Commanditaires enjoy limited liability only so long as they take no part in the outward management of the company – la gestion externe. The crucial distinction between the outward and the internal management of the firm seems too little recognised in English law. 6 For the effect of illegality on a firm see Chapter 4. 7 See the Partnership Act 1890, s 24(9), considered at para 4.11 above. 8 Joint Law Commissions Report No 283, October 2003, para 20.112.

(c) A partner being both a general partner and a limited partner 24.13  There is no justification for the view that in English law1 the same person can be both a general partner and a limited partner in the same 665

24.14  Limited partnerships

limited partnership at the same time. The two roles are mutually exclusive. He can receive income both as a partner and as a non-partner, for instance as a member of a firm and as its landlord, and the two will not both be treated as remuneration from the partnership, because the latter is extraneous to the partnership business2. But he cannot receive income from the same partnership in two partnership capacities, or claim that he is a general partner qua the one source of income and a limited partner qua the other3. 1 Aliter in Jersey or Guernsey, where statute allows it. 2 Heastie v Veitch & Co (1934) 1 KB 535. 3 As to the nature of a partner’s receipts from his firm see the discussion of Lord Oliver in MacKinlay v Arthur Young & Co Ltd [1990] 2 AC 239.

(d)  The effect of interference 24.14  Section 6(1) of the Limited Partnerships Act 1907 concludes: … If a limited partner takes part in the management of the partnership business, he shall be liable for all debts and obligations of the firm incurred while he so takes part in the management as though he were a general partner.

The prohibition upon a limited partner acting in the management is not an absolute one1; it only means that he temporarily loses his right to limited liability. This loss is not drastic in the most common form of modern limited partnership, the private equity fund, because such funds are nearly always solvent. And the loss of limited liability only lasts as long as the limited partner’s own interference in the business. He does not cease to be a limited partner, or become a general partner; he merely suffers the disadvantages as if he were a general partner. So his changed status does not need to be registered. No one can become a general partner (which requires the consent of all) by the back door of failed limited liability. The liability of the interfering limited partner is for current ‘debts and obligations’, which is an echo of section 9 of the 1890 Act2. Any debt, contractual liability or other obligation incurred can then be enforced directly against him, without the claimant being concerned whether or not the claim exceeds the amount of the limited partner’s capital, and the limited partner is not liable merely for the liabilities that arise from his own interference, but for all the partnership liabilities that arise during the period of his default. It is the period of his management that matters, not its effect3. When the limited partner repents and ceases to take part in the management of the business, his liability once more becomes limited; but if he orders goods for the business, thereby incurring general liability, he cannot deny liability for the cost of those goods by claiming that he had once more ceased to act in the management before they were delivered4. If a creditor claims that a limited partner is liable as a general partner, it is unnecessary that he first prove the validity and registration of a limited partnership; he may rely upon the liability of that partner under principles of ordinary partnership law, irrespective of the Limited Partnerships Act 19075. 666

Management of the business 24.16 1 Certain Partners in Henderson PFI Secondary Fund II LLP v Henderson PFI Secondary Fund II LP (a firm) [2012] EWHC 3259. 2 The phrase seems to be comprehensive of all liabilities of the firm; it is used in the Limited Partnerships Act 1907, s  4(2), to describe the claims against which his liability is to be limited. 3 Certain Partners in Henderson PFI Secondary Fund II LLP v Henderson PFI Secondary Fund II LP (a firm) [2012] EWHC 3259, paras 68–9. 4 Hutchinson v Bowes, McDonnell and Cotton (1857) 15 UCR 156 (Canada). 5 See note 4 above at p 280 (Canada).

(e)  Limited partners’ indemnity against general partners 24.15  Although the limited partner has a right to interfere in ‘firm’ matters as opposed to ‘business’ matters, his arrangement with the general partners will usually leave both such matters to them. If their negligence in this regard causes him loss, he is entitled to be indemnified1, as he is if they take steps in breach of the partnership agreement that result in him losing his limited liability2. 1 See para 14.56ff above. 2 Patterson v Holland (1858) 6 Gr 414 (Canada).

(f)  Limited partners litigating 24.16  If the general partner has wrongfully refused to sue an outsider, the limited partners (or some of them) may want to sue the outsider, but have the twin difficulties that the cause of action against the outsider is that of the firm and not themselves, and they themselves would be wrongfully ‘taking part in the management of the business’ if they embarked upon such litigation1. The court may therefore permit the action to proceed as ‘a derivative action in representative form’ provided that such a procedure is needed to avoid injustice2 and the facts relied upon for justifying it are pleaded3. They will not retain their limited partnership status whilst embarking upon this litigation4; nor will they have permission for it if they have an alternative remedy; nor will they obtain an indemnity from the firm or a pre-emptive costs order unless they can show that they would otherwise be financially unable to pursue the claim5. 1 Ie under CPR Part 19.6 rather than Part 19.9: Certain Partners in Henderson PFI Secondary Fund II LLP v Henderson PFI Secondary Fund II LP (a firm) [2012] EWHC 3259 paras 60, 62 and 66 and see para 24.12 above. 2 Roberts v Gill [2011] 1 AC 240 per Lord Walker. 3 Certain Partners in Henderson PFI Secondary Fund II LLP v Henderson PFI Secondary Fund II LP (a firm) [2012] EWHC 3259 para 19(v). 4 See para 24.14 above. 5 Certain Partners in Henderson PFI Secondary Fund II LLP v Henderson PFI Secondary Fund II LP (a firm) [2012] EWHC 3259, paras 39 and 71.

667

24.17  Limited partnerships

C Conflict between the limited partners, the general partner and the operator (a) Generally 24.17  If there is conflict between the limited partners and the general partner or an operator it must be resolved as the partnership agreement provides1, or as the partners collectively may have agreed in either general or particular terms. The partnership agreement will usually provide that a specific proportion of the limited partners may remove a general partner or operator. Often it also provides that he will then become entitled to a retirement fee unless (for instance) he has been guilty of fraud or wilful default. Such disputes expose the conflicts of interest to which the general partner is subject. Usually they will have been anticipated in the partnership agreement. If litigation breaks out, a body of the limited partners need no representation order or derivative action to sue the general partner; each such limited partner has a cause of action in his own right2. They are entitled to full disclosure against one another3. It is more difficult where they wish to sue an outsider after the general partner declines to do so, which is discussed in the last paragraph above. 1 The duties are based on the underlying contractual arrangement: See Lord Browne-Wilkinson in Henderson v Merritt Syndicates [1995] 2 AC 145, 206. 2 Certain Partners in Henderson PFI Secondary Fund II LLP v Henderson PFI Secondary Fund II LP (a firm) [2012] EWHC 3259 paras 28, 31. 3 Inversiones Frieira SL v Colyzeo Investors II LP [2011] EWHC 1762 (Ch), Norris J, discussed at paras 24.11 and 24.12 above.

(b)  Breach of good faith 24.18  A partner is not in breach of duty if he looks to his own best interests ahead of those of the limited partners, where such a course is envisaged or permitted by agreement. The duties and obligations between the partners are defined primarily in the agreement, and secondarily in the rules of good faith discussed in Chapter  11. If the general partner is a limited company (as is usually the case), its directors owe it duties but may arguably be said to owe duties also directly to the limited partners1. There is no doubt that the general partner owes the usual partners’ duty of good faith to the limited partners and the orthodox view is that he is owed a similar duty by them2 but this may be debateable. They are not agents for their fellow partners and have no authority to bind them, so there is an argument that their duty of good faith is at least limited3. For instance, many investors in a venture capital limited partnership would have been surprised to learn that they should not be involved with any businesses which rivalled those of the firm. The last point has been disposed of, to a large extent, by these provisions introduced to section 6(5) of the 1907 Act by the Legislative Reform (Private 668

Management of the business 24.20

Fund Limited Partnerships) Order 20174, which specifically narrow the limited partners’ duties to the firm and to each other: (f) A limited partner in a private fund limited partnership is not subject to the duties in – (i) section  28 of the Partnership Act 1890(5)  (duty of partners to render accounts, etc), or (ii) section 30 of that Act (duty of partner not to compete with firm).

In this provision, the release of a limited partner from the obligation not to compete in section 30 is understandable. The release from section 28 is slightly misleading, because of the words in brackets which purport to summarise the obligation (‘to render accounts, etc’) which suggest a duty much narrower than what is actually to be found in section  28 of the Act (see para  11.16 above), ‘… to render true accounts and full information of all things affecting the partnership to any partner …’. It goes beyond accountability, to a duty of disclosure. What no limited partner is released from is his obligation under section 29 of the 1890 Act to be accountable for his private profit ‘from … any transaction concerning the partnership or from any use by him of the partnership property name or business connection.’ 1 Norris J at para 13 in BBGP Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch). 2 Norris J at para 11 in BBGP Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch). 3 See para 11.1 above for the reasons why the duty is based upon the existence of the agency.

(c)  Variation in partners’ obligations 24.19  The obligations between limited partners and general partners may be modified expressly or by the practice or implications of the business or the practice of the trade1. For instance, limited partners may be relieved from their obligation to have no financial interest in a rival business, quite irrespective of the release given to limited partners in a private fund limited partnership by section 6(5)(f) of the amended 1907 Act as discussed in the previous paragraph. The general partner may also have additional duties, as mentioned in the next paragraph. 1 Kelly v Cooper [1993] 2 AC 145 at 206.

(d)  Liability of a general partner for investment advice 24.20  In private equity fund limited partnerships the general partner will usually be empowered to select the investments, and this duty will impose upon him the statutory obligations of an investment adviser in relation to the 669

24.21  Limited partnerships

investments. He must not put himself in a position where his own interest and his duty to the firm conflict1 without the express agreement of the limited partners2. He may not introduce to the firm investments which he knows (or suspects) to be over-priced or in which he has a financial interest, and his mere compliance with FCA Conduct of Business rules may not suffice to keep him within the bounds of his duty on this. 1 Bray v Ford [1896] AC 44 at 51 2 JP Morgan Chase Bank v Springwell Navigation [2008] EWHC 1186 (Comm).

(e) The rights of a general partner and a limited partner to legal advice 24.21  Because the management of the firm is in the hands of the general partner, it will be the general partner who will take the legal advice that the firm as a whole requires, but this may extend to cover his own duties. He takes such advice as agent for the whole firm. The solicitor’s retainer will be given by the partners jointly (not severally) and every partner will be entitled to the use of that advice1. But where a conflict between the general partner and the limited partners has broken out, separate solicitors must be instructed. Those solicitors will act for their respective partner-clients and not for the partnership as a whole, and must be aware of the distinction2 and how the rules of legal professional privilege will apply3. Legal professional privilege between partners generally is considered at para 15.13 above. 1 BBGP  Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch) at para 51. 2 Three Rivers DC v Bank of England (No 5) [2003] QB 1556. 3 BBGP  Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch) at paras 52–54.

3 INCOMING AND OUTGOING PARTNERS AND THEIR ASSIGNEES A Introduction of partners   24.22 B An assignment, charge, nomineeship or trusteeship of a limited partner’s share  24.23 C The number of partners and their nature   24.24

A  Introduction of partners 24.22  In an ordinary partnership unless there is agreement to the contrary, no new partner may be introduced without the consent of all partners1. In 670

Incoming and outgoing partners and their assignees 24.23

a limited partnership the rule is different: a new partner, either general or limited, may be introduced by the general partners alone. Section 6(5)(d) of the Limited Partnerships Act 1907 provides: Subject to any agreement expressed or implied between the partners – … (d) A person may be introduced as a partner without the consent of the existing limited partners.

His introduction must be registered within seven days as discussed below. If the incoming partner was formerly a general partner, he will not shed his liability to existing creditors of the firm, and will limit his liability as regards future debts and obligations only, after the change has been advertised in the manner described below. If a limited partner becomes a general partner, he does not lose his limited liability for the period when he was a limited partner. 1 See the Partnership Act 1890, s 24(7) (which is reprinted in Appendix A below).

B An assignment, charge, nomineeship or trusteeship of a limited partner’s share 24.23  In an ordinary partnership a partner may mortgage or assign his share in the partnership, but if he does so the mortgagee or assignee receives restricted rights1. By contrast a limited partner may only assign his share with the consent of the general partners2, perhaps given generally in the partnership agreement. But after the assignment has been advertised3 the assignee receives all the rights of the original limited partner. So an assignee from a limited partner finds himself in a better position than the assignee from an ordinary partner, for instance he may inspect the books during the course of the partnership which the latter may not4. Section 6(5)(b) of the Limited Partnerships Act 1907 provides: Subject to any agreement expressed or implied between the partners – … (b) A limited partner may, with the consent of the general partners, assign his share in the partnership, and upon such assignment the assignee shall become a limited partner with all the rights of the assignor.

This assertion that ‘upon such assignment’ the assignee becomes a limited partner is qualified by the requirement that until advertisement, the assignment is ineffective. An assignment must be advertised in the Gazette (as discussed in para 24.36 below), and thereupon becomes effective, and it must then be registered within seven days under the registration provisions discussed below. An assignment or charge over his share made by a limited partner without the consent of the general partners will be binding on the limited partner and his proposed assignee, but ineffective as against the other partners and creditors. The requirement of the consent of the general partners shows 671

24.24  Limited partnerships

that without such consent the assignee will take no interest prejudicial to theirs, and it follows that he will not receive even the narrow rights given to the assignee of an ordinary partnership share5. When a limited partnership share is assigned, or is charged or held in trust either originally or later, it is important that the register records the correct identity of the true limited partner, whoever that is. The question whether the registered limited partner is in fact a nominee for another is considered at para 10.22 above. A bare trustee or nominee of a limited partnership share for a minor may find that the minor disaffirms the partnership on attaining his majority6 or then seeks to wind up the partnership on the just and equitable ground7. 1 See the Partnership Act 1890, s 31(2) and para 10.10ff above. 2 Presumably such consent must be unanimous since it is not a matter connected with the partnership ‘business’ which could be settled by a majority of the general partners under s 6(5)(a) (quoted above). 3 Under the Limited Partnerships Act 1907, s 10(1) (discussed below). 4 See the Partnership Act 1890, s 31(1) and para 10.10ff above. 5 By the Partnership Act 1890, s 31, which is reprinted in Appendix A below and discussed at para 10.10 above. 6 See para 3.23 above. 7 Para 17.22 above.

C  The number of partners and their nature 24.24  A limited partnership may include corporations1 as both general and limited partners. In this context ‘corporations’ include LLPs and Scottish firms, as discussed in para  24.8 above, but not ordinary English partnerships or limited partnerships. It must have at least one general partner and at least one limited partner2. A single general partner is usual. Subject to some exceptions, until 2002 it might not consist of more than 20 persons3. If the number was exceeded then the firm was illegal and the firm as a whole was dissolved4. The 20-partner limit was abolished by the Regulatory Reform (Removal of 20 Member Limit in Partnerships etc) Order 20025. 1 As to general partners see MacCarthaigh v Daly [1985] IR 73; and as to limited partners see the Limited Partnerships Act 1907, s 4(4); the same is the case in any ordinary partnership although the Partnership Act 1890 does not expressly say so. 2 See the Limited Partnerships Act 1907, s 4(2) (which is reprinted in Appendix B below). 3 See note 2 above. 4 See the Partnership Act 1890, s 34, considered in Chapter 4. 5 SI 2002/3203.

4  THE LIMITED PARTNER’S CAPITAL A Limited partners in an ordinary limited partnership   24.25 B Limited partners in a private fund limited partnership   24.26 672

The limited partner’s capital 24.25

A Limited partners in an ordinary limited partnership 24.25  Although a general partner, and also a limited partner in a private fund limited partnership, need contribute no capital, each ordinary limited partner must contribute capital to an agreed value, and this must be registered1. He must not withdraw any part of it even indirectly, for instance by letting his drawings exceed his profit share. His capital will usually be of nominal value only2, but it must be recorded in the Register and actually paid or advanced to the firm in cash or property3 and if its amount is too small the payment of it may get forgotten with disastrous results4. The application form must state the amount of the capital contribution of each limited partner and whether the contribution is paid in cash or in another specified form5. In Rayner & Co v Rhodes6 the limited partner had registered his capital as £5,000 paid in cash. In fact he had deposited securities with the partnership bank and given a guarantee for this amount. A claim was made against the firm for damages for breach of contract. Held Wright J that he was not a limited partner for he had not paid anything, whereas ‘What the Act contemplates is that either actual money or the equivalent of money in the form of property should be transferred to the company for their use …’

If the limited partner deliberately or inadvertently withdraws any of his capital, the consequence is not as drastic as if he intermeddles in the management of the business; he merely remains liable for the debts and obligations of the firm up to the amount that his capital would have been had he not withdrawn it. Section 4(2) and (3) of the Limited Partnerships Act 1907 provides: (2) … limited partners, who shall at the time of entering into such partnership contribute thereto a sum or sums as capital or property valued at a stated amount, and who shall not be liable for the debts or obligations of the firm beyond the amount so contributed. (3) A limited partner shall not during the continuance of the partnership either directly or indirectly draw out or receive back any part of his contribution, and if he does so draw out or receive back any such part, shall be liable for the debts and obligations of the firm up to the amount so drawn out or received back.

The limited partner is not entitled to interest on his capital unless all the other partners agree7. Any interest payment or other remuneration paid in excess of actual profits will amount to part repayment of the limited partner’s capital. 1 The ‘contribution’ is of his ‘capital or property’ (s 4(2)) and not his loans which need not be registered. Registration is important and is discussed at para 24.27 below. A limited partner’s financial position generally, is discussed in para 24.6 above. 2 In Dickson v MacGregor 1992 SLT (Land Tr) 83 and MacFarlane v Falfield Investments Ltd 1996 SCLR 826 it was £10. 3 See the Canadian cases of Whittemore v Macdonell (1857) 6 UCCP 547 and Watts v Taft (1858) 16 UCR 256; but s 2 of the Canadian Act of 1849 was harsher than its equivalent s 4(2) of the English Act in that it required capital to be in ‘cash’: 2 … one or more persons who shall contribute in actual cash payments, a specific sum as capital to the common stock, who shall be called Special Partners …

673

24.26  Limited partnerships 4 In the Irish case MacCarthaigh v Daly [1985]  IR  73 he had failed to pay at the date of registration with the consequence that the registration of the firm was held to be bad and he was held liable as a general partner. 5 Limited Partnerships Act 1907, s 8B. See now the forms in Appendix  C below. As to the general partner holding the capital as a nominee for the firm see Camiveo v Dunnes Stores [2017] IEHC 147 (Ireland). 6 (1926) 24 Ll L Rep 25; to similar effect is the Canadian case of Benedict v Van Allen (1859) 17 UCR 234. 7 See the Partnership Act 1890, s 24(4).

B Limited partners in a private fund limited partnership 24.26  A limited partner in a private fund limited partnership, unlike his equivalent in an ordinary limited partnership, has no obligation to contribute any capital1, and may draw out any capital that he has contributed, save that if the partnership was registered before 6 April 2017 (when the 2017 Order came into force), the restriction against drawing out capital will still apply to capital contributed before when the partnership became a private fund limited partnership2. 1 Limited Partnerships Act 1907, s  4(2B) as incorporated by amendment by the Legislative Reform (Private Fund Limited Partnership) Order 2017. 2 Ibid, s 4(3A)(b).

5  REGISTRATION AND ADVERTISEMENT A Default in registration   24.27 B The details to be registered initially   24.32 C The changes to be registered subsequently   24.33 D The register  24.34 E Advertisement of changes   24.36 F The firm name and the Companies Act   24.37

A  Default in registration (a)  Requirement of registration 24.27  Limited partnerships must initially register their particulars at Companies House under section 8D of the 1907 Act, as amended, and also their application for designation as a private fund limited partnership. They must register subsequent changes there under section 9. Limited partners in a limited partnership that fails to be correctly registered when it is initially formed as described below will not achieve limited status but are deemed 674

Registration and advertisement 24.30

general partners. For limited partnerships registered before 1 October 2009 any defect in this initial registration is as fatal as complete non-registration. There is no procedure for rectification. A defective registration can only be remedied by re-registration. However, for limited partnerships registered on or after 1 October 2009 the issue of a certificate of registration by the registrar is conclusive evidence that a limited partnership came into existence on the date of registration1. 1 Limited Partnerships Act 1907, s 8C.

24.28  Section 5 of the Limited Partnerships Act 1907 originally provided: Every limited partnership must be registered as such in accordance with the provisions of this Act, or in default thereof it shall be deemed to be a general partnership, and every limited partner shall be deemed to be a general partner.

However, the words ‘or in default thereof’ to the end no longer have effect by virtue of the changes introduced by the Legislative Reform (Limited Partnerships Order) 2009. It is unclear what effect this has in practice.

(b)  Time of registration 24.29 Section  8(1) amended1, provides:

of

the

Limited

Partnerships

Act

1907,

as

The registrar shall register a limited partnership if an application is made to the registrar in accordance with section 8A.

By section  13 of the 1907 Act (see para  24.34 below) the registrar is required to send a certificate of registration and to keep ‘a register and an index of all the limited partnerships registered as aforesaid’, which shows that the recording of the limited partnership in the register does not itself amount to registration, but is only a record of such registration that has happened earlier. The certificate does not cause the registration, as is the case for a company incorporated under the Companies Acts2. The limited partnership may be registered before it commences business3. Application for designation of the limited partnership as a limited private fund partnership may be made at the same time as registration of the limited partnership (on Form LP7) or after such registration (Form LP8)4. 1 2 3 4

By the Legislative Reform (Limited Partnerships) Order 2009. Companies Act 2006, s 15(4). Difficulties in ascertaining when a partnership begins are discussed in para 7.4 above. The forms are in Appendix C below.

(c)  Registration certificate 24.30  As explained above for limited partnerships registered on or after 1 October 2009, the certificate of registration is conclusive as to the existence 675

24.31  Limited partnerships

of a limited partnership, so the registration stands good even if it was procured by the fraud of one partner against another1. This differs from the position before 1 October 2009 when the certificate could be admitted in evidence2 but was not conclusive of the validity of the registration3. 1 Bank of Beirut SAL v HRH Prince Adel El-Hashemite [2016] 1 BCLC 127. 2 Limited Partnerships Act 1907, s 16(2). 3 Thus the registration of a limited partnership in which the contribution of a limited partner was described as ‘five thousand pounds in cash’ was held to be invalid where he had in fact merely procured a bank bond for the money, in Raynor & Co v Rhodes (1926) 24 Ll Rep 25, and the misdescription of the place of business was fatal in Re Cotton Crops (1988) 1 Qd 34, a case under the Australian Mercantile Acts.

(d)  What amounts to default in registration? 24.31  The purpose of registration of the limited partnership is primarily to publicise the identity of the limited partners and the limit on their financial liability. It has never been decided in England1 whether the words in section 5, ‘Every partnership must be registered as such in accordance with the provisions of this Act’ mean that to preserve limited status the partnership must simply be registered, or that every detail in the registration requirements of the statutory rules must be kept up to date2. Either answer leads to slightly surprising results. If all that has to be registered to preserve limited liability is the bare existence of the partnership, much of the purpose of registration is lost, for the limited partners may die or become bankrupt, leaving the registration particulars quite out of date. On the other hand if every matter that is required to be registered by way of change to the partnership is similarly mandatory, the position of the limited partners is in permanent jeopardy. For instance, one of the ‘variations’ that must be notified to the Registrar within seven days of its occurrence is the death of a partner: para 24.33 below. How often will the other limited partners be aware of this obligation, or comply with it in time? This difficulty is not wholly overcome by the change wrought by section 8C of the Act, since a certificate is conclusive evidence that a limited partnership came into existence on the date of registration, but does not conclusively establish that it continues to exist. This second, stricter duty may be the one envisaged by the equivalent legislation in Eire and Australia3, but in England the position is probably that, prior to 1 October 2009, original registration under section 8 had to be complied with strictly or limited liability was never obtained, but registration of changes in the partnership under section  9 need not be. The reasons are these: (a) The original section 5 of the 1907 Act only provided specifically that the failure which rendered limited partners liable, was failure to register the limited partnership (which is dealt with in section 8), rather than failure to register changes in it (which is dealt with in section 9). Section 8 has no other sanction for non-compliance. By contrast section 9 provides for payment of a fine for non-compliance. 676

Registration and advertisement 24.32

(b) Substantive registration under section 8 is to be by a statement signed by all the partners. By contrast registration of changes under section 9 is to be by a statement signed by ‘the firm’ and non-compliance results in a fine on ‘the general partners’ only, in which circumstances it would be odd if there were also to be such a penalty on limited partners as the loss of their limited status. 1 Wright J in Raynor & Co v Rhodes (1926) 24 Ll Rep 25 at 28 declined to decide whether an infringement of s  9 had the same effect as failure to register under s  5, but inclined to the affirmative; the courts of Canada might disagree: Tempus Investments v Foxton (1994) 50 ALWS (3d) 498. 2 Re Blair Open Hearth Furnace Co Ltd [1914] 1 Ch 390. 3 See in Eire (MacCarthaigh v Daly [1985] IR 73) and Australia (Re Cotton Crops Pty [1988] 1 Qd R 34), for which references I am grateful to Michael Twomey Partnership Law (2000).

B  The details to be registered initially 24.32  Section 8A of the Limited Partnerships Act 1907 sets out what the application for registration of any limited partnership must contain: (1)  An application for registration must – (a) Specify the firm name, complying with section 8B, under which the limited partnership is to be registered, (b) Contain the details listed in subsection (2) or (3), (c) be signed or otherwise authenticated by or on behalf of each partner, and (d) be made to the registrar for the part of the United Kingdom in which the principal place of business of the limited partnership is to be situated. (2)  Except in the case of an application that is accompanied by an application for designation as a private fund limited partnership, the required details are – (a) (b) (c) (d)

the general nature of the partnership business, the name of each general partner, the name of each limited partner, the amount of the capital contribution of each limited partner (and whether the contribution is paid in cash or in another specified form), (e) the address of the proposed principal place of business of the limited partnership, and (f) the term (if any) for which the limited partnership is to be entered into (beginning with the date of registration).

Comment is made on these individual matters below. The application is made using the standard forms LP5 to LP81. When the application is made, or subsequently, an application may also be made for designation as a private fund limited partnership. This application must comply with section 8D(2) and (3): (2)  An application for designation as a private fund limited partnership must – (a) specify the firm name of the partnership;

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24.33  Limited partnerships (b) specify the address of the partnership’s principal place of business or proposed principal place of business; (c) in the case of an application made after the firm is registered as a limited partnership, specify the limited partnership’s registration number and the date of registration; (d) include confirmation by a general partner that the partnership meets the private fund conditions; (e) be signed or otherwise authenticated by or on behalf of each general partner; and (f) be made to the registrar. (3)  The private fund conditions are that the partnership – (a) is constituted by an agreement in writing, and (b) is a collective investment scheme.

The application for registration of a limited partnership which is to be a private fund limited partnership must be in Form LP7, and for designation of an existing limited partnership as a private fund limited partnership must be in Form LP8. It is the duty of the registrar to file such statements and to post to the firm a certificate of registration2. He makes no investigation into the truth of the contents of the statements. A certificate or a certified copy of it is admissible as evidence3. 1 To be found in the Schedule to the Limited Partnerships (Forms) Rules 2009, as replaced by the Schedule to the Legislative Reform (Private Fund Limited Partnerships) Order 2017. 2 See the Limited Partnerships Act 1907, ss 8C and 13. 3 See the Limited Partnerships Act 1907, s 16(2).

C  The changes to be registered subsequently 24.33  By section  9 of the 1907 Act as amended, the limited partnership within seven days of any change being made in the particulars or the status of the limited partnership as a private fund limited partnership must register those changes. A statement must be signed by the firm1 and sent or delivered to the Registrar in statutory form2. Section 9 provides: 9 Registration of changes in partnerships (1)  If during the continuance of a limited partnership any change is made or occurs as mentioned in subsection (1A) … a statement, signed by the firm, specifying the nature of the change shall within seven days be sent by post or delivered to the registrar at the register office in that part of the United Kingdom in which the partnership is registered. (1A)  The changes are – (a) in the case of any limited partnership, changes to – (i) the firm name, (ii) the principal place of business, (iii) the partners or the name of any partner, (iv) the liability of any partner by reason of the partner becoming a limited instead of a general partner or a general instead of a limited partner;

678

Registration and advertisement 24.33 (b) in the case of a limited partnership that is not a private fund limited partnership, changes to – (i) the general nature of the business, (ii) the term or character of the partnership, (iii) the sum contributed by any limited partner; (c) in the case of a private fund limited partnership that was registered as a limited partnership before 6th April 2017, any withdrawal by a limited partner of the partner’s contribution which has the effect that the amount of the partner’s contribution is less than it was on the date on which the limited partnership was designated as a private fund limited partnership3. (2) If default is made in compliance with the requirements of this section each of the general partners shall, on conviction under the Magistrates’ Courts Act 1952 be liable to a fine not exceeding one pound for each day during which the default continues.

The following comments can be made on the ‘changes’ mentioned above: (a)(i) the firm name: see paras 24.37 below and 8.55 above; (a)(ii) the principal place of business: this may be useful for a creditor who seeks to serve process on the firm, but also defines in which registry the particulars are to be registered: see para 24.35 below; (a)(iii) the partners or the name of any partner: since partners must be individuals or corporations or at least have legal personality, this requires that they must be registered in their proper names, and not (for instance) referentially, as ‘the trustees of J Smith’s settlement’ or ‘the partners in Smith & Co’. Defective registration is as bad as no registration, so it is particularly important that the identity of any limited partner is given correctly. This may be difficult if a share is held by one person as a nominee for another. Care must be taken that the true partner is the one being registered. The true partner will be the person who is ‘carrying on a business’4, not necessarily the person who is described in the partnership documentation as the partner5 (see sham limited partnerships at para  24.4 above, and trusteeship at para  24.22 above). Changes in membership may also have to be advertised to be effective: see para 24.36 below; (a)(iv) the liability of any partner by reason of his becoming a limited instead of a general partner or a general instead of a limited partner: see paras 24.13 above and 24.36 below. 1 Ie signed by a partner in the firm’s name: Partnership Act 1890, s 6. 2 By the Limited Partnerships Act 1907, s 9; the form of statement is Form LP6 in the Schedule to the Limited Partnerships (Forms) Rules 2009, as replaced by the Schedule to the Legislative Reform (Private Fund Limited Partnerships) Order 2017; see Appendix C below. 3 See para 24.26 above. 4 Partnership Act 1890, s 1(1). 5 See paras 2.12 and 24.23 above.

679

24.34  Limited partnerships

D  The register 24.34  The Registrar of Companies as registrar of limited partnerships1 is required to keep a register and an index of all limited partnerships registered, and of all the statements registered in relation to such partnerships2. The statements are available for public inspection and copying on payment of a small fee3. There is no provision for the deregistration of the partnership, even if it is dissolved. Nor is there any inherent jurisdiction in the court to supervise the Registrar or to do any more than to require him to carry out his statutory duties4. 1 The Registrar of Companies is the present successor to the registrar of joint stock companies who is appointed by the Limited Partnerships Act 1907, s 15 to be the registrar of limited partnerships. 2 See the Limited Partnerships Act 1907, s 14 (which is reprinted in Appendix B below). 3 See the Limited Partnerships Act 1907, s 16 and the Registrar of Companies (Fees) (Limited Partnerships and Newspaper Proprietors) Regulations 2009. 4 In Re a Company (No 007466 of 2003) [2004] 1 WLR 1357.

English and other UK partnerships 24.35  Registration is to be made ’to the registrar for the part of the United Kingdom in which the principal place of business of the limited partnership is to be situated’1. A partnership domiciled in England and Wales accordingly registers at Cardiff. 1 See the Limited Partnerships Act 1907, s 8A(1)(d) (which is reprinted in Appendix B below).

E  Advertisement of changes 24.36  When a general partner becomes a limited partner, or a limited partner assigns his share, the transaction is ineffective until advertised in the London Gazette. Assignment of the limited partner’s share and interest must be advertised, but not if his partnership is a private fund limited partnership. Section  10(1)–(1C) of the Limited Partnerships Act 1907, as amended, provides: (1) Notice of any arrangement or transaction under which any person will cease to be a general partner in any firm that is not partnership, and will become a limited partner in that firm, or under which the share of a limited partner in a firm that is not a private fund limited partnership will be assigned to any person, shall be forthwith advertised in the Gazette, and until notice of the arrangement or transaction is so advertised, the arrangement or transaction shall, for the purposes of this Act, be deemed to be of no effect. (1A)  Notice of any arrangement or transaction under which any person will cease to be a general partner in a private fund limited partnership shall be forthwith advertised in the Gazette.

680

Regulation of the business 24.38 (1B)  Where a person deals with a private fund limited partnership after an arrangement or transaction of the type referred to in subsection (1A), that person is entitled to treat the person who is ceasing to be a general partner as still being a general partner of the firm until the person has notice of the arrangement or transaction. (1C)  Advertisement of a notice in accordance with subsection (1A) is notice to a person dealing with the firm for the purpose of subsection (1B).

Accordingly, changes in the identity of ordinary limited partners but not other changes which are required to be registered (para  24.28 above) need also to be advertised. A person who has no knowledge of the change is entitled to regard a departed general partner as a continuing one.

F  The firm name and the Companies Act 24.37  The firm name1 and any change in it must be registered with the other particulars of the firm in the register of limited partnerships2 as mentioned above. For limited partnerships registered on or after 1  October 2009 the name must disclose that the firm is a limited partnership3. Unless the names of all the partners are used as the firm name, the requirements of Part 41 of the Companies Act 2006 relating to the name of the partnership and disclosure of the partners’ names must be complied with4. 1 2 3 4

This is discussed as regards ordinary partnerships at para 8.55 above. See the Limited Partnerships Act 1907, ss 8 and 9 (which is reprinted in Appendix B below). See the Limited Partnerships Act 1907, s 8B. See para 8.61 above.

6  REGULATION OF THE BUSINESS A Financial services  24.38 B Collective investment schemes   24.39 C Private fund limited partnerships   24.40 D Successor partnerships  24.41 E Alternative authorisation for legal professionals   24.42

A  Financial services 24.38  The Financial Services and Markets Act 2000 provides that, ‘No person can carry on a regulated activity’ in the UK1 unless he is authorised or exempt2. A regulated activity is one carried on by way of business and relating to an investment or property of a specified kind3. A partnership may be a ‘person’ for such a purpose but a venture capital or private equity fund will usually be carrying on an ‘unregulated’ collective investment scheme (see below) which will not itself require regulation by the FCA. 681

24.39  Limited partnerships

A limited partner’s share is a ‘security’ for the purpose of the strict requirement of prospectuses before its offer to the public4. The nature of a limited partner’s assignable share is discussed at para 24.22 above. 1 It suffices if the activity in the UK is a significant part of the business: FSA  v Fradley & Woodward [2005] EWCA Civ 1183. 2 See the Financial Services and Markets Act 2000, s 19. For matters of regulation in this context see Interim Prudential Sourcebook for Investment Businesses Instrument 2001 (FSA 2001/13) to be found on the FCA website at www.fca.gov.uk. 3 Financial Services and Markets Act 2000, s 22, as amended. 4 Financial Services and Markets Act 2000, s 84, as amended.

B  Collective investment schemes 24.39  The operator and manager of the business of most limited partnerships will usually require authorisation from the FCA if they are to carry on its business lawfully1. An individual, company or partnership (either an ordinary partnership or a limited partnership or LLP) if they are concerned in the establishing, operating or winding up of a ‘collective investment scheme’2 must be authorised by the FCA3 under Part IVA of the 2000 Act (as amended)4, and must comply with the conditions of such authorisation5. An example of restitution orders being made under section 382 of the 2000 Act in respect of corporate and individual defendants having found that they had knowingly promoted, established, arranged or operated unlawful collective investment schemes is Financial Conduct Authority (a Company Limited by Guarantee) v Capital Alternatives Ltd6. A ‘collective investment scheme’ is defined widely enough to cover almost any arrangement whereby investors permit their shared property to be managed by another, as is the case in any limited partnership which has several7 limited partners and holds property of any sort for their benefit. The obligation is subject to specified exceptions which include common accounts, leasehold tenants’ trust funds, franchises, timeshare rights, contracts of insurance, funeral plan contracts and individual pension accounts8. It is defined in section 235 of the 2000 Act: (1) In this Part ‘Collective Investment Scheme’ means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income. (2)  The arrangements must be such that the persons who are to participate (‘participants’) do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions. (3) The arrangements must also have either or both of the following characteristics:

682

Regulation of the business 24.40 (a) the contributions of the participants and the profits or income out of which payments are to be made to them are pooled; (b) the property is managed as a whole by or on behalf of the operator of the scheme.

The last quoted words show a requirement that some element of ‘management’ is required, which may involve an exercise of discretion, and not merely a mechanical collection of rents or dividends. The requirement of ‘pooling’ will not be satisfied if the investor selects the place to which his own investment is to be appropriated9. Regulations made by the Financial Services Authority and its successor the Financial Conduct Authority generally limit to ‘private persons’ those who are entitled to bring claims against authorised persons for a breach of the statutory rules10. A new form of collective investment scheme, called a ‘contractual scheme’, and comprising either a ‘co-ownership scheme’ or a ‘contractual scheme’, was provided for by section 235A of the 2000 Act11. But by Article 3 of the Legislative Reform (Private Fund Limited Partnerships) Order 2017 amending s 235A of the 2000 Act, a private fund limited partnership, discussed in the next paragraph, cannot be a contractual scheme, and so the importance of the latter has gone.  1 Rose v Lynx Express Ltd [2004] 2 BCLC 397.  2 See the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, SI 2001/544, Arts 51ZA–51ZF. On the meaning of ‘Collective Investment Scheme’ under the 1986 Act see Laddie J in Russell-Cooke Trust Co v Elliott [2001] All ER (D) 197. In RussellCooke v Prentis [2002] EWHC 2227 (Ch) Lindsay J found no practical difference between that definition and the definition in the Financial Services and Markets Act 2000, s 235.   3 Ie the Financial Conduct Authority.   4 See the Financial Services and Markets Act 2000, s 31. Such authorisation is best procured through a specialist consultancy such as Bovill Consulting: www.bovill.com. The solicitors’ exemption under Part XX of the 2000 Act does not extend as far as exempting a solicitor from FCA authorisation for operating a Collective Investment Scheme.   5 See the Financial Services and Markets Act 2000, s 20(1).   6 Ch D (Judge McCahill QC) 26 March 2018.  7 Russell-Cooke Trust Co v Elliott [2001] All ER (D) 197 (Jul) (Laddie J), Ch D, where the point was also made that the arrangement remains a CIS even if some (but not all) of the investors have day-to-day control of their investments – contrast s 235(2) (quoted above).  8 See the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001, SI 2001/1062, Sch.  9 Russell-Cooke v Prentis [2002] EWHC 2227 (Ch), Lindsay J. 10 Financial Services and Markets Act 2000, s 138D and Financial Services and Markets Act 2000 (Rights of Action) Order 2001, reg 6(1) discussed in The Connaught Income Fund v Capita Financial Managers [2014] EWHC 3619 (Comm). 11 By the Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013, SI 2013/1388, reg 3.

C  Private fund limited partnerships 24.40  Limited partnerships which are collective investment schemes (see previous paragraph) and are constituted by an agreement in writing are designated ‘private fund limited partnerships’ by s 8D of the 1907 Act as 683

24.41  Limited partnerships

introduced in 2017 by amendment1. In respect of these funds, the provisions of the 1907 Act are substantially amended, as mentioned above. The 2017 amendments were clearly inspired by the Irish Investment Limited Partnerships Act 1994 and by the US Uniform Limited Partnership Acts. The important differences between the position of an ordinary limited partnership and a private fund limited partnership are listed here, in no particular order: (a) by section 4(2B) of the 1907 Act as amended in 2017, a limited partner in a private fund limited partnership is under no obligation to contribute capital or property to the partnership, and he is not liable for its debts and obligations ‘beyond the amount of the partnership property available’ to meets such debts (see para 24.6 above); (b) by section  4(34A) he may withdraw his capital contributions from the partnership (see para 24.5 above); (c) by section 6(3B) he and the other solvent limited partners can appoint a person to wind up the partnership if there is no general partner to do so; (d) by section 6(5)(f) he is relieved from the restrictions of sections 28 and 30 of the 1907 Act (see para 24.17 above); (e) by section 6(6) he is not liable as an apparent member after he ceases to be a member, as he might be under section 36(1) of the 1890 Act; (f) by section 6A(1) he is not liable for ‘taking part in management’ merely because he engages in any of the quasi-managerial tasks listed in that subsection, nor (under section 6A(3)) merely because he finds himself in a conflict of interest (see para 24.11 above); (g) by sections  8 and 8A–8C he must register details of the private fund limited partnership, including (in Scotland) details of persons with significant control, and by section 9 he must register alterations in these details, and by section 10 advertise them in the Gazette (see paras 24.27– 24.36 above). 1 Legislative Reform (Private Fund Limited Partnerships) Order 2017 (SI 2017/514) Arts 1(2) and 2(9).

D  Successor partnerships 24.41  Authorisation of a firm as such passes to the successors of the firm, but only if the acquiring firm has substantially the same members (a majority?) and has succeeded to substantially the whole of the business of the previous firm. Section 32 of the Financial Services and Markets Act 2000 provides: (1) If a firm is authorised – (a) it is authorised to carry on the regulated activities concerned in the name of the firm; and (b) its authorisation is not affected by any change in its membership. (2) If an authorised firm is dissolved, its authorisation continues to have effect in relation to any firm which succeeds to the business of the dissolved firm.

684

Dissolution and winding up 24.44 (3) For the purposes of this section, a firm is to be regarded as succeeding to the business of another firm only if – (a) the members of the resulting firm are substantially the same as those of the former firm, and (b) succession is to the whole or substantially the whole of the business of the former firm. (4) ‘Firm’ means – (a) a partnership; or (b) an unincorporated association of persons.

E  Alternative authorisation for legal professionals 24.42  Alternative authorisation by the Solicitors’ Regulation Authority is permissible in limited circumstances. Professional firms which do not carry on mainstream investment business but which carry on regulated activities in the course of other work such as conveyancing, corporate, matrimonial, probate and trust work are treated as exempt professional firms and need not be regulated by the FCA1 as they carry on exempt regulated activities under the supervision of and regulation by the Solicitors’ Regulation Authority2. 1 Financial Services and Markets Act 2000, Pt XX. 2 The Solicitors’ Financial Services (Scope) Rules 2001 set out the scope of the activities which may be undertaken by firms.

7  DISSOLUTION AND WINDING UP A Dissolution without court order   24.43 B Dissolution by court order   24.47 C Winding up after dissolution   24.49

A  Dissolution without court order 24.43  A limited or a general partner may dissolve the firm if there is a provision to this effect in the partnership agreement, and the law relating to ordinary partnership dissolution (described in Chapters 16 and 18) applies to dissolution of limited partnerships out of court save as described next.

(a)  Dissolution by notice 24.44  A general partner may dissolve the limited partnership by notice if the partnership is a partnership at will1, but a limited partner may not do so 685

24.45  Limited partnerships

without agreement from all the other partners to this effect. Section 6(5)(e) of the Limited Partnerships Act 1907 provides: Subject to any agreement expressed or implied between the partners – … (e) A limited partner shall not be entitled to dissolve the partnership by notice.

This constitutes a considerable fetter on the rights of a limited partner if the limited partnership is a partnership at will, but usually it will not be a partnership at will unless the original term has expired and no new term has been agreed2. Then the limited partnership agreement ought to include termination and winding-up provisions. If those are not being complied with then a limited partner will have a right to enforce them, and the exercise of this right will not threaten his own limited status, not being ‘management of the … business’3. The 1907 Act removes the right of a limited partner (granted by section 27(1) of the Partnership Act 1890 to any partner) to dissolve the firm once its agreed term has expired, so in those circumstances the limited partner will have to apply to the court for dissolution. The ‘term’ of a limited partnership must be registered4. 1 2 3 4

See para 16.22ff above for dissolution of partnership at will by notice. Partnership Act 1890, s 27. Limited Partnerships Act 1907, s 6(1). See Forms LP5 and LP6 in the Schedule to the Limited Partnerships (Forms) Rules 2009 reprinted in Appendix C below; registration is discussed at para 24.27ff above.

(b)  Charge over a limited partner’s share 24.45  In an ordinary partnership, the firm may be dissolved at the option of the other partners if any partner allows his share to be charged as security for his separate debt1. That option is not open to the other partners in the case of a limited partner charging his share. Section  6(5)(c) of the Limited Partnerships Act 1907 provides: Subject to any agreement expressed or implied between the partners – … (c) The other partners shall not be entitled to dissolve the partnership by reason of any limited partner suffering his share to be charged for his separate debt.

On the other hand if the partner whose share has been charged is a general partner, the other partners can dissolve the partnership as if it were an ordinary partnership2. 1 See the Partnership Act 1890, s 33(2), which is reprinted in Appendix A below and discussed at para 16.32 above. 2 See note 1 above.

686

Dissolution and winding up 24.47

(c) Effect of the death, bankruptcy or corporate insolvency or dissolution of a general partner or a limited partner 24.46  Until the departure of the last or the sole person who is a general partner, the death, retirement, bankruptcy or corporate insolvency or dissolution of any other general partner has as much or as little effect as in an ordinary partnership, depending upon the terms of the partnership agreement. It has been said1 that the death of the last or the sole individual who is a general partner will dissolve the firm because without him it cannot operate. But the logic of this argument is faulty. By analogy, a company without directors cannot operate, but it does not dissolve. If the partnership business is run by the limited partners, section 6(1) imposes unlimited liability upon them as discussed in para 24.14 above, but it does not dissolve the firm. It is true that section 4(2) provides: (2) A limited partnership … must consist of one or more persons called general partners … and one or more persons to be called limited partners …

But this mandatory provision, requiring there to be at least one limited and one general partner in a limited partnership, may mean that while there is no general partner there is no limited partnership, it does not mean that there is no partnership at all and consequently a dissolution. It would be odd if the loss of the general partner (for whatever reason) causes dissolution where the partnership agreement provides (as is commonplace) that such a loss is not to dissolve the partnership but indeed provides machinery for the replacement of the general partner. The death or bankruptcy of a limited partner does not dissolve the firm. Section 6(2) of the Limited Partnerships Act 1907 commences thus: A limited partnership shall not be dissolved by the death or bankruptcy of a limited partner …

It follows that unless there is agreement to the contrary, the personal representatives or trustee in bankruptcy of a deceased or bankrupt limited partner cannot dissolve the firm in order to obtain his share. But the quantified interest of a deceased partner is a debt enforceable against the other members with interest2, so his personal representatives (but not his trustee in bankruptcy) have a good cause of action against the other partners for his share. A trustee in bankruptcy must be content to receive profits only. 1 In a previous edition of this book. 2 See the Partnership Act 1890, ss 42(1) and 43 (which are reprinted in Appendix A below).

B  Dissolution by court order (a) Generally 24.47  An application to the court for dissolution on the ‘just and equitable’ principle or because the business is making a loss1, or any other ground under 687

24.48  Limited partnerships

which the court may decree dissolution on the application of an ordinary partner under section 35 of the Partnership Act 18902, may be made on the application of either a general or a limited partner alone3 save as is mentioned next. 1 Re Hughes & Co [1911] 1 Ch 342. 2 Discussed in Chapter 17. 3 See note 1 above.

(b)  Mental incapacity 24.48  The firm may be dissolved by the court on any of the grounds on which an ordinary partnership may be dissolved save that those relating to the mental incapacity of a limited partner are restricted1. Section 6(2) of the Limited Partnerships Act 1907 concludes: … the lunacy of a limited partner shall not be a ground for dissolution of the partnership by the court unless the lunatic’s share cannot be otherwise ascertained and realised.

This means that if the share of the mentally incapable limited partner is not paid out by the other partners, his representatives may merely seek dissolution by the court. 1 The rules in relation to ordinary partners are not simple and are discussed at paras 3.25ff and 17.10ff above.

C  Winding up after dissolution 24.49  After dissolution the obligation to wind up the partnership affairs, which in an ordinary partnership falls to all solvent partners, is the task of the solvent1 general partners only. Section 6(3) of the Limited Partnerships Act 1907 provides: In the event of the dissolution of a limited partnership its affairs shall be wound up by the general partners unless the court otherwise orders.

The court will authorise a limited partner to wind up the firm if every general partner is dead or incapable, or it may appoint a receiver to do so2. 1 The proviso to the Partnership Act 1890, s 38, prevents the firm in dissolution from being bound by any acts of a partner who has become bankrupt. 2 For the appointment of receivers see para 15.38ff above.

8  EXECUTION AND INSOLVENCY A Judgment and execution against a limited partnership   24.50 B Bankruptcy and petitions for statutory winding up   24.51 C The priority of a limited partner’s claim against his insolvent firm   24.57 688

Execution and insolvency 24.51

A Judgment and execution against a limited partnership 24.50  A claim by an outsider against any firm may be brought either against the partners in their own names or against the firm in the firm name, as discussed in Chapter 21. In the former case the limited partners must plead their limited liability, and judgment will only be entered against them to the amount of their limited liability, which may be nothing if their capital contributions have been paid to the firm and exhausted. If the claim succeeds against the firm in the firm name, no execution may issue on it against any partner without the leave of the court1 unless the process was served upon him. In that eventuality he should have pleaded his limited liability. If he was never served, then leave to issue execution against him will not be granted by the court unless the claimant limits his claim to the amount of his liability. Paragraph 6A PD to CPR, Part 70 provides: 6A.3 A judgement or order made against a partnership may not be enforced against a limited partner… unless he – (1) acknowledged service of the claim form as a partner; or (2) was served within the jurisdiction with the claim form as a partner; or (3) was served out of the jurisdiction with the claim form, as a partner, with the permission of the court … 6A.4 A judgement creditor wishing to enforce a judgement or order against a person in circumstances not set out in paragraphs 6A.2 or 6A.3 must apply to the court for permission to enforce the judgement or order. 1 Paragraph 6A PD to CPR, Pt 70 (discussed at para 21.38ff above).

B  Bankruptcy and petitions for statutory winding up (a)  Bankruptcy generally 24.51  The bankruptcy rules relating to partners and firms apply to limited partnerships as they do to ordinary partnerships1, subject to the proviso that the liability of the limited partners is limited in the way described at the very beginning of this chapter. The rules2 as to priority of debts in bankruptcy as between the estate of a partner and the estate of the firm will apply accordingly. In Re Barnard3, two separate limited partnerships shared a single general partner called Barnard, and they and he went bankrupt. Held as regards each firm, that its assets should be applied first in paying its own debts, then repaying the limited partners their contributions, then meeting Barnard’s own creditors. 1 Per Farwell J in Re Barnard [1932] 1 Ch 269 at 274; see Chapter 22. 2 See Chapter 23. 3 [1932] 1 Ch 269.

689

24.52  Limited partnerships

(b)  Petitions generally 24.52  The provisions of the Insolvent Partnerships Order 19941 apply to limited partnerships as they do to ordinary partnerships2, subject to some modifications mentioned below. A petition to wind up a limited partnership may therefore be presented by a member, a creditor or others, and an administration order may be made against the firm, and it or its members may enter into voluntary arrangements with their creditors under the Insolvency Act 1986 as amended by the Order, and in each case a limited partner is as competent as a general partner to be the applicant. 1 Reprinted in Appendix F below. 2 See Chapter 22 for a full discussion of the Order.

(c)  Creditors’ petitions 24.53  When a creditor petitions for the statutory winding up of the firm and (by concurrent petition) for the bankruptcy or insolvency of a member1 who is a limited partner, the court may dismiss the petition against the limited partner if he gives security for his liability. Section 125A of the Insolvency Act 19862 provides: (7) The court may dismiss a petition against an insolvent member who is a limited partner if – (a) the member lodges in court for the benefit of creditors of the partnership sufficient money or security to the court’s satisfaction to meet his liability for the debts and obligations of the partnership; or (b) the member satisfies the court that he is no longer under any liability in respect of the debts and obligations of the partnership.

These provisions will apply (for instance) where a limited partner is liable for the capital he has withdrawn in breach of section  4(3) of the Limited Partnerships Act 19073. 1 Under the Insolvent Partnerships Order 1994, Art 8 (reprinted in Appendix F below). 2 As introduced by the Insolvent Partnerships Order 1994, Sch 4, Pt II, para 9. 3 Discussed at para 24.25 above.

(d)  Members’ petitions 24.54  The court may (and surely must) also dismiss a petition against a limited partner who gives similar security1 when one of his fellow partners has presented a petition against the firm and against all partners concurrently, under Article 10 of the Insolvent Partnerships Order 1994. 1 See the Insolvency Act 1986, s 125A(7), introduced by the Insolvent Partnerships Order 1994, SI 1994/2421, Sch 6, para 3, which is in the same terms as the same subsection quoted above.

690

Execution and insolvency 24.57

(e)  Article 11 petitions 24.55  Article 11 of the Insolvent Partnerships Order 1994 enables a petition to be presented jointly for their own bankruptcy by all the individual members of the firm, without any petition to wind up the firm. Such a joint bankruptcy petition may not be presented if the firm is a limited partnership1. 1 See the Insolvency Act 1986, s  264(1), introduced in relation to Art 11 petitions by the Insolvent Partnerships Order 1994, Sch 7, para 2.

(f) Disqualification 24.56  A limited partner falls within the definition1 of an ‘officer’ of the partnership and is therefore theoretically liable to be disqualified under the modified provisions of the Company Directors’ Disqualification Act 1986 as applied to partners2. But if he keeps clear of the management of the partnership business as he ought, a disqualification order against him is highly unlikely3. 1 See the Insolvent Partnerships Order 1994, Art 2(1): ‘officer’ means (inter alia) ‘member’. 2 By the Insolvent Partnerships Order 1994, Sch 8: see Appendix F below. 3 Such orders are discussed at para 3.28ff above.

C The priority of a limited partner’s claim against his insolvent firm 24.57  The right of a limited partner to a lien over partnership property is discussed in para  10.6ff above. In an ordinary partnership the rule is that a partner cannot claim what he is ‘owed’ by the partnership, in competition with the outside creditors of the firm. They have priority, otherwise he would be competing with their debts which are owed partly by himself. The rule may not apply in those rare cases where the claimant partner is not himself liable for the partnership debts against which he is competing1. It has been said2 that because a limited partner is not liable for outside debts beyond the capital he has contributed, he may compete against outside creditors for the assets of an insolvent limited partnership beyond his capital and prove in its insolvency in competition with them and so may even take a charge over the partnership assets beyond the level of such capital3, and obtain priority over outside creditors. All of this is wrong. A limited partner under the 1907 Act is only a species of ordinary partner under the 1890 Act. Nothing in the 1907 Act mentions this question of priority. Implicitly by section 3 of the 1890 Act, and expressly by section 44, a partner’s financial claims against his firm rank behind those of the outside creditors of the firm, and this statutory order of priority is recognised by section 328(6) of the Insolvency Act 1986. A limited partner in an insolvent limited partnership must therefore rank behind the outside creditors. 1 This is discussed at para 23.47ff above. 2 By the present writer in previous editions, before the matter was subjected to the critical analysis of Mr Geoffrey Woolf of S J Berwin LLP. 3 By analogy, see Re Vince [1892] 2 QB 478.

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25 Limited liability partnerships Contents

para 1 The nature and creation of limited liability partnerships A The nature of limited liability partnerships (‘LLPs’)�������������������25.1 B Sham limited liability partnerships���������������������������������������������25.6 C Registration and incorporation��������������������������������������������������25.7 D Pre-incorporation contracts������������������������������������������������������25.12 E The name of the LLP����������������������������������������������������������������25.13 F The business and property of the LLP��������������������������������������25.18 G Taxation�����������������������������������������������������������������������������������25.23 H Litigation���������������������������������������������������������������������������������25.24 2 The LLP agreement and the default provisions A The LLP agreement generally���������������������������������������������������25.26 B What should be dealt with in the LLP agreement?��������������������25.27 C Default of specific agreement����������������������������������������������������25.29 D Unfair prejudice to members����������������������������������������������������25.41 E Discrimination�������������������������������������������������������������������������25.45 F The member’s right to sue for a wrong done to the LLP�����������25.46 3 Members A Members generally�������������������������������������������������������������������25.47 B Designated members����������������������������������������������������������������25.52 C The member’s share: income and capital����������������������������������25.56 D The member’s liability to contribute to the LLP assets��������������25.60 E The liability of the LLP and of the member������������������������������25.63 F Good faith and the obligations of the LLP and its members between themselves������������������������������������������������������������������25.72 G Employment of members and ‘workers’�����������������������������������25.75 H Commencement and cesser of membership������������������������������25.76 4 Auditors, accounts, charges and the confirmation statement A Companies Act obligations�������������������������������������������������������25.84 B Audit����������������������������������������������������������������������������������������25.85 C Accounts����������������������������������������������������������������������������������25.86 D Charges������������������������������������������������������������������������������������25.87 693

25.1  Limited liability partnerships

E The confirmation statement������������������������������������������������������25.88 5 Insolvency, winding up, misfeasance and disqualification A Insolvency, voluntary arrangements and administration�����������25.89 B Dissolution and winding up�����������������������������������������������������25.90 C Investigation and misfeasance��������������������������������������������������25.94 D Recoupment from members�����������������������������������������������������25.99 E Disqualification����������������������������������������������������������������������25.100 6 Transfer of assets from partnership to LLP A Transfers generally�����������������������������������������������������������������25.106 B Existing leases, contracts, liabilities and substitution of defendants������������������������������������������������������������������������������25.107 C Executorships�������������������������������������������������������������������������25.108 D Trusteeships and other appointments�������������������������������������25.109 E CFA agreements���������������������������������������������������������������������25.110 F Clients������������������������������������������������������������������������������������25.111 G Taxation���������������������������������������������������������������������������������25.112

1 THE NATURE AND CREATION OF LIMITED LIABILITY PARTNERSHIPS A The nature of limited liability partnerships (‘LLPs’)   25.1 B Sham limited liability partnerships   25.6 C Registration and incorporation   25.7 D Pre-incorporation contracts  25.12 E The name of the LLP   25.13 F The business and property of the LLP   25.18 G Taxation  25.23 H Litigation  25.24

A The nature of limited liability partnerships (‘LLPs’) (a) General 25.1  Limited liability partnerships ‘LLPs’ (not to be confused with limited partnerships – see Chapter  24) are the creation of the Limited Liability Partnerships Act 20001 which came into force on 6 April 20012. These entities (as will be seen) are not partnerships and do not have limited liability, but they confer limited liability upon their quasi-partner members. The LLP resembles a limited company in its dealings with outsiders and as regards insolvency and in the manner in which it is wound up3. It is akin to a partnership in its management and internal arrangements4, and in the manner in which it is taxed. 1 Printed in Appendix G below. 2 The Limited Liability Partnerships Act 2000 (Commencement) Order 2000, SI  2000/3316 brought the whole Act into force on the same day, save for parts of s 10 which never came into force but were replaced by the Finance Act 2001, s 75.

694

The nature and creation of limited liability partnerships 25.2 3 See House of Commons Select Committee on Trade and Industry Fourth Report, ordered by the House of Commons to be printed 10  February 1999. In Cabvision v Feetum [2005] EWCA Civ 1601 the Court of Appeal applied company law principles for the purpose of considering whether LLP members had standing to pursue a claim that might be said to be vested in an LLP. 4 See House of Commons Select Committee on Trade and Industry Fourth Report, ordered by the House of Commons to be printed 10 February 1999, para 11.

(b)  Historical background 25.2  The Limited Liability Partnerships Act 2000 and the Regulations that supplement it1 were drafted without consultation with the Law Commission and in something of a hurry2. They were a response to: (i) the general increase in the incidence of litigation against ordinary partnerships for professional negligence, and the size of claims3; and (ii) the resultant fear that businesses (and in particular accountancy firms) might transfer to the USA or Jersey which offered a form of LLP status to such businesses4. It was greeted with enthusiasm by those who took its benefit but less enthusiasm by those who advise upon its meaning and effect, since its provisions are obscure and inadequate. Because of its tax transparency, its separate legal personality5 and the freedom from liability that it gives to its members, the LLP has proved extremely popular. 1 Principally the Limited Liability Partnerships Regulations 2001, the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (as amended), and the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 (as amended). The totality of that legislation as thus incorporated and modified would double the length of this book if printed here. The best commentary is in J  Whittaker and John Machell The Law of Limited Liability Partnerships (3rd edn, 2009). 2 A leading author in this field described the Act in a private letter to me as ‘Third world legislation’. This is the more regrettable since the Bill had been the subject of pre-legislative scrutiny by a Commons Select Committee. But that Committee was not responsible for the final form of the Bill. 3 See para 9 of the Explanatory Notes to the Limited Liability Partnerships Act 2000. 4 See para 1.3 of the DTI Consultation Paper on Limited Liability Partnership (February 1997). The Jersey Limited Liability Partnerships Act required the LLP to deposit a bond of £5m to protect creditors, a precaution which was felt to be unnecessary by the UK  Parliament. Lord Phillips of Sudbury during the committee stage of the LLP Bill in the Lords, Hansard (24  January 2000), stated: ‘We already have the slackest limited liability regime in the world … this measure is a conspiracy against the public interest from start to finish’. In the Commons, during the debate on the second reading, Austin Mitchell MP said: ‘It is a shabby measure … The songs of praise for it have come largely – in fact overwhelmingly – from the vested interests’ Hansard (23 May 2000). Lord Phillips of Sudbury asked rhetorically during the second reading of the LLP  Bill: ‘Why in principle should anyone pursuing a trade for gain expect to be protected from loss and damage they inflict on third parties? Why should they not bear the consequences of their incompetence, greed or negligence – I say nothing of fraud?’ Hansard (9 December 1999). 5 See para 25.23 below.

695

25.3  Limited liability partnerships

(c)  English, Scottish and foreign LLPs 25.3  As well as to English and Welsh LLPs, the Act applies to Scotland and, since 1 October 2009, to Northern Ireland1. The Act contains provisions for the treatment of ‘overseas limited liability partnerships’2, but UK LLPs can trade overseas and as corporate bodies are likely to be recognised abroad according to their own terms3. The UK Act is a pre-commencement enactment for the purposes of the Scotland Act 19984. Regulations made under the Act by Scottish ministers5 are slightly different from the English regulations which came into force on the same day and which are discussed below. The first US statute was passed in Texas in 1991, since when Australia and Canada and virtually all US states have passed similar legislation6. Such foreign statutes take varying forms. For instance, the Jersey law7 requires that the members shall have agreed to contribute effort and skill to the business, which is not a requirement elsewhere. 1 See the Limited Liability Partnerships Act 2000, s 19(4), reprinted in Appendix G below, as amended by the LLP Regulations 2009. 2 An overseas LLP does not have corporate status: the Limited Liability Partnerships Act 2000, s 1(2), reprinted in Appendix G below. Several apparently English LLPs are in fact New York or Delaware LLPs and subject to different rules. 3 Contrast English limited partnerships abroad: para  24.7 above, and the position in Hong Kong: Brand Farrar Buxhaum LLP v Samuel-Rozenbaum Diamond Ltd (2005) HKLRD 342. 4 Limited Liability Partnerships Act 2000, s 19(3). 5 Limited Liability Partnerships (Scotland) Regulations 2001 and Limited Liability Partnerships (Scotland) Amendment Regulations 2009. 6 See House of Commons Select Committee on Trade and Industry Fourth Report, ordered by the House of Commons to be printed 10/2/1999, para 11. 7 Limited Liability Partnership (Jersey) Law 1997, Art 2(2).

(d)  Characteristics of the LLP 25.4  The UK LLP is a legal entity with personality independent from its members1 who are generally to be free from any responsibility for its liabilities. It has unlimited capacity2, so it can enter into contracts, incur liabilities and hold property; no act will be ultra vires the LLP. It has many characteristics of a limited company regulated by the Companies Acts, but it has no directors, objects, articles of association or share capital. Its internal structure is established by the agreement between its members, and in that respect it is like many an ordinary partnership. But an ordinary partnership is governed (in default of agreement) by the principles of partnership law. The members of an LLP have no such safety net3. Subsection 1(5) of the Limited Liability Partnerships Act 2000 provides: … the law relating to partnerships does not apply to a limited liability partnership.

In spite of this declaration, and rather as an afterthought, Pt VI of the LLP Regulations 2001 does in fact declare some default rules prescribing the 696

The nature and creation of limited liability partnerships 25.6

mutual rights of the members and of the LLP. The rules amount to a truncated version of some of the principal sections in the Partnership Act 1890. A limited liability partnership of solicitors which is a party to litigation and acts for itself in the proceedings is not a litigant in person for the purposes of CPR r.46.54. Because the members of the LLP are free to construct whatever internal arrangements they wish, the LLP can either be similar to a partnership, or to a company, or neither, in its internal workings. This flexibility is both valuable and dangerous. It only works if the LLP agreement or the other documents which define the structure of the entity have been well drafted. 1 See the Limited Liability Partnerships Act 2000, s 1, reprinted in Appendix G below. 2 See the Limited Liability Partnerships Act 2000, s 1(3), reprinted in Appendix G below. 3 Rarely will the proposed members of an LLP be regarded as having formed an 1890 Act partnership between themselves: Dutia v Geldof [2016] 2 BCLC 252. 4 Halborg v EMW Law LLP [2017] EWCA Civ 793.

(e)  Member’s limited liability 25.5  It was plain from the parliamentary debates on the LLP Bill that the law of agency (which underlies partnership law) is applicable to the LLP and its members. The status of the LLP confers upon members the privilege of limited liability. The LLP Act does not expressly state this, but implies it in the sense that the LLP and not the members are responsible for its own liabilities and the members are not liable to contribute to its assets save to the small extent specified in the Act. In exchange for this privilege, the members suffer certain disadvantages as compared to the members of an ordinary partnership, such as the obligation to publish annual accounts and the subjection of the LLP to many of the intricate regulatory provisions of the Companies Acts.

B  Sham limited liability partnerships 25.6  An incorporated, registered LLP can hardly be a sham in itself, unless it is arguable that its members intended that their relations should be different from those in a real LLP1, for instance that some should be employees rather than members. Even this argument is difficult because the law does not require any particular role of a member as it does of an ordinary partner who is to ‘carry on business in common’ with the other partners, and because an LLP member is so created by simple agreement with the LLP, and his status is registered, as explained below. In the words of Proudman J2, ‘There is no concept of a member in name only. Members are creatures of statute with statutory rights and obligations’. Only for some tax purposes may the status of members be challenged3. Shadow members are mentioned at para 25.51 below and sham partnerships generally at para 2.5 above. 697

25.7  Limited liability partnerships 1 Snook v London and West Riding Investments Ltd [1967] 2 QB 786. 2 Eaton v Caulfield [2011] EWHC 173 (Ch) at 47. 3 Para 25.75 below.

C  Registration and incorporation (a) Registration of the incorporation document and certificate of registration 25.7  The provisions of the Companies Act 2006 apply, with modification, to LLPs1. The LLP is created on incorporation by registration by the Companies Registrar2 (provided that the registered office is situated in England and Wales). If the members trade without due registration they will no doubt be treated as partners in an ordinary partnership3. There is no inherent jurisdiction in the court to challenge the registrar or to require him to do any more than carry out his statutory duties4. The Registrar gives a certificate of registration which is conclusive evidence that the incorporation requirements have been complied with5. So it will stand good even if it has been procured by the fraud of a member or outsider against the members6. The Registrar will retain the ‘incorporation document’ (or the copy) which has been delivered to him. This document is not the LLP agreement (discussed at para 25.26ff below) but is a document which: (i) is subscribed by two or more persons ‘associated for carrying on a lawful business with a view to7 profit’ (although the nature of such business need not be mentioned); the phrase is considered further at para 25.18 below; (ii) states that the requirement of (i) above has been complied with (this statement may be made by a solicitor or a subscribing member); (iii) specifies which members are to be ‘designated members’ (as explained at para  25.52ff below) or states that every member is to be a designated member; (iv) states required particulars of each member, the name and registered office of the LLP, and whether that registered office is in England, Wales, Scotland, or Northern Ireland. Provision for confidentiality in relation to members’ particulars is discussed at para 25.50 below. Since 1 October 2009 the LLP has been required to keep a register of members8. The particulars which have to be provided to Companies House mirror those which must be stated in the LLP’s register of members and register of members’ addresses9. Each member must provide a service address for public record, and a usual residential address which will be kept confidential. An application for incorporation of an LLP is made in Form LLIN0110 supplied by Companies House and can be made online11. It is difficult to see that the statutory requirements can be satisfied by company formation agents, and so each LLP should be tailor-made. This is no bad thing granted the need for a specifically drawn LLP agreement as mentioned below. Other 698

The nature and creation of limited liability partnerships 25.9

forms for the making of applications and notification to the register have been prescribed by regulation12.   1 See the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, and the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804.   2 See the Limited Liability Partnerships Act 2000, s 3(1), reprinted in Appendix G below.  3 Brand Farrar Buxhaum LLP  v Samuel-Rozenbaum Diamond Ltd (2005)  HKLRD  342. But some of the pre-incorporation contracts of the LLP itself can become valid: see para 25.12 above.   4 In Re a Company (No 007466 of 2003) [2004] 1 WLR 1357.   5 See the Limited Liability Partnerships Act 2000, s 3(4), reprinted in Appendix G below.  6 Bank of Beirut SAL v HRH Prince Adel El-Hashemite [2016] 1 BCLC 127.   7 ‘A view to profit’. By contrast the Partnership Act 1890, s 1(1) uses the phrase, ‘a view of profit’. Now there is a nice distinction. Sadly the current thinking is that there is nothing in it and the phrases mean the same: Ingenious Games LLP  v Revenue and Customs Commissioners [2019] UKUT 226 (TCC) at para 301.  8 Companies Act 2006, s  162 and the Limited Liability Partnerships (Application of the Companies Act 2006) Regulations 2009, reg 83 and Sch 1, para 5(1).   9 Limited Liability Partnerships Act 2000, s 2(2ZA). 10 The form is that specified by the Registrar pursuant to the Companies Act 2006, s 1068. 11 See www.companieshouse.gov.uk. 12 LLP (Forms) Regulations 2001, SI 2001/927.

(b)  Public access to register 25.8  Any person may inspect any copy of any records kept by the Registrar and may require from him a certified copy and a certificate of the incorporation of the LLP1, but the LLP agreement (discussed below) will not have been filed with him and is not public. 1 See the Companies Act 2006, ss 1065 and 1085, replacing the Companies Act 1985, ss 709 and 710.

(c)  Subsequent alteration to registration 25.9  When any of the following happens, notice of it must be delivered to the Registrar (in approved form) within 14 days1: (i) when a person becomes or ceases to be a member or a designated member (see Forms LLAP01 and LLAP02, for appointments, and LLTM01, for cessations, all issued by Companies House2); (ii) when a member changes any of the particulars required to be stated in the register of members or the register of members’ residential addresses (see Forms LLCH01 and LLCH02 issued by Companies House). The notice must contain a statement that the person becoming the member or designated member consents. 1 See the Limited Liability Partnerships Act 2000, s 9(1), reprinted in Appendix G below. 2 See www.companieshouse.gov.uk.

699

25.10  Limited liability partnerships

(d)  Default in registration 25.10  A failure to register leads to penalties. Furthermore, a failure to register the following events means that the LLP cannot rely upon them, save against members or those who know of them1: (i) the making of a winding-up order or the appointment of a liquidator in a voluntary winding up; (ii) any alteration in the incorporation document; or (iii) as regards service of any document on the LLP, any change in the situation of the registered office. 1 See the Companies Act 2006, s 1079(2).

(e)  The registered office 25.11  The LLP must have a registered office which must be stated in the registration document. The fact of any change in the registered office must be notified to the Companies Registrar. The notification of a change must be in approved form (see Form LLAD01 issued by Companies House).

D  Pre-incorporation contracts 25.12  A contract relating to an LLP which has not yet been incorporated will not necessarily be void. The intended members may bind the intended LLP by agreement between themselves. Subsection 5(2) of the Limited Liability Partnerships Act 2000 provides: An agreement made before the incorporation of a limited liability partnership between the persons who subscribe their names to the incorporation document may impose obligations on the limited liability partnership (to take effect at any time after its incorporation).

This means that a proposed LLP agreement can be executed and bind the proposed LLP before the LLP is incorporated, provided that it is made either by those who have subscribed to the incorporation document, or subsequently do so. Although it may impose obligations on the LLP, it is unclear whether it can confer rights on it. Probably by implication it can. So much for pre-incorporation contracts made between members. By contrast a contract purportedly made with an embryo LLP itself stands not as a contract with the LLP but as a contract made with those who purportedly acted for it in the making of the contract, and it does not bind the LLP. Section 51 of the Companies Act 2006 (as amended1) provides: (1) A contract that purports to be made by or on behalf of an LLP at a time when the LLP has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the LLP or as agent for it, and he is liable on the contract accordingly.

700

The nature and creation of limited liability partnerships 25.13

The effect of this subsection is that the LLP is not bound, but the purported agents are, and they are not only liable on the contract, but may also enforce it personally2. More important, their liability under it is unlimited. The relationship between these two subsections has not been thought out clearly by the legislature. To resolve the difficulties the new LLP, as soon as it has been incorporated, should execute any pre-incorporation document that may have been entered into which purportedly binds or benefits it. Where a misrepresentation is made to a proposed member before the LLP is incorporated, and the LLP later makes a contract with the representor in reliance upon the representation, the representor will usually be liable even though there was no LLP in existence when the representation was made, because the representation will be treated as a continuing one unless he withdrew or corrected it3. Only rarely will an arrangement between members made at or before incorporation constitute them a partnership under the 1890 Act4. 1 As applied and modified by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 7. 2 Braymist v Wise [2002] EWCA Civ 127, [2002] 2 All ER 333. 3 Cramaso LLP v Ogilvie-Grant [2014] UKSC 9. 4 Dutia v Geldof [2016] 2 BCLC 252.

E  The name of the LLP (a)  The name and its registration 25.13  The name of an LLP must end with ‘limited liability partnership’ or ‘llp’ or the Welsh equivalents if the registered office is situated in Wales1. The name of an LLP must be registered in the list of company and quasicompany names kept by the registrar of companies, and may not be the same name as any other such name2. For this purpose such words as ‘The’, ‘and company’ and ‘LLP’ are to be ignored3. An LLP may carry on business under a name which is not its registered name. However that ‘business name’ must avoid being offensive (in the sense discussed in para 25.14 below), suggesting a connection with government or a public body or otherwise being misleading4. Furthermore the LLP’s registered name must be shown on its business communications and documents (such as letters, order forms, cheques etc), e-mails and websites5. 1 See the Limited Liability Partnerships Act 2000, Sch, Pt I, para  2, which is reprinted in Appendix G below. 2 See the Companies Act 2006, s  66, as applied and modified by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 11. 3 See the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015, SI 2015/17 and the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 11 as amended by the 2015 Regulations. 4 See Part 5 of the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015, SI 2015/17. 5 See reg 24 of and Sch 5 to the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015, SI 2015/17.

701

25.14  Limited liability partnerships

(b)  Objectionable names 25.14  The provisions of the Companies Act 2006 relating to permitted names apply (with only slight modification)1. These provide for the Secretary of State to regulate the names which may be registered in certain circumstances: (i) If in the opinion of the Secretary of State its use by the LLP would be an offence or it is offensive, then the name may not be registered2. (ii) If the name is the same as another name appearing in the registrar’s index of company names it may not be registered (unless both entities form part of the same group and the earlier registered entity consents). The Secretary of State has power within 12 months of the registration of a name to direct a change of name where the registered name is too like another registered name3. (iii) If the name suggests that the LLP is connected with the government or a public or local authority then the Secretary of State’s approval is required before it may be registered4. (iv) If the name contains a word or words which have been specified by the Secretary of State in certain regulations, then again the Secretary of State’s approval is required before it may be registered5. (v) If it appears to the Secretary of State that misleading information has been given for the purposes of an LLP’s registration by a particular name or that an undertaking or assurance has been given for that purpose which has not been fulfilled, the Secretary of State may direct the LLP to change its name within five years of the LLP’s registration by that name6. 1 See the Companies Act 2006, ss  53–56, applied and modified by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 8; s 57 applied and modified by reg 9; s 65 applied and modified by reg 10, ss 66–68 applied and modified by reg 11; ss 69–74 applied and modified by reg 12 and ss 75–76 applied and modified by reg 13. 2 See the Companies Act 2006, s 53. 3 See the Companies Act 2006, ss 66 and 67 and the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015, SI 2015/17, regs 7 and 8. 4 See the Companies Act 2006, s 54 and see also the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015, SI 2015/17. 5 See the Companies Act 2006, s 55. The regulations in question are the Company, LLP and Business Names (Sensitive Words and Expressions) Regulations 2014, SI 2014/3140. 6 See the Companies Act 2006, s 75.

(c)  Changes of name 25.15  Once registered, the LLP may change its name1. This must be done by the members unanimously unless the LLP agreement specifies a simpler method. The change must be notified (in approved manner: see Form LLNM01 issued by Companies House; the fee is £10). The Registrar will issue a certificate of the change of name, and the change of name does not have effect until the date upon which the certificate is issued2. The change of name does not affect any 702

The nature and creation of limited liability partnerships 25.17

of the rights or duties of the LLP, or render defective any legal proceedings by or against it, and any legal proceedings that might have been commenced or continued against it by its former name may be commenced or continued against it by its new name3. In addition, the Registrar may require a change of name in certain circumstances4. 1 See the Limited Liability Partnerships Act 2000, Sch, Pt I, para  4(1), reprinted in Appendix G below. 2 See the Limited Liability Partnerships Act 2000, Sch, Pt I, para  5(4), reprinted in Appendix G below. 3 See the Limited Liability Partnerships Act 2000, Sch, Pt I, para 6, reprinted in Appendix G below. 4 See the Limited Liability Partnerships Act 2000, Sch, Pt I, para  4(2), reprinted in Appendix G below.

(d) The name of the LLP and each member on letters, documents and premises 25.16  As has been mentioned above, the provisions of the Companies Act 2006 relating to permitted names apply (with only slight modification). These are discussed at para  8.61ff above. The Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015 apply to LLPs1. They require the part of the UK in which the LLP is registered, the LLP’s registered number and address and the fact that it is an LLP to be shown on all the LLP’s business letters, order forms and websites. Where an LLP consists of fewer than 20 members, either all or none of the members must be named on the LLP’s business letters. If there are more than 20 members this provision does not apply, provided the letters make clear that a list of members is maintained at the named principal place of business of the LLP and a list is so maintained. Failure to abide by these regulations, without reasonable excuse, is an offence and exposes the LLP and every designated member in breach to the risk of a fine. If the non-compliant LLP brings proceedings to enforce a contract entered into when it was in breach then the defendant has a defence if he can show that he has a claim against the LLP which he cannot pursue because of the LLP’s default or that he has suffered some financial loss as a result, unless the court deems it just and equitable to allow the claim to proceed2. 1 SI 2015/17 by virtue of the Companies Act 2006, s 82. 2 See the Companies Act 2006, s 83.

(e)  The LLP seal and the execution of documents 25.17  Under section  45 of the Companies Act 20061, the LLP may or may not have a common seal2. Whether it does or not, the signature of two members expressed to be as authorised signatories or by a member of the LLP in the presence of a witness who attests this signature has effect as due 703

25.18  Limited liability partnerships

execution3. In favour of a purchaser in good faith for valuable consideration, a document is deemed to have been duly executed if it purports to have been signed in this manner4. 1 As modified by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 4. 2 See the Companies Act 2006, s 45, replacing the Companies Act 1985, s 36A, as modified by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 4. 3 See the Companies Act 2006, s  44(2), replacing the Companies Act 1985, s 36A(4) and (5), as modified by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 4. 4 See the Companies Act 2006, s 44(5), replacing the Companies Act 1985, s 36A(6), as modified by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 4.

F  The business and property of the LLP (a)  The requirement of business with a view to profit 25.18  The LLP must carry on business. LLP status is not available for a noncommercial activity. Thus the LLP may not be incorporated save where the original members have stated that they are associated for carrying on a lawful business with a view to profit1. Further it is a ground for winding up the LLP that it does not commence its business within a year from its incorporation, or suspends its business for a whole year2. Lastly the LLP and its members lose their valuable tax status if they cease to be carrying on ‘business with a view to profit’; see para 25.23 below. ‘Business’ includes every trade, profession and occupation3, a definition which is in practice identical to the definition of ‘business’ in section  45 of the Partnership Act 1890. The definition of ‘business’ can perhaps have the stretched meaning applicable to limited partnerships (para 24.4 above), because section 399(6) of the Income Tax Act 2007 (as amended) refers to ‘An Investment LLP’ as one whose ‘business consists wholly or mainly in the making of investments’, and it is questionable whether such an activity as making investments could create an ordinary partnership at all: see paras 2.16 and 2.394 above. There is no distinction5 between this phrase ‘business with a view to profit’ and ‘business … with a view of profit’ in the definition of ‘partnership’ in section  1(1) of the 1890 Act. The reason for the difference is obscure. The ‘view’ required by section 2(1) of the Limited Liability Partnership Act 2000 is the subjective view that the members (not merely the designated members) hold; there is no need for this to be their predominant aim, but it must be a genuine one6. The scope of the liability of members of the LLP to outsiders is not defined by the scope of its business, as is that of a member of an ordinary partnership7 and as was the case in the draft LLP Bill circulated in 1998. The implications of this change or omission are explained at para 25.67 below. 704

The nature and creation of limited liability partnerships 25.20 1 See the Limited Liability Partnerships Act 2000, s 2(1), reprinted in Appendix G below and discussed at para 25.7 above. 2 See the Insolvency Act 1986, s 122(1)(b), as modified and applied by the Limited Liability Partnerships Act 2000, Sch 1, para 5. 3 See the Limited Liability Partnerships Act 2000, s 18, reprinted in Appendix G below, and see ‘profit’ discussed in paras 2.16 and 12.26 above. 4 See also the Corporation Tax Act 2010, s 1135, which provides that a ‘property investment LLP’ is one whose business consists wholly or mainly in the making of investments in land and the principal part of whose income is derived from investments in land. 5 Ingenious Games LLP v Revenue and Customs Commissioners [2019] UKUT 226 (TCC) at para 301. 6 Ibid at paras 333, 325 and 338. 7 See the Partnership Act 1890, s 5, reprinted in Appendix A below.

(b)  Legality of the business (i)  Lawfulness generally 25.19  The business must be a ‘lawful’ one and the implications of this in relation to ordinary partnerships are discussed in Chapter 4. The principles will be the same as for an ordinary partnership save that the Limited Liability Partnerships Act 2000 contains no such provision as is found in section 34 of the Partnership Act 1890, to the effect that the partnership is dissolved without more if the business of the firm becomes unlawful. An LLP which succeeds in becoming registered but then carries on an unlawful business will therefore continue as a valid entity until its winding up.

(ii)  Lawfulness of professionals to practise 25.20  If the rules of a profession prevent its members from carrying on a business as employees or members of a corporation, then an LLP business formed by them will not be lawful and the registrar will refuse its registration. Barristers may now be members of an LLP which is an ‘authorised body’. An ‘authorised body’ is a body which is authorised or licensed to undertake reserved legal activities, approved by a regulator other than the Bar Standards Board1. Solicitors may provide legal services as a body corporate provided that before doing so the body must have been recognised by the Solicitors’ Regulation Authority as being a suitable body to undertake the provision of such services2. Accountants and those practising in the field of financial services must (as the case may be) ensure that the LLP is authorised to carry out audit work or to provide services under the Financial Services and Markets Act 2000, which is discussed in more detail under ‘Limited partnerships’ in Chapter 24. Architects may form an LLP but it may practise only if registered with the Architects’ Registration Board, and subject to supplying the Board with certain information3. 705

25.21  Limited liability partnerships

Pharmacists may carry on business through an LLP subject to conditions4. The position of other medical practitioners is settled by their respective professional bodies. 1 2 3 4

Code of Conduct (2013 edition), Pt 6, Definitions section. See the Administration of Justice Act 1985, s 9. See the Architects Act 1997, s 20. See the Medicines Act 1968, ss 69 and 71.

(c)  Property of the LLP (i)  LLP property 25.21  The LLP as a legal entity is capable of owning almost any property which can be imagined, and a full discussion of partnership property generally is in Chapter 8. But members of an LLP will be ill-advised to put more property into the LLP than is absolutely necessary because there it will be available for the LLP’s creditors. If they keep it in their own hands and lease it or lend it to the LLP then it will not. This distinction does not apply in the case of an ordinary partnership where the partners’ own property is as much available to the partnership creditors if it is in their hands as if it is in the partnership. Capital is considered in para 25.59 below. (ii)  Charges over LLP property 25.22  Like a company, the LLP may create a floating charge over its assets, and must register its charges like a limited company1. 1 See the Companies Act 2006, Chapter A1 (ss 859A–859Q).

G Taxation (a)  Taxation generally 25.23  The DTI, when launching the LLP, was at pains to make it as taxattractive as possible to its proposed members. It did this by ensuring that the legislation treated a trading LLP in the same manner as an ordinary partnership. Section 10 of the LLP Act ensures that where an LLP carries on a ‘business with a view to profit’ (an important proviso, see para 25.18 above) the members will be treated for the purposes of income tax, corporation tax and capital gains tax as if they were partners carrying on business in partnership. This means that it is ‘tax transparent’ – the entity as such is not taxed but its members are, and they are in a position to bring 706

The nature and creation of limited liability partnerships 25.24

their personal tax allowances into account to compute their tax liability. Members liable to income tax are charged to tax under section  863 of the Income Tax (Trading and Other Income) Act 2005. If they are nontaxpayers, they will pay no tax at all. HMRC Statements of Practice and Extra-statutory Concessions will apply to an LLP and its members as they apply to ordinary partnerships and partners. The members pay Class 2 and Class 4  NI contributions1. But some anti-avoidance provisions were introduced by the Finance Act 2001 and subsequently, principally to restrict the tax-usefulness of LLPs whose business consists wholly or mainly in the making of investments2. For the purposes of the Taxes Acts and for the purposes of the enactments relating to capital gains, the activities of the LLP are treated as carried on by its members and its assets are treated as held by its members as ordinary partners3. This remains the position even when the business has ceased (if only temporarily) and during a period of winding up following a permanent cessation, provided that such winding up is not for reasons connected with the avoidance of tax, and is not unreasonably prolonged. On the other hand the position changes and the LLP becomes taxable as a company on the appointment of a liquidator or the making of a winding-up order by the court. Because it is treated as an ordinary partnership for tax purposes, the LLP has to file an annual account with the Revenue, and its members are taxed upon the profits so revealed. 1 LLP Act 2000, s 13; Social Security Contributions and Benefits Act 1992, s 15(3A). 2 See Taxation of Chargeable Gains Act 1992, s  271(12); Finance Act 2001 s  76, Sch  25; Income Tax Act 2007, s 398. 3 See the Income Tax (Trading and Other Income) Act 2005, s  863(1) and the Taxation of Chargeable Gains Act 1992, s 59A introduced by the Finance Act 2001, s 75 in substitution for the equivalent sections introduced by the Limited Liability Partnerships Act 2000, s 10.

H Litigation 25.24  Since the LLP is a corporate entity, it may sue or be sued in its own name in the same way as a company can. Under CPR, Part 19.9 a derivative action can be brought in the name of the LLP by a member, who must join the LLP as a party to the claim, but after he has issued the claim form he must apply to the court for permission to continue the claim, as outlined in that Part. The LLP can make a claim, or be claimed against, either by or against a member or an outsider1. Nothing in the legislation suggests that the rights of a member as a creditor (for instance for unpaid profit, or his advances to the limited liability partnership) are subordinated to the claims of outside creditors. 1 Limited Liability Partnerships Act 2000, s 1(2).

707

25.25  Limited liability partnerships

Service and acknowledgment of service of the claim form 25.25  The claim form may be served on an LLP by any method permitted by CPR  Part 6 or by any of the methods permitted under the Companies Act 2006 as applied and modified by regulation1. Unless personal service is required, where the defendant has given in writing the business address within the jurisdiction or within any European Economic Area state of a solicitor as an address at which the defendant may be served with the claim form, or a solicitor acting for the defendant has notified the claimant in writing that the solicitor is instructed by the defendant to accept service of the claim form on behalf of the defendant at a business address within the jurisdiction or within any European Economic Area state, it must be served at the business address of that solicitor2. If the LLP has given an address within the jurisdiction for service of the proceedings, it may be served there3. If it gives no such address, it may be served at its principal office or any permitted place of business of the LLP within the jurisdiction which has a real connection with the claim4. The provisions of CPR Pt 7A PD 3.5 which require a High Court form to state that the claimant expects to recover more than £100,000 do not apply to proceedings in the Companies Court relating to LLPs5. If personal service is required, the claim form must be served by leaving it with a person holding a senior management position within the LLP, such as the managing partner, at its principal place of business6. As an LLP is a legal entity, it will acknowledge service in its own name, and the acknowledgment may be signed by a person holding a senior position in it, but he must state the position he holds7. 1 CPR 6.3; CPR 6.20; Companies Act 2006, ss 725 and 1139. 2 CPR 6.7(1), (2). 3 CPR 6.8(a). 4 CPR 6.9(2)4. 5 CPR Pt 7A PD 3.6 and CPR Pt 49(c). 6 The CPR does not mention personal service on limited liability partnerships directly. It is submitted that personal service effected in this way would be acceptable by applying CPR 6.5(3)(b) as a limited liability partnership is analogous to a company. 7 CPR Pt 10 and PD 10–4.2.

2 THE LLP AGREEMENT AND THE DEFAULT PROVISIONS A The LLP agreement generally   25.26 B What should be dealt with in the LLP agreement?   25.27 C Default of specific agreement   25.29 D Unfair prejudice to members   25.41 E Discrimination  25.45 F The member’s right to sue for a wrong done to the LLP   25.46 708

The LLP agreement and the default provisions 25.27

A  The LLP agreement generally 25.26  The internal arrangements of the LLP are left almost entirely to the members, who are intended to set them out in a document called an LLP agreement. This document is not available to the public or the registrar, and can be altered at will by the members and the LLP, like an ordinary partnership agreement1. But it is a document of greater importance than an ordinary partnership agreement because the law relating to LLPs does not provide as full a default code as does the Partnership Act 1890. Nor does the Limited Liability Partnerships Act 2000 prescribe regulations analogous to those in Table A of the Companies Acts. The LLP agreement for each LLP must therefore be tailor-made. There may be disastrous consequences if the members (and in particular those in a minority) do not find their expectations defended in the LLP agreement. The LLP agreement must define fully the rights between the LLP and its members and between the members themselves. In practice such a document usually gives much more power to those members who have the management of the firm than is the case in an ordinary partnership. The question of its repudiation is discussed at para  25.79 below. The position in default of specific agreement is considered at para 25.29 below. An agreement to which the LLP is not itself a party will not bind the LLP under the Contracts (Rights of Third Parties) Act 1999 as amended because LLP formation agreements and LLP agreements are expressly excluded from the amended Act: 6.2A  Section  1 confers no rights on a third party in the case of any incorporation document of a limited liability partnership or any limited liability partnership agreement. 1 The LLP agreement cannot be altered quite as informally as an ordinary partnership agreement which can be varied under s 19 of the Partnership Act 1890 by consent of all the members ‘and such consent may be either express or inferred from a course of dealing’, as discussed in Chapter 7. An LLP agreement will only be capable of being varied in circumstances in which the LLP itself (and not just its members) have assented, and there should be consideration for the contractual variation.

B  What should be dealt with in the LLP agreement? 25.27  Below are listed the principal matters that might appear in an ordinary partnership agreement and also need to appear in an LLP agreement: (a) (b) (c) (d) (e)

the identity of the members, including of course the LLP itself; the nature of the business (see paras 25.18 and 19.8ff above); the firm name (see paras 8.55ff and 25.13ff above); what are the LLP assets (see Chapter 8 and para 25.21 above); whether, and how, the LLP is taking over an existing business (see paras 8.28ff above and 25.102 below); (f) what the LLP capital (if any) is and how it is to be contributed and repaid (see paras 9.2ff above and 25.59 below); 709

25.28  Limited liability partnerships

(g) banking, accounting and administrative arrangements (see paras 12.19ff above and 25.86 below); (h) profit shares and drawings of members (see paras 12.24ff above and 25.30 and 25.55 below); (i) how losses are to be borne (see paras 12.24ff above and 25.56 below); (j) whether the LLP or the member should bear the cost of his negligence and how either should be insured against this (see para 25.63ff below); (k) pensions and insurance arrangements for members; (l) holidays and alternative occupations; (m) professional obligations and the certainty that every member is qualified if the business of the LLP is a profession (see Chapters 3 and 4); (n) restriction on a member’s right of competition with the LLP and misuse of LLP information and assets (see Chapter 11 and para 25.38 below); (o) the management structure within the LLP; (p) the powers of a management committee or managing member (see Chapter 23); (q) decision-making by requisite majorities, and voting procedures (see Chapter 12 and para 25.35 below); (r) where the books and records are to be kept available for members’ inspection (see para 25.36 below); (s) the introduction of new members (see paras 7.27ff above and 25.34 below); (t) expulsion and retirement (see paras 16.33ff above and 25.40 and 25.81 below); (u) how the members may dissolve the LLP (see para 25.90 below); (v) the rights and obligations of departing or dead members (see Chapter 18 and 25.81 below) including restrictive covenants upon them; (w) arbitration or mediation in the event of disputes (see para 15.21ff above). 25.28  The following additional matters will not be found in an ordinary partnership agreement but should be found in an LLP agreement: (a) a provision ratifying or adopting any pre-incorporation agreements entered into by the LLP, and indemnifying the members who entered into it purportedly on behalf of the LLP and providing that the agreement is not just between the LLP and the members but is also between the members themselves and is intended to bind successive members (preincorporation contracts are discussed at para 25.12 above); (b) a provision that the members owe duties of good faith between themselves as well as to the LLP, although they are accountable to the LLP alone; (c) who are the ‘designated members’ and whether a member can be compelled to be one, and who should bear the statutory penalties in the event of default: should the LLP indemnify the member against the costs and penalties arising on accidental default, or should the member indemnify the LLP? How should designated members take decisions as between themselves: by a majority, unanimously, or as directed by the LLP management? (see para 25.52 below); (d) whether the LLP’s main assets are to be held by the members outside the ambit of the LLP to preserve them from creditors, and if so how (see para 25.21 above); 710

The LLP agreement and the default provisions 25.29

(e) what are the limits of the authority of members to act as agents for the LLP outside its actual business? (see para 25.67 below); (f) what rights or duties the member may have to make loans to the LLP, especially to cover income losses (see para 25.56 below); (g) whether or to what extent the LLP will indemnify the member, or the member will indemnify the LLP, for negligence or other wrongs committed by members to outsiders in the course of the LLP’s business, and whether any such indemnity should be supported by insurance (see para 25.31 below); (h) what contractual arrangements (subject to what restrictions or limits on liability) must be entered into with clients; (i) which decisions of the LLP can be taken by a simple majority of members, which by a special majority and which by the unanimous resolution of the members, especially in relation to the rights of the LLP and the obligation of ‘the members’ under the company regulation and insolvency regimes discussed below (see para 25.35 below); (j) whether or to what extent a member may sell, charge or assign his share voluntarily or involuntarily (see para 25.58 below); (k) whether the ‘unfair prejudice’ provisions of section 994 of the Companies Act 2006 are excluded (see para 25.41 below); (l) whether the LLP agreement can be modified informally; (m) whether the members must give personal guarantees for the liabilities of the LLP, or for any particular liability such as the overdraft; (n) whether in an insolvency of an LLP the members’ own claims against the LLP (especially for repayment of ‘capital’) will rank behind those of other creditors, or of specific creditors such as the firm’s bank; (o) what will happen to the net assets of the LLP when a member departs and when the LLP is wound up, and whether he is obliged to contribute to its liabilities, and if so, to what extent? (see para 25.60 below). How are the continuing partner’s shares to be affected by his departure?; (p) what indemnity is given to an outgoing member or how he may be released from his guarantees or remain liable for LLP debts, perhaps depending upon whether he leaves with consent of the other members (see para 25.31 below); (q) whether any of the statutory default provisions (considered below) should be excluded.

C  Default of specific agreement General: the application of partnership principles 25.29  The LLP agreement may be non-existent or may be defective, for instance by merely being in draft, in which case similar principles apply as those in the case of an ordinary partnership agreement1. A member’s right to retire is discussed in para 25.81 below. 711

25.30  Limited liability partnerships

Subject to any contrary agreement and to the general law, the other rights of the LLP and its members between themselves are governed by the default rules in regulations 7 and 8 of the Limited Liability Partnerships Regulations 2001. These specify 11 matters which echo similar provisions in the Partnership Act 1890. They will govern the LLP and its members to the extent that agreement does not exclude them. This is so either where there is an LLP agreement which has gaps in it, or where there is no LLP agreement at all, for instance if it has been rescinded or was never finalised. These Regulations are purportedly made by the Secretary of State by statutory instrument under section  15 of the Limited Liability Partnerships Act 2000 (see section 17(1)). But this presents the difficulty that the Act does not empower him to create default rules, but only to apply or incorporate (with modification) ‘any law relating to companies’ or ‘any law relating to partnerships’ (section 15(a)–(c)). Are the default rules in the LLP Regulations 2001 either of these? If yes, and what has happened is that some ‘law relating to partnerships’ has been introduced to LLP law, then presumably the matter which has been introduced must be construed against the background of ordinary principles of partnership law. The 11 matters can only be varied or excluded by agreement between all the members. They are as follows. 1 See para 2.8 above and Reinhard v Ondra LLP (Nos 1 and 2) [2015] EWHC 26 (Ch) and [2015] EWHC 1869 (Ch).

(i) Equality 25.30 Regulation 7(1) All the members of a limited liability partnership are entitled to share equally in the capital and profits of the limited liability partnership.

Compare section  24(1) of the Partnership Act 1890 which is discussed at paras 12.22 and 12.28 above and which (by contrast to this Regulation) requires partners to contribute to losses. For LLP losses see para 25.56 below. Note that the Regulation does not confer any rights on ex-members, so it does not specifically help those who are pursuing a claim against a former member who is dead or who has been obliged to leave1. 1 Hoiles v Hood [2007] EWHC 1616 (Ch), Morgan J.

(ii) Indemnity 25.31 Regulation 7(2) The LLP must indemnify each member in respect of payments made and personal liabilities incurred by him – (a) In the ordinary and proper conduct of the business of the LLP; or

712

The LLP agreement and the default provisions 25.35 (b) In or about anything necessarily done for the preservation of the business or property of the LLP.

Compare section 24(2) of the Partnership Act 1890 which is in equivalent terms and is discussed at para 12.33 above. (iii) Management 25.32 Regulation 7(3) Every member may take part in the management of the limited liability partnership.

Compare section 24(5) of the Partnership Act 1890 which is in equivalent terms and which is discussed at para 12.11 above. (iv) Remuneration 25.33 Regulation 7(4) No member shall be entitled to remuneration for acting in the business or management of the limited liability partnership.

Compare section 24(6) of the Partnership Act 1890 (discussed at para 12.24 above) which is in equivalent terms save that the words ‘or management’ have been added here. (v)  New members 25.34 Regulation 7(5) No person may be introduced as a member or voluntarily assign an interest in a limited liability partnership without the consent of all existing members.

Compare section  24(7) of the Partnership Act 1890 (discussed at paras 7.23 and 12.4 above) which is in equivalent terms, save that the words ‘or voluntarily assign an interest’ have been added here, a small suggestion for which the present author claims some credit. Perhaps the words ‘or charge’ should have been added as well. The distinction is with involuntary assignment, as when the member dies or goes bankrupt or suffers his interest to be charged or taken by a judgment creditor. (vi)  Dispute resolution 25.35 Regulation 7(6) Any difference arising as to ordinary matters connected with the business of the limited liability partnership may be decided by a majority of the members, but no change may be made in the nature of the business of the limited liability partnership without the consent of all existing members.

713

25.36  Limited liability partnerships

Compare section 24(8) of the Partnership Act 1890 (discussed at para 12.7 above) which is in equivalent terms. A meeting should be called to enable the decision to take place: see para  12.10 above. Matters which are not ‘ordinary matters connected with the business’ must be resolved by the members unanimously. (vii)  Books and records 25.36 Regulation 7(7) The books and records of the limited liability partnership are to be made available for inspection at the registered office of the limited liability partnership or at such other place as the members think fit and every member of the limited liability partnership may when he thinks fit have access to and inspect and copy any of them.

Compare section 24(9) of the Partnership Act 1890 (discussed at para 11.23 above) which is in slightly different terms in that it requires the books to be kept at the ‘principal’ place of business, and gives no discretion to the members to keep them elsewhere. For the ‘books and records’ to be kept at the LLP registered office is an inconvenience. The alternative site can be fixed by ‘the members’ which presumably means a majority of the members. This takes some of the force out of this provision which ought to provide protection to individual members, or a minority, against secretiveness by the majority. Otherwise the position is the same under Regulation 7(7) as under partnership law or under section 6(1) of the Limited Partnerships Act 19071. 1 Hilton v D IV LLP [2015] EWHC 2 (Ch) Pelling HHJ sitting as a High Court Judge, paras 33–4.

(viii)  Accounts and information 25.37 Regulation 7(8) Each member shall render true accounts and full information of all things affecting the limited liability partnership to any member or his legal representatives.

Compare section 28 of the Partnership Act 1890 (discussed at para 11.16 above) which is in equivalent terms. (ix)  Competing business 25.38 Regulation 7(9) If a member, without the consent of the limited liability partnership, carries on any business of the same nature and competing with the limited liability partnership, he must account for and pay over to the limited liability partnership all profits made by him in that business.

714

The LLP agreement and the default provisions 25.41

Compare section 30 of the Partnership Act 1890 (discussed at para 11.38ff above) which is in equivalent terms save that regulation 7(9) is subject to the consent of the LLP (presumably resolved by a majority of members) whereas the consent in section 30 is the consent of all of the partners. The effect of this distinction is that a minority in an LLP is in a weaker position than a minority in an ordinary partnership. (x)  Personal benefits 25.39 Regulation 7(10) Every member shall account to the limited liability partnership for any benefit derived by him without the consent of the limited liability partnership from any transaction concerning the limited liability partnership, or from any use by him of the property of the limited liability partnership, name or business connection.

Compare section 29(1) of the Partnership Act 1890 (discussed at para 11.26 above) which is in equivalent terms, but the ‘consent’ is that of the members and not of the LLP, with the same result as that mentioned in the last sub-paragraph. (xi) Expulsion 25.40 Regulation 8 No majority of the members can expel any member unless a power to do so has been conferred by express agreement between the members.

Compare section 25 of the Partnership Act 1890 (discussed at para 16.33ff above) which is in equivalent terms and requires that the power of expulsion is expressly agreed1. The fact that this regulation mentions only agreement between the partners, and not agreement with the LLP, is a little surprising. Doubtless an LLP agreement made between original members will suffice to bind successor members. Whether misbehaviour by a partner in a former partnership can be relied upon to expel him from its successor LLP must be a question of consideration of the LLP agreement2. 1 Eaton v Caulfield [2011] EWHC 173 (Ch). 2 Eaton v Caulfield [2011] EWHC 173 (Ch).

D  Unfair prejudice to members (a)  Unfair prejudice generally 25.41  The Limited Liability Partnerships Act 2000 and the Limited Liability Partnership Regulations 2001 give scant protection to individual members 715

25.41  Limited liability partnerships

who find themselves at odds with other members or with the LLP. For instance, a member of a valuable LLP who wishes to retire may do so but under the legislation he has no right to any share in the assets of the LLP, so if he leaves he will lose his share entirely. In theory the LLP agreement will protect him, but in practice it may not do so. For this reason Parliament incorporated into the LLP legislation (with due amendment) the provisions of Part XVII of the Companies Act 1985 (sections 459–461) which are now replaced by Part 20 of the Companies Act 2006, section 994ff, in virtually identical terms1, and which protect members against ‘unfair prejudice’2: 994(1) … a member … may apply to the Court … on the ground that the LLP’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself) or that an actual or proposed act or omission of the LLP (including an act or omission on its behalf) is or would be so prejudicial.

The difficulty with bringing this company law provision into the LLP legislation is that the internal regulation of limited companies and that of LLPs is different. The rights of shareholders in a limited company are regulated formally by the company’s articles and do not include (for instance) a right to take part in the management of the company. The rights of partners in an ordinary partnership are much less formal and include (in the absence of agreement to the contrary) a right to take part in the management of the partnership business3. The rights of members of an LLP are less clear than those of ordinary partners, since it has been the policy of the legislation to leave most of such matters to agreement between the members. This raises the question what can be called ‘unfair’ if it is sanctioned, or at least not prohibited, by the specific agreement of the members?4 The courts have not proved generous in granting relief to the minority shareholders in companies, and may be less generous to members of LLPs. To support a claim in respect of unfair prejudice in a quasi-partnership company representing family interests it is necessary for the petitioner to show either a concluded agreement between the respective members or, alternatively, something else which would make it inequitable for the majority to depart from an established practice to pay the minority sums of money arising from the conduct of the business5. Wrongful expulsion ‘is one of the clearest examples of conduct which equity regards as unfair prejudice’6. The inadequate payment of dividends, excessive director remuneration, acquiescence and discounts involving the purchase of minority holdings are all relevant and all need to be considered7. 1 See Re Worldham Park Golf Course Ltd [1998] 1 BCLC 554 for the scope and effect of these powers in the case of a company. 2 Henderson J in Flanagan v Liontrust Investment Partners LLP [2016] 1 BCLC 177 agreed that the wrongful expulsion of a member constituted unfair prejudice to him, but awarded him nothing under that head because he had already awarded him damages for breach of the LLP agreement on the same grounds. 3 See the Partnership Act 1890, s 24(5), reprinted in Appendix A below. 4 As Lord Goodhart observed during the debate on the LLP Regulations: ‘The suggestion that there should be some sort of equitable right on an outgoing member to recover the value of

716

The LLP agreement and the default provisions 25.44 his property from the LLP is a very unsatisfactory way of dealing with the problem. It is not at all clear what the basis of that equity would be’: Hansard (16 March 2001). 5 In Re Osea Camp Sites Ltd [2005] 1 WLR 760 per Pumfrey J. 6 Per Proudman J in Eaton v Caulfield [2011] EWHC 173 (Ch) para 66. 7 Re Westshield Ltd [2019]  EWHC  115 (Ch); Re AMT  Coffee Ltd [2019]  EWHC  46 (Ch), (2019) 1 WLUK 274 (Ch D).

(b)  The exclusion of the right to claim unfair prejudice 25.42  Section 994 may be excluded by an arbitration agreement1 or by other agreement of all the members in writing, ‘for such period as shall be agreed’2. This agreement presumably binds the members’ successors as members of the LLP. The section may provide a life-belt to members who have inadvertently failed to ensure that their rights against the LLP have been properly protected in their LLP agreement. It is very common to see section  994 excluded by the terms of the agreement, but this is dangerous, and a member should only agree to its exclusion after receiving the clearest advice. 1 Fulham Football Club v Richards [2011] 2 WLR 1055. 2 See the Companies Act 2006, s  994(3), as modified and applied by reg  48 of the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804. The exclusion of s 994 is not possible in the case of a company: see Judge Weeks in Exeter City Football Club v Football Conference [2004] 1 WLR 2910, but for reasons applicable to companies rather than partnerships.

(c)  Who may apply? 25.43  A member may apply under this part of the Act1. Apparently no application can be made by an ex-member such as one who is dead or has made the mistake of retiring (or letting himself be expelled) without securing a payment for his capital, share or interest before he goes. Unfortunately such a person will need the help of the court most. 1 See the Companies Act 2006, s  994, as modified and applied by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 48.

(d)  What the court will order 25.44  Section 996 of the Companies Act 20061 gives the court the widest power to ‘make such order as it thinks fit for giving relief in respect of the matters complained of’. An ordinary company ‘Unfair Prejudice Petition’ usually relates to a ‘quasi-partnership’ family company that was intended to provide a livelihood for the shareholders (rather than being merely family owned2), and those of them in a minority have been ousted. The majority will be required to buy the shares of the minority, whose interest would otherwise be tied into the company3. Similarly, an application by an LLP member will 717

25.45  Limited liability partnerships

succeed where the minority is being treated by the majority in a manner at variance with the understanding behind the LLP. It may also succeed where the LLP provides (by default) no effective retirement mechanism, or no mechanism that gives a fair return to a member wanting to retire. If the lack of a mechanism is deliberate, then the court will be less inclined to intervene. It will be unable to intervene if the member has already retired. The usual order on a successful application is that the member’s share is bought out at a fair value. This will be based upon the net assets of the company without a discount for a minority share4 if the particular LLP can be regarded as analogous to a ‘quasi-partnership’ rather than to an ordinary company, but this may not always be the case5. The petition is usually answered by an ‘O’Neill Offer’6 from the other members of the LLP, offering to buy out the petitioners’ shares. Section 996 may also be used to give procedural directions on the future of the petition proceedings, for instance by ordering an insolvent LLP to discontinue its counterclaim if the petitioner gives up his right to enforce a money judgment against it7. The reader is referred to the company textbooks for consideration of the large area of law that has arisen on the question of the winding up of these companies, which are oddly called ‘quasi-partnerships’. For that purpose, company law is applied to LLPs by analogy, but this does not weaken the more general principle that Lord Hoffmann stated in relation to ‘quasipartnerships’ and companies that ‘one should not press the quasi-partnership analogy too far’8. 1 As modified and applied by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 48. 2 Michel v Michel [2019] EWHC 1378 (Ch). 3 O’Neill v Philips [1999] 1 WLR 1092; followed (in an LLP case) by Proudman J in Eaton v Caulfield [2011] EWHC 173 (Ch); Lawrie Grace v Biagoli (4 November 2005, unreported), CA. This principle does not apply where the shareholdings are equal: Harborne Road Nominees Ltd v Karvaski [2011] EWHC 2214 (Ch). 4 Hailes v Hood [2007] EWHC 1616 (Ch), Morgan J. 5 Irvine v Irvine [2006] EWHC 583 (Ch). 6 See Lord Hoffmann in O’Neill v Phillips [1999] 1 WLR 1092 and Eaton v Caulfield (No 2) [2013] EWHC 2214 (Ch), para 5. 7 Eaton v Caulfield (No  2) [2013]  EWHC  2214 (Ch) following Re Neath Rugby Ltd [2007] EWHC 2999 (Ch) and Grace v Biagoli [2005] EWCA Civ 1222. 8 In O’Neill v Phillips [1999] 1  WLR  1092 at 1104 (quoting Lord Wilberforce in In re Westbourne Galleries Ltd [1973] AC 360, 380).

E Discrimination 25.45  The law against discrimination (in its many forms) which applies to partners in ordinary partnerships and which is discussed in Chapter  13 is applied to LLPs1. 1 See the Equality Act 2010, s 45.

718

Members 25.46

F The member’s right to sue for a wrong done to the LLP 25.46  The general rule echoes that applicable to companies: only in certain specified circumstances may a minority member bring a relator or derivative action, for a wrong committed against the company or LLP. For it is the LLP, and not he, who suffered the wrong1. His rights in this regard may be defined implicitly or explicitly by the LLP agreement, in the same way as the rights of a shareholder are controlled by its memorandum and articles. Outside specific agreement, a special circumstance where he can have a claim is ‘If there is a fraud and there is no other remedy. There must be a minority who are prevented from remedying the fraud or taking any proceedings because of the protection given to the fraudulent shareholders or directors by virtue of their majority’2. On this subject David Richards J said3: All the authorities on direct derivative actions have taken as a requirement that the alleged wrongdoing should result in a loss to the company and, hence, an indirect or reflective loss to the shareholders, and also that the alleged wrongdoers should have personally gained from their breaches of duty … It follows, on the authorities as they stand, that financial or other loss to the shareholders, albeit normally of a reflective character, is essential to give a claimant shareholder sufficient interest in the proceedings to make the shareholder an appropriate claimant on behalf of the company and … that, in the absence of actual fraud or an ultra vires act, the wrongdoers should themselves have benefitted from the wrongdoing. The significance of this requirement is that their breach of duty cannot be ratified by a majority vote which depends on the votes of the wrongdoers. 1 Foss v Harbottle (1843) 2 Hare 461. 2 Daniels v Daniels [1978] Ch 406. 3 Abouraya v Sigmund [2014]  EWHC  277 (Ch), approved in Harris v Microfusion 20032 LLP [2016] EWCA Civ 1212, citing Smith v Croft (No 2) [1988] Ch 114.

3 MEMBERS A Members generally  25.47 B Designated members  25.52 C The member’s share: income and capital   25.55 D The member’s liability to contribute to the LLP assets   25.60 E The liability of the LLP and of the member   25.63 F Good faith and the obligations of the LLP and its members between themselves  25.72 G Employment of members and ‘workers’   25.75 H Commencement and cesser of membership   25.76 719

25.47  Limited liability partnerships

A  Members generally (a)  What are members? 25.47  The persons who comprise an LLP are called members, in the same way as those who comprise an ordinary partnership are called partners. This distinction of nomenclature is convenient, but is unfortunately falling into disuse as the word ‘partner’ is in practice being extended to cover the members of an LLP. There seems to be no objection to members describing themselves as partners, provided that they comply with the obligation described above that their names and that of the LLP are displayed at business premises and on business documents. Only if they fail in this obligation, which requires the LLP status to be plainly declared, are they likely to be in personal danger of making themselves liable by holding out, as described in Chapter 5.

(b)  Who may be a member? 25.48  The members may be English or foreign individuals, corporations, other LLPs or other legal entities including corporate (eg Scottish) partnerships1. There is no obligation upon members to have a share in its profits, nor is there an obligation, as there is in ordinary partnership law, that the business should be carried on by the partners ‘in common’. But an undischarged bankrupt may not be a member without the leave of the court2; neither may a person disqualified from membership under the Company Directors’ Disqualification Act 1986 which is applied to LLPs as discussed later in this chapter. The same principle will apply on the question of capacity as on the question who is capable of being a partner under the Partnership Act 1890, a matter discussed in Chapter 3. How a person becomes a partner is explained at para 25.76 below, and the terms of his membership are explained at para 25.27 above. The provisions of the Equality Act 2010 apply to LLPs as they apply to firms3. What professionals may practise as an LLP is discussed at para 25.20 above. 1 This is implicit from the provisions of the Limited Liability Partnership Act 2000, and Sch 1 to the Interpretation Act 1978 defines ‘person’ as including any body of persons corporate or unincorporate, but the Registrar of Companies does not accept that an unincorporated body can be a member; in this he follows ordinary partnership law which requires a partner to be a legal person: see Chapter 3. 2 See the Company Directors’ Disqualification Act 1986, s 11. 3 See Chapter 13 and the Equality Act 2010, s 45.

(c)  Number of members 25.49  There is no upper limit on the number of members. An LLP must have at least two members on incorporation1 and may be wound up by the court if the number of members is reduced below two2. If it 720

Members 25.50

continues trading with fewer than two members for more than six months, the member of the LLP who knows that it is carrying on business with only one member becomes liable (jointly and severally with the LLP) for the payment of the LLP’s debts then contracted3. 1 See the Limited Liability Partnerships Act 2000, s 2(1)(a), reprinted in Appendix G below. 2 See the Insolvency Act 1986, s 122(1)(c), as modified and applied by the Limited Liability Partnerships Regulations 2001, reg 5, reprinted in Appendix H below. 3 See the Limited Liability Partnerships Act 2000, s 4A.

(d)  Registration of members and confidentiality 25.50  Before 1 October 2009 the usual residential address of every member had to be registered and the register was available to public inspection. There was a mechanism for obtaining a ‘Confidentiality Order’ from the Secretary of State in very limited circumstances which, if made, protected the address from disclosure1. For registrations made since 1  October 2009 the usual residential address of a member, if different from the service address, is protected information2. The registrar is generally obliged to omit this information from the register available for inspection, where it is contained in a document or part of a document which requires it to be stated3. In addition neither the LLP nor the registrar may use this information except in accordance with the narrowly defined circumstances permitted by the Act4. However, the registrar may put the address on the public record if either: (a) communications sent by the registrar to the member and requiring response within a specified period remain unanswered; or (b) there is evidence that service of documents at a service address provided in place of the member’s usual residential address is not effective to bring them to the notice of the member5. 1 Such an order could be made where the Secretary of State was satisfied that the availability of the address for inspection created a serious risk that the member or a person who lives with him would be subjected to violence or intimidation, See the Limited Liability Partnerships (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002, SI 2002/915. 2 See the Companies Act 2006, s  240, as applied and modified by the Limited Liability (Application of Companies Act 2006) Regulations 2009, reg  19. If the service address is the same as the usual residential address, this fact (though not the address) is also protected information. 3 See the Companies Act 2006, s  242, as applied and modified by the Limited Liability (Application of Companies Act 2006) Regulations 2009, reg 19. 4 See the Companies Act 2006, ss 241 and 243, as applied and modified by the Limited Liability (Application of Companies Act 2006) Regulations 2009, reg 19. 5 See the Companies Act 2006, s  245, as applied and modified by the Limited Liability (Application of Companies Act 2006) Regulations 2009, reg 19. Before doing so the registrar must give notice to the member and to every LLP of which the individual in question is a member.

721

25.51  Limited liability partnerships

(e)  Liability of members and shadow members 25.51  In an ordinary partnership governed by the Partnership Act 1890, a share of the profits of the business will almost inevitably lead to a person becoming a partner, with the obligations that this will involve1. So a person wanting a share of profits will have to accept the liabilities of partnership. Under the Limited Liability Partnerships Act 2000 the law is different: a member only becomes a member if this has been specifically agreed. The fact that a person enjoys most (or all) of the profits of an LLP will not make him a member of it. Membership of an LLP imposes obligations, which are heavier than those borne by an ordinary partner. He may therefore prefer to take the profit without the obligations, by being an employee rather than a member, and might have less liability to outsiders for his own mistakes. The view of the minister responsible for the LLP Bill in the Commons, Dr Kim Howells, was that an employee would be liable for nothing less than actual fraud2. For these reasons liability is imposed on employees who are ‘shadow’ members. A shadow member is a person in accordance with whose directions or instructions the members are accustomed to act3, and his position is analogous to the shadow director of a company, and he may suffer the liability without taking the benefit of membership. The provisions of the Insolvency Act 1986 relating to ‘shadow’ directors4 are applied to ‘shadow members’ in order to impose the same liability upon them for misfeasance as if they were true members5. 1 See para 2.20ff above. 2 Debate at the Committee stage: Hansard (13 June 2000). See para 25.70 below. 3 Defined in the Limited Liability Partnerships Regulations 2001, reg 2, which are reprinted in Appendix H below. 4 Ie ss 214 (wrongful trading and fraudulent trading) and 216 (prohibition of use of name used by insolvent company or LLP), as modified by the Limited Liability Partnerships Regulations 2001, reg  5. These provisions do not apply to ordinary partnerships: Newtons Coaches Limited [2016] EWHC 3068 (Ch). 5 The Limited Liability Partnerships Regulations 2001, reg 5(2)(c) defines ‘shadow director’ for the purposes of the amended Insolvency Act 1986 as including a shadow member.

B  Designated members (a)  The need for designated members 25.52  Any LLP has at least two ‘designated members’ upon whom the legislation places the obligation to comply with many (but not all) of the numerous regulatory requirements which are imposed upon LLPs, and in this way the designated member resembles the secretary of a company. Penalties are imposed upon him if he defaults in his statutory obligations. If there are not two designated members then every member is treated as a designated member1. 722

Members 25.54

Because of their statutory duties towards the LLP, designated members may be able to bring proceedings in their own names to clarify rights which relate to the LLP2. 1 See the Limited Liability Partnerships Act 2000, s 8(2), reprinted in Appendix G below. 2 Feetum v Levy [2006] Ch 585.

(b)  The appointment and removal of designated members 25.53  The incorporation document will have: (i) identified the original designated members; or (ii) stated that every member is such. A designated member will continue to be such until his resignation is either agreed by the other members, or he ceases to be a member1. How the designated members are appointed and removed is a matter that should be dealt with in the LLP agreement. In default a mere majority of members will not be able to impose the doubtful honour upon a member against his will, nor will they be able to remove him without his consent, unless the LLP agreement provides otherwise. The matter will be one that can only be resolved by the members unanimously because it is not an ‘ordinary matter connected with the business’ which may be dealt with by a majority under the default regulations2. Furthermore a statement of his consent is required to appear on the notice of his appointment delivered to the registrar3. But no doubt his LLP agreement might contain provisions requiring him to consent. It should also provide for the means by which the designated members reach decisions as between themselves, and how a designated member may be removed without his consent. The notice specifying a new designated member (or stating that thenceforth all members are to be designated members) is Form LLDE01 (available from Companies House). 1 See the Limited Liability Partnerships Act 2000, s 8(6), reprinted in Appendix G below. 2 See the Limited Liability Partnerships Regulations 2001, reg  7(6), discussed at para 25.29 above. 3 See the Limited Liability Partnerships Act 2000, s 9(3), reprinted in Appendix G below.

(c)  Duties and privileges of designated members 25.54  It is upon the designated members that are placed most of the statutory obligations mentioned later1 including: (1) to sign and deliver to the registrar the statutory notices relating to changes of particulars describing the LLP, its members and its designated members2; (2) to sign and file the confirmation statement3; (3) to sign and file the accounts and auditor’s report4; 723

25.55  Limited liability partnerships

(4) to preside over the meeting of creditors and to make the statement of affairs and verify it on affidavit, in a creditors’ voluntary winding up5. But not all the obligations of company directors are imposed on designated members alone. On the contrary, the Companies Acts and the Insolvency Act 1986 provisions which are incorporated into the LLP legislation by the amended Limited Liability Partnerships Regulations 2001 are modified so that in general their references to ‘directors’ are to include references to LLP ‘members’ generally, and not merely to designated members6. 1 See para 25.84ff below. In some cases the obligation is on the LLP but in the event of default the designated member is liable with the LLP for the failure. 2 See the Limited Liability Partnerships Act 2000, ss 8 and 9, reprinted in Appendix G below. 3 See the Companies Act 2006, ss 853A and 853B, as applied and modified by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 30. 4 See the Companies Act 2006, ss 414(1) and 441(1). 5 See the Insolvency Act 1986, s  99, as modified by the Limited Liability Partnerships Regulations 2001, reg 5. 6 See the Limited Liability Partnerships Regulations 2001, regs 4(2)(g) and 5(2)(b).

C  The member’s share: income and capital (a)  Profit share 25.55  As in an ordinary partnership, the profits of an LLP are treated for income tax purposes as the income of the members1, and so it is likely that the profits will largely be distributed to the members so that they can pay the tax. If there is no agreement to the contrary, profits are divided equally2. More usually they will be divided in a more complex way, perhaps with a member receiving his income by way of fixed salary, as a ‘salaried member’. There should not be the blurring of the distinction between salaried partners and others that is found in ordinary partnerships3, because the registration of the name of the member will show whether he is a true member or not; but see para 25.75 below. 1 See para 25.23 above. 2 See para 25.30 above. 3 See para 2.11 above.

(b) Losses 25.56  Members have no liability for the debts of the LLP (see para  25.5 above) and if they pay such a debt they have an implied right of indemnity out of the LLP assets (default regulation 7(2), para 25.31 above). A different question is the limited partner’s liability for income losses on profit and loss account. The general liability of ordinary partners under section  24(1) 724

Members 25.59

of the Partnership Act 1890 to ‘contribute equally to the losses’ of the firm does not apply to LLP members, as is clear from the omission of this phrase from the equivalent to section 24(1) which is regulation 7(2) in the default code, considered at para  25.30 above. Unless the LLP agreement provides otherwise, he will not have to meet his share of the trading losses of the business. The firm may possibly carry the deficit over and charge it against his profit in a subsequent year. Compare the losses of a limited partnership, para 24.5 above.

(c)  The nature of a share 25.57  The interest of a member in an LLP is of a dual nature1. On the one hand he has the personal status of a member, of no inherent financial value, since it need not necessarily involve his having any financial stake in the capital or income of the LLP. On the other hand he may have a financial stake, which is prima facie capable of assignment. But the value of his financial stake is likely to be affected by whether he retains the formal status of a member; if he loses this he may lose the right to take part in the management of the LLP which may damage the value of his share. 1 Reinhard v Ondra LLP (Nos 1 and 2) [2015] EWHC 26 (Ch) and [2015] EWHC 1869 (Ch).

(d) Assignability 25.58  The status of member is non-assignable. One member may depart and another appear to replace him, but the new partner does not represent the old and must be registered anew like any incomer. Consequently where a member has assigned the whole or any part of his share in the LLP absolutely or by way of charge or security, his assignee may not ‘interfere in the management or administration of any business or affairs’ of the LLP1. Neither may an involuntary assignee, such as a trustee in bankruptcy. But the financial ‘interest’ of a member may be assignable voluntarily unless the LLP agreement prohibits this – as the default provisions do2. After an assignment of his ‘interest’, the member remains a member unless his membership has ceased under one of the cases mentioned at para 25.77ff below. 1 See the Limited Liability Partnerships Act 2001, s 7(2), reprinted in Appendix G below. 2 See the Limited Liability Partnerships Regulations 2001, reg 7(5); for the default provisions see para 25.29 above.

(e)  LLP capital 25.59  In an ordinary partnership or a limited partnership there will almost always be partnership capital which will belong to the partners as discussed 725

25.60  Limited liability partnerships

in Chapter 9. It is a rule of ordinary partnership law that the partners receive no part of their capital until after the creditors have been paid in full: see para 23.2 above. In the law relating to LLPs there is no such rule. The Regulations envisage that there may be LLP capital1 but they do not require it. The LLP agreement in its original form or as altered by agreement with the members will specify the financial obligation of the members to the LLP. The question of the extent and nature of a member’s contribution to the capital or assets of the LLP is therefore a matter of simple contract between them. Their entitlement to be repaid their ‘capital’ will rank equally with any creditor to be repaid his debt, unless there is an agreement with him giving him priority. For this reason the capital of a member is required by SORP to be shown in the balance sheet of the LLP as a liability, and it is the usual practice of banks to require their overdraft or other loans to an LLP to be given priority over the members’ claims to the LLP assets, whether those claims are for repayment of ‘capital’ or for advances to the LLP or otherwise. 1 See the Limited Liability Partnerships Regulations 2001, reg 7(1), which provides that in the absence of agreement the members may share in the capital equally: see para 25.30 above. But an LLP member’s capital has a different identity for some tax purposes (eg loss relief): Corporation Tax Act 2010, s 60 and Hamilton & Kinneil (Archerfield) v Commissioners for HMRC [2014] UKFTT 350 (TC).

D The member’s liability to contribute to the LLP assets (a)  When are the members liable to contribute? 25.60  The members have a ‘limited’ liability in the sense that they need not in general meet liabilities of the separate entity, the LLP. Only in some specified circumstances need they contribute. Section  1(4) of the Limited Liability Partnerships Act 2000 provides: The members of a limited liability partnership have such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act.

The members are liable to contribute to the LLP assets in six cases: (i) in the event of their misfeasance, which is discussed at para 25.98ff below; (ii) by way of recoupment from them in the event of insolvency discussed at para 25.99ff below; (iii) if there is one member only; he is liable for its debts if he knows that this is so and that it is carrying on business for more than six months. Section 4A of the Limited Liability Partnerships Act 2000 provides: (1) This section applies where a limited liability partnership carries on business without having at least two members and does so for more than 6 months.

726

Members 25.61 (2)  A person who, for the whole or any part of the period that it so carries on business after those 6 months – (a) is a member of the limited liability partnership, and (b) knows that it is carrying on business with only one member, is liable (jointly and severally with the limited liability partnership) for the payment of the limited liability partnership’s debts contracted during the period or, as the case may be, that part of it. Evidently the member in question may escape liability if he introduces a second member (even temporarily) during the six-month period;

(iv) they will be liable to the LLP for its income losses only if required to do so in the LLP agreement, as discussed in para 25.56 above; (v) they are liable according to their agreed obligation to contribute to the assets of the LLP, a matter discussed next; (vi) if they have failed in any duty to the LLP (for instance their duty not to be grossly negligent1) then a liquidator of the LLP may claim against them for recoupment2. 1 See para 25.73 below. 2 See para 25.70 below.

(b)  Contractual obligations of the member to contribute 25.61  A member (or ex-member) is liable to contribute to the assets of the LLP ‘to the extent that he has agreed’1. In practice the members will often contribute something to the LLP, if only its start-up costs. They may be advised to agree that any such payments are by way of loan rather than capital contribution, so that these are recoverable by the members in the event of the LLP’s insolvency. The fact that this will be revealed to prudent creditors on the LLP’s balance sheet which is available for public inspection may not in practice amount to any disadvantage to the members, though the FSA will have a view on the matter where it regulates the LLP and it may require a minimum amount of capital. But a bank is more likely to require personal guarantees from members than that they should advance money to the LLP. If there is a reason why the members need to contribute money or other assets to the LLP by way of capital rather than loan, the LLP agreement should specify who must contribute and in what proportion, and how the need for capital should be decided upon, which are matters also dealt with in an ordinary partnership agreement, as discussed at para 9.8ff above. The LLP agreement should provide that members should contribute to the LLP if it is suffering from a liquidity crisis, and may provide that they should give personal guarantees for the firm’s overdraft2 and agree that their own claims against the LLP rank after those of the outside creditors such as the bank. 727

25.62  Limited liability partnerships 1 See the Insolvency Act 1986, s 74, as amended and applied to LLPs by the Limited Liability Partnerships Regulations 2001, reg 5. 2 The Consumer Rights Act 2015 does not apply to such a guarantee: for a case under the previous Regulations which the Act superseded, see Williamson v Bank of Scotland [2006] EWHC 1289 (Ch).

25.62  Only in unusual circumstances can a member find himself liable for the debts or default of the LLP. But an incoming member must appreciate that the LLP, as a corporate entity, bears with it liabilities from the past of which he knows nothing. He is not in the happy position of an incoming partner in an ordinary partnership, who is (by statute)1 declared to be not liable to the creditors of the firm for anything done before he became a partner. If he has borrowed from the LLP, or taken more drawings than he is entitled to, then he is a debtor of the LLP and may be made to repay the money, which will then be available for the LLP’s creditors. 1 See the Partnership Act 1890, s 17(1) (reprinted in Appendix A below).

E  The liability of the LLP and of the member 25.63  An ordinary partner in a partnership governed by the Partnership Act 1890 is directly at risk for all the debts and liabilities of his firm as is discussed earlier in this book. A member of an LLP has no such direct liability; the LLP has its own legal personality and bears its own liability. Where an LLP enters into a contract with an outsider, the LLP members are not liable on it, unless it says so1. So if an outsider contracts to provide services to the LLP, the members are not liable for the cost, either in contract or for unjust enrichment2. If the LLP becomes insolvent the loss is borne by the creditors and not by the members save to the limited extent mentioned below. If its members are owed money by the LLP they even rank equally with the outside creditors, as ordinary partners do not. A member who has some undrawn profit from past years standing to his credit in his current account has as good a claim to be paid out of the assets of an insolvent LLP as the client whose money the LLP negligently lost. So the protection given to the members of the LLP is generous. If a claim is made against the LLP, which is not met, the creditor will be able to look only to the assets of the LLP (save to the limited further extent mentioned below). The assets of the LLP will be slight, because it is not in the interests of members to put assets into the LLP so as to be in jeopardy to creditors. Most of the money advanced to the LLP by the members will be by way of loan. The bank will no doubt be secured by a charge over such assets, which will therefore be outside the grasp of a general creditor, who is left with the hollow right to cause the members some inconvenience or embarrassment by putting the LLP into liquidation. In practice he will probably deny himself even this right, preferring to accept a low cash sum from the members by way of compromise instead. Conversely the members will probably never need to let the LLP be wound up for insolvency, because they will be able to pay off any creditor at an advantageous rate by pointing out that if he persists in his claim against the LLP he will get little or nothing. 728

Members 25.65

The cases where a creditor may be able to look behind the LLP structure to impose liability on the individual member are not very significant. They are as follows: • where the member is personally liable in tort: this is discussed at para 25.70 below; • where the member has agreed to contribute: this is discussed at para 25.60 above; • where the Companies Acts or the Insolvency Act place a liability on officers of a company: in such cases an analogous liability is placed on the members of an LLP, as discussed at para 25.98 below; • withdrawals within two years before winding up. In the rather limited circumstances described at para 25.99 below, a member may be compelled to repay the LLP what he withdrew from it during the two years before it is actually wound up. 1 Zeckler v Assigned Risk Pool Manager (2013) App Ref Ch/2011/0606 (N Strauss QC). 2 MacDonald v Costello [2011] 3 WLR 1341.

(a)  The law of agency applies to LLPs 25.64  A corporate body can only act through human agents, and agency may impose duties upon the parties to the agency such as a duty of good faith on the agent and a right for him to be indemnified by the principal. Members are agents for the LLP but not for each other (see para 25.72 below) and the LLP is not an agent for any of them. The general law of agency as it is applied to ordinary partners is discussed in Chapter 19.

(b)  Actual authority of members 25.65  An LLP can only act through its members or its employees. Section 6(1) of the Limited Liability Partnerships Act 2000 provides: Every member of a limited liability partnership is the agent of the limited liability partnership.

These wide words are to be contrasted with the narrower words in the Partnership Act 1890 which provide that a partner is an agent only for the purpose of the business of the partnership1. Those extra words in the Partnership Act 1890 implied two matters2: (1) the agency only extended to business matters and not to inter-partner matters or partnership ‘affairs’; and (2) the agency did not extend to occasions when the partner was on a ‘frolic of his own’ or not ‘carrying on in the usual way business of the kind carried on by the firm …’3. 729

25.66  Limited liability partnerships

The same words as in the 1890 Act (‘for the purposes of the business’) appeared in the draft LLP Bill circulated in September 1998. But they were subsequently dropped, perhaps out of an excessive desire to protect the member by construing the agency (and consequently the member’s protection from personal liability) as widely as possible. But obviously the scope of the agency must have some limit. A member is presumably not acting as agent for the LLP when he is off on a sailing holiday. And he presumably has no authority (for instance) to act unilaterally on its behalf by varying its contractual arrangements with other members, or by changing its name under para 4 of the Schedule to the Limited Liability Partnerships Act 2000. He may not bring a claim in his own name4, but on behalf of the LLP members he may bring a claim in the circumstances covered by the rule in Foss v Harbottle5. 1 2 3 4 5

See the Partnership Act 1890, s 5, reprinted in Appendix A below. Discussed at Chapter 19. See the Partnership Act 1890, s 5, reprinted in Appendix A below. Harris v Microfusion 2003-2 LLP [2016] EWCA Civ 1212. (1843) 2 Hare 461; Abouraya v Sigmund [2014] EWHC 277 (Ch).

(c)  So what is the limit on authority? 25.66  Section 6(2) (quoted and discussed next below) contains an admission that the agency of the member can in fact be reduced. This must presumably be by agreement between the LLP and the member concerned. Agreement might be either in the LLP agreement or reached less formally, even by conduct or implication. The ordinary implication must surely be the same as that declared in relation to ordinary partnerships by section 5 of the Partnership Act 1890, namely that the agency is only ‘for the purpose of the business of the partnership’.

(d)  Ostensible authority of actual members 25.67  Commitments may be entered into by a member which are outside the scope of his actual authority. On this point section 6 of the Limited Liability Partnerships Act 2000 confines the general law of agency in a surprising way: (2) But a limited liability partnership is not bound by anything done by a member in dealing with a person if – (a) the member in fact has no authority to act for the limited partnership by doing that thing, and (b) the person knows that he has no authority or does not know or believe him to be a member of the limited liability partnership.

So the LLP is liable for its member’s defaults unless the innocent outsider knows it is outside the agency or does not believe him to be a member at all. If, on his sailing holiday, a member does not pay for his yacht hire, his LLP will therefore be liable to the hirer if the hirer has seen from the member’s 730

Members 25.68

business card that he is a member, unless the hirer knows that he has no authority, which will not be likely. It will hardly be convenient for an LLP to issue business cards to its members stating what they do not have authority to do, but its position may be improved if those cards and other business documents state what the general nature of the business may be. That might at least put outsiders on notice that the members’ authority to act for the LLP might not be uncircumscribed.

(e)  Ostensible authority of former members or non-members 25.68  We would expect to find in the Limited Liability Partnerships Act 2000 some provisions which set out the liability of the LLP for the acts of an ex-member, where an innocent outsider believes him to be a member still, or for the acts of one who has never been a member but who has been held out as such by the LLP. The Act makes no specific reference to the liability of the LLP for the acts of those who have never been members, and in this it differs from the Partnership Act 1890 which deals with ‘holding out’ in section  14(1) as discussed at Chapter  5. This lacuna in the LLP legislation should cause no difficulty, because the position will be governed by ordinary rules of estoppel by representation. Section 6(3) of the Limited Liability Partnerships Act 2000 provides that after a member leaves, the LLP remains liable to any person ‘dealing with’ the LLP as if the ex-member were still a member, unless that person has notice that he is no longer a member or notice of the fact has been delivered to the registrar: (3) Where a person has ceased to be a member of a limited liability partnership, the former member is to be regarded (in relation to any person dealing with the limited liability partnership) as still being a member of the limited liability partnership unless – (a) the person has notice that the former member has ceased to be a member of the limited liability partnership, or (b) notice that the former partner has ceased to be a member of the limited liability partnership has been delivered to the registrar.

The first difficulty with this subsection is whether it intended to cover dealings with ex-members at all, since the whole subsection is limited by the words, ‘in relation to any person dealing with the limited liability partnership’. Those words on their face mean that the subsection only relates to dealings with the LLP itself, and of course such dealing can only be achieved through an actual member and not an ex-member, and so it does not relate to a case where the person thinks that the ex-member is still a member. But if the subsection is so narrowly confined it becomes worthless. Perhaps it is therefore reasonable to guess that the legislature intended the words ‘in relation to any person dealing with the limited liability partnership’ to mean ‘in relation to any person dealing with the ex-member purportedly on behalf of the limited liability partnership’. 731

25.69  Limited liability partnerships

Even if this is right, this subsection imposes upon the firm a much narrower liability for the acts of a non-member than is the case under the law relating to estoppel and holding out, either as it applies in relation to ordinary partners (discussed in Chapters  5 and 19) or otherwise. Thus it would appear from the subsection that the LLP which notifies the registrar that a member has retired is free from liability for his dealings even if he and the LLP take no other step to warn the public that he is not a member, which is the classic case of estoppel by representation or holding out. Does the subsection intend to override ordinary legal principles in this way? The best answer is no, and the difficulty has only arisen because of poor drafting, and the subsection was intended to be a short précis of the existing law relating to estoppel by representation or holding out1, which therefore applies to LLPs. 1 In the ordinary partnership case of Nationwide Building Society v Lewis [1998] Ch 482, Peter Gibson LJ observed that the provisions of the Partnership Act 1890 relating to holding out should be regarded as a reflection of the common law relating to estoppel.

(f)  Liability of the LLP for wrongs of a member 25.69  On ordinary principles of agency, the LLP is liable for the wrongs of a member done with its actual authority or in the course of its business. It does not extend to a fraudulent misrepresentation made by him1. Such ‘wrongs’ include fraud and negligence. So section 6(4) of the Limited Liability Partnerships Act 2000 provides: Where a member of a limited liability partnership is liable to any person (other than to another member of the limited liability partnership) as a result of a wrongful act or omission of his in the course of the business of the limited liability partnership or with its authority, the limited liability partnership is liable to the same extent as the member.

With one small exception this puts the liability of the LLP for its members’ wrongs on the same footing as an ordinary firm’s liability for its partners’ wrongs, discussed at para 19.44ff above. The exception is that in an ordinary partnership the firm’s liability is not for wrongs done ‘in the course of the business’, but only for those ‘in the ordinary course of the business’2, which excludes the acts of a partner on a frolic of his own. The point is not of much practical significance. Subsection 6(4) follows section 10 of the Partnership Act 1890 in describing the LLP as being liable for the wrong to the same extent as the member. This makes sense in ordinary partnership law where a partner is primarily liable for his wrongs whether he commits them in the name of the partnership or not. But we might expect to find in the LLP legislation (so generous as it is in the protection of members from personal liability) a provision to the effect that wrongs done in the course of the business of the firm are to be the liability of the LLP alone, and not the member. Indeed a proposal was made when the Bill was in draft that the subsection should specifically absolve the member, but the suggestion was rejected. The wrongdoing member and the LLP are liable to the outsider, and each with unlimited liability. 732

Members 25.70

The LLP agreement may give each member an indemnity against any liability that he may suffer as a consequence, or in the course of his membership of the LLP, and an indemnity to similar effect is implied by regulation 7(2), discussed at para 25.31 above. 1 Kidd v Paull & Williamsons LLP [2017] CSOH 16 (Scotland). 2 See the Partnership Act 1890, s 10.

(g)  Liability of the member 25.70  Under ordinary principles of agency (which have been followed in company law)1 a member should only be liable for the tort of his LLP if he authorised or procured it or if it is his own tort2: In Standard Chartered Bank v Pakistan National Shipping Co (No 2)3 the managing director of a company fraudulently backdated a bill of lading to comply with the terms of a letter of credit. The bank sued him and the company. He argued that he was not liable because he was acting merely as the company’s representative. Held (by the House of Lords) that both were liable; Lord Hoffmann observed4 that ‘No-one could escape liability for his fraud by saying, “I wish to make it clear that I am committing this fraud on behalf of someone else and I am not to be personally liable”.’

Subsection 6(4), on its opening words quoted above, only applies where the member ‘is liable’ himself. Where the LLP is liable for his default but he is not, then the subsection has no effect. This will be so where the principle of Williams v Natural Life Health Foods Ltd5 applies to the LLP and the member: In Williams the question arose whether the director of a company was liable for his own negligent misstatement given (in the course of his company’s business) to the claimant. The House of Lords held no; the director would only have personal responsibility if he had actually ‘assumed’ that responsibility towards the claimant and made it his own tort; otherwise he did not have liability, and the company alone did.

It follows that a member of an LLP in whom no particular trust and confidence has been placed will not bear personal responsibility to the wronged outsider unless he has ‘assumed’ such liability. As a result section 6(4) will be inapplicable to his case, and the member is entirely exonerated from his own wrong. This may not have been intended by Parliament6. The answer to whether the negligent member has ‘assumed responsibility’7, depends not upon what he intended but upon what is reasonably inferred from his conduct against the background of all the circumstances of the case8, including the economic relationship between the parties9. This echoes the question whether he has personally a ‘duty of care’ to the client, a necessary ingredient of the tort of negligence10. The question does not arise in torts other than negligence: there is no doubt of the member’s own liability (jointly with that of the LLP) where he commits his own other torts such as copyright infringement11, deceit12 crime13 or the infringement of a patent where he did more than carry out his role in the governance of the LLP14. He may be ordered to pay the costs of a successful party to litigation against the LLP15. 733

25.70  Limited liability partnerships

An outsider who suffers a wrong caused by a member who is acting within his authority and who has assumed responsibility or is otherwise personally liable for his own acts, can sue either him or the LLP or both. He may be liable in tort for procuring a breach of contract by either another member or by the LLP itself16. In a law firm, the Law Society’s minimum terms and conditions of insurance require him to be covered by the insurance of the LLP. No doubt the LLP agreement will sort out, as regards contribution and indemnity, to what extent the member or the LLP is to bear the ultimate liability, if both are solvent. The question is considered at para 25.73 below and (as regards ordinary partners) at para 14.55ff above. An LLP providing professional services may seek to limit the rights of a potential claimant by requiring him to sign a client care letter agreeing not to look to the individual member, but only to the LLP itself, if anything goes wrong. Such an agreement is perfectly valid, subject only to any question of professional regulation and consumer protection17 in the particular instance. In the absence of such a client care letter the courts will usually treat the relationship between the professional and his client as being one in which he has ‘assumed responsibility’ for his advice for the purposes of liability for negligence18, at least unless the client knows that the advice is coming from another person in the firm19. So where a professional who is a member of a corporate body acts in breach of a fiduciary duty to a client or quasiclient but was the person in whom trust and confidence were placed, the court will readily lift the corporate veil behind which he is operating or purporting to operate20. Even if the parties have limited the right of the client to sue the member rather than the LLP, the member whose act or default caused the claim is not entirely safe. If he had been in breach of his own duty to the LLP, then the LLP or its liquidator could sue him for a contribution to the claim being brought by the client against the LLP, and the member would thus be indirectly liable21. Recoupment from a member is discussed at para 25.99 below.  1 C Evans & Son Ltd v Spritebrand [1985] 1 WLR 317.  2 Noel v Poland [2001] 2 BCLC 645; Standard Chartered Bank v Pakistan v National Shipping Corp (No 2) [2003] 1 AC 959; Belvedere Fish Guano v Rainham Chemical Works [1921] 2 AC 465 at 475.   3 [2003] 1 AC 959.   4 Ibid at para 22.   5 [1998] 1 WLR 830, followed in Noel v Poland [2001] 2 BCLC 645; contrast Merrett v Babb [2001] EWCA Civ 214, [2001] QB 1174; see also Edgeworth Construction Ltd v ND Lea & Associates Ltd [1993] 3 SCR 206, Supreme Court of Canada.   6 During the second reading in the House of Lords, Lord McIntosh of Haringey stated: ‘A member of an LLP who is a professional will owe a duty of care to his clients. If he gives bad advice to his clients he will be potentially liable for the whole of his assets’: Hansard (9 December 1999). But during the Committee stage he made it clear that the government felt that the question of the liability of a member would be decided on Natural Life principles Hansard (24 January 2000). In the Commons the Minister (Dr Howells) stated during the debate on the second reading: ‘If he is found to be negligent, he will be liable to exactly the same punishments, and to be pursued in the same way, as the director of a company’: Hansard (23 March 2000). See also the article by my friend the late C Howell at (2000) 22 Co Law 58, to which I was referred by friend the much-alive Michael King.   7 The law is discussed by Arden LJ in Precis (521) plc v William M Mercer [2005] EWCA Civ 114 who admits at para 24, ‘the precise limits of the concept of assumption of responsibility

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Members 25.72 are still in a state of development’, but some such development is to be found in Riyad Bank v Ahli United Bank [2006] EWCA Civ 780.  8 Customs and Excise Comrs v Barclays Bank [2007] 1  AC  181 at 191; First Bespoke Ltd Partnership v Hadjigeorgiou (2015) 6 WLUK 403.  9 Morgan Crucible Co v Hill Samuel [1991] Ch 300 at 303. 10 Riyad Bank v Ahli United Bank [2006] EWCA Civ 780 and see the discussion of Williams v Natural Life Health Foods Ltd [1998[ 1 WLR 830 in Standard Chartered Bank v Pakistan Shipping Corpn [2003] 1 AC 959 at para 41. 11 MCA Records v Chorley Records [2003] 1 BCLC 93. 12 Standard Chartered Bank v Pakistan Shipping Corpn [2003] 1 AC 959. 13 Meridian Global Funds v Securities Commission [1995] 2 AC 500. 14 Boegli-Gravures SA v Darsail-Asp Ltd [2009] EWHC 2690 (Pat), following MCA Records v Chorley Records [2003] 1 BCLC 93. 15 Courts and Legal Services Act 1990, s 4. 16 Yeeles v Benton [2010] EWCA Civ 326. 17 Ie under the Unfair Contract Terms Act 1977 or the Consumer Rights Act 2015. 18 Yazhou Travel Investment v Bateson (2004) 1  HKLRD  969, para  54; Merrett v Babb [2001] EWCA Civ 214, where a surveyor employed by a firm was held personally liable for the defects in a report which he had signed personally. The result would have been different in Canada: Edgeworth Construction Ltd v ND  Lea & Associates Ltd [1993] 3  SCR  206, Supreme Court of Canada. 19 Yazhou Travel Investment v Bateson (2004) 1 HKLRD 969; All Link International v Hai Kai Cheong (2005) 3 HKLRD 65. 20 See the judgments of Auld, Laws and Sedley LJJ in Ratiu v Conway [2005] EWCA Civ 1302, a defamation claim. 21 I am grateful for this thought to my friend John Machell. QC.

(h)  Liability on LLPs’ undertakings 25.71  The court’s supervisory jurisdiction over solicitors does not extend to corporate bodies such as LLPs, even those that provide legal services1. Where a solicitor or other lawyer or agent gives an undertaking expressly on behalf of a firm which is an LLP, the LLP alone is contractually liable. But even if the LLP is a recognised corporate body competent to lawfully provide legal services, it is not subject to the court’s supervisory jurisdiction to enforce the undertaking2. So an outsider seeking an undertaking from an LLP should seek one from a solicitor personally and not as agent for the LLP. 1 Assaubayev v Michael Wilson & Partners Ltd [2014] EWCA Civ 1491. 2 Harcus Sinclair LLP v Your Lawyers Ltd [2017] EWHC 2900 (Ch).

F Good faith and the obligations of the LLP and its members between themselves (a)  What duties are owed to whom? 25.72  It is a rule of ordinary partnership law that the partners owe a duty of good faith to one another, as discussed in Chapter  11. It is a general characteristic of agency that the agent owes such a duty to his principal, and 735

25.72  Limited liability partnerships

partners are agents for one another so the duty applies to them1. By contrast the members of an LLP are not agents for one another but are only agents for the LLP2. It owes no duty of good faith to them3. Since partnership law does not govern the relation between members of the LLP4, it follows that even if the members of an LLP may owe duties of good faith to the LLP as its agent they do not, in the absence of agreement, owe such duties to each other5. This has a certain logic, since a situation may arise in which a duty of good faith to another member may conflict with a duty of good faith to the LLP. Thus in an ordinary partnership each partner has a duty not to compete with the partnership business without the consent of the members6, which means all of them. In an LLP, by contrast, the consent is that of the LLP, which will no doubt be controlled by a majority of the members. If they elect to allow the senior member to carry on a competing business, it would seem that a dissatisfied minority of members can do nothing about it. By contrast in an ordinary partnership, any single partner would have the right to protest. The duties of good faith that bind a partner in an ordinary partnership are discussed in Chapter  11. The duties owed by a member of an LLP to the LLP may be similar to the extent that the member in question has direct control over the affairs or property of the LLP7. They will be defined by the LLP agreement and may have been altered by the LLP default rules which are discussed at para 25.28ff above. Sales J pointed out in F&C Alternative Investments (Holdings) Limited v Barthelemy8, that the extent of the fiduciary obligations of LLP members, and whether they have fiduciary duties at all, must ‘be assessed having regard to the specific context created by the factual background and the contractual background’. Cockerill J in Recovery Partners GP Limited v Rukhadze9 referred to what Sales J had said and concluded that members of an LLP do not necessarily have fiduciary duties, which: will turn on the role which they in fact perform, in line with the fact that fiduciary obligations essentially arise from particular circumstances, where a person assumes responsibility for the management of another’s property or affairs.

Because the legislation envisages that there will be an LLP agreement (see para  25.26 above) which will define the parties’ obligations it is likely that there will be no residual duty of good faith; the legislation does not specifically mention a duty of good faith owed to the LLP, and the fact that Regulation 7(9) and (10) specifically imports duties which would otherwise form aspects of the duty of good faith suggests that a general duty of good faith is not intended10.   1 An agent owes to his principal a duty of loyalty and faithfulness (Eastwood v Magnox Electric [2005] 1  AC  503 at para  5) and a duty of disclosure of records (Yasuda Fire and Marine Insurance [1995] QB 174) and not to put his duty in conflict with his interest (Bank of Upper Canada v Bradshaw (1867) LR 1 PC 479). See also Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch).   2 See the Limited Liability Partnerships Act 2000, s 6(1) (which is reprinted in Appendix G below).  3 Brown v InnovatorOne plc [2012] EWHC 1321 (Comm).   4 See the Limited Liability Partnerships Act 2000, s  1(5). Minor exceptions to this rule are mentioned in paras 25.29 and 25.36 above.  5 F&C Alternative Investments (Holdings) Limited v Barthelemy [2011] EWHC 1731 (Ch) at para 207.   6 See the Partnership Act 1890, s 30, discussed at para 11.38ff above.

736

Members 25.74  7 F&C Alternative Investments (Holdings) Limited v Barthelemy [2011] EWHC 1731 (Ch) at para 217.   8 [2011] EWHC 1731 (Ch) at para 24. Riley v Redditch (7/6/2019) per Nugee J.  9 Recovery Partners GB  Ltd v Rukhadze [2018]  EWHC  2918 (Comm), the passage quoted being followed by Nugee J in Riley v Redditch (2019) Ch (unrep) 7/6/19. 10 [2011]  EWHC  1731 (Ch) at para  21; Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch), [2016] 1 BCLC 177; [2017] EWCA Civ 985.

(b)  A member’s negligence and other wrongs and claims 25.73  A dispute between the LLP and a member may occur, and according to its nature, principles of general partnership may apply to that dispute. Interest may be payable; the nature and rate of such interest has been analysed by Warren J1. The LLP agreement should specify how far a member is to be indemnified by the LLP (or how far the LLP is to be indemnified by the member) where the member has been responsible for causing loss by his own negligence or other default. The parallel law of ordinary partnership is uncertain as to the circumstances in which a partner is liable to his own firm for his own ‘simple’ negligence, as discussed at para 12.33ff above. Perhaps the two are not analogous. Lord Hoffmann2 has defined the obligation of a director to his company in terms probably stricter than the terms of obligation of a partner to his firm, by reference to section 214(4) of the Insolvency Act, but the basis for his opinion and whether his reasoning applies to LLPs is unclear. The question is one that should be settled in the LLP agreement. Usually it will follow the unspoken practice of ordinary firms, namely that: (a) the price of ‘ordinary’ negligence will be borne by the firm as to the excess on any insurance; but (b) any tort or wrong outside ‘ordinary’ negligence, or uninsured, or in excess of the insurance limit, must be borne by the member. 1 Reinhard v Ondra (No 3) [2015] EWHC 2943 (Ch), discussed at para 15.16ff. 2 Re D’Jan of London Ltd [1994] 1 BCLC 561, Ch D; see now the equivalent provisions in the Companies Act 2006, s 174 and the discussion on this in Whittaker and Machell The Law of Limited Liability Partnerships (3rd edn), Chapter 12.

(c)  Power of the court to grant relief in certain cases 25.74  Iin proceedings for negligence, default, breach of duty or breach of trust against a member of an LLP or a person employed by an LLP as auditor, if it appears to the court that the member or person is or may be liable but that he acted honestly and reasonably, and that having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused, the court may relieve him, wholly or in part, from his liability on such terms as it thinks fit1. 1 Companies Act 2006 s 1157(1), (2) (as modified and as applied by SI 2008/1911).

737

25.75  Limited liability partnerships

G  Employment of members and ‘workers’ 25.75  An ordinary partner cannot be an employee of his own firm1. But a company director or shareholder can be employed by a company. Can an LLP employ its own members? Or to put it another way, is the relationship between LLP and member always, or sometimes, or never, the relationship of employer and employee? We might have asked for a clear answer. We are given the extraordinary section 4(4) of the Limited Liability Partnerships Act 2000: 4(4) A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.

This declares that the test whether a person is an LLP member or an employee of the LLP is the same as whether a person is a partner in an ordinary firm or an employee of that firm. The statement is odd, because we know that a person is an LLP member if he has agreed to be so, regardless of his rights and obligations: see para 25.17 above2. We know that a person is a partner of an ordinary firm if (and only if) he carries on business in common with others with a view of profit, which is an entirely different test discussed in Chapter 2. How can the test whether a person is a partner in a partnership be applicable for deciding whether a member of an LLP is an employee? Because an ordinary partner is never an employee3, the apparent effect of subsection 4(4) is that a member of an LLP can never be an employee either. That poses the question why the subsection did not simply state: ‘A member cannot be an employee of his LLP’4. That is the only meaning of the strict wording of the subsection. Light was shone into this fog by Rimer LJ in Tiffin v Lester Aldridge5 where he suggested wisely (para 31) that ‘the authors of section 4(4) were apparently unaware’ that an ordinary partner could not be an employee of his firm and ‘the presumption is that Parliament does not intend to enact legislation whose application results in absurdities’. He held that consequently (para 5) a member ‘may or may not be an employee’ according to certain circumstances (para  32). But we need not discuss his ingenious construction because the Supreme Court in Clyde & Co LLP v Bates van Winkelhof6 pointed out that under Scottish law it was far from clear whether a partner could never be an employee, and so subsection 4(4) was far from being as pointless as English lawyers had supposed. The consequence is that members of an LLP governed by English law can never be employees of an LLP, at least whilst the rule stands that partners in an English partnership can never be employees, a point which the Supreme Court justices said they left open. Quite why they left it open is unclear since the matter is surely settled law7. If an agreement purports to make a person both a member and an employee, the question which he is to be must be resolved by consideration of the true commercial purpose of the contract and whether the relationship is primarily one of membership or employment8. 738

Members 25.76

Uncertainty in this field was not reduced by Lightman J in Re Rogers9 drawing a distinction between ‘profit sharing members’ and ‘employee members’ of an LLP, which is not merited by the legislation. Shadow members are mentioned at para 25.51 above and sham partnerships generally at para 2.5 above and ‘disguised employment’ for tax purposes in para 25.76 below. An ‘equity’ member of an LLP who would have been a partner had the LLP been an ordinary partnership because she receives a fixed share and also a profit share can be a ‘worker’ within the special definition in section 230(3) (b) of the Employment Rights Act 199610. An ex-member can recover posttermination loss for his pre-termination breach of his statutory rights11.   1 See para 2.32 above.   2 In the words of Proudman J, ‘There is no concept of a member in name only. Members are creatures of statute with statutory rights and obligations’ (Eaton v Caulfield [2011] EWHC 173 (Ch) at 47).   3 See para 2.32 above.  4 My erudite friends John Whittaker and John Machell in The Law of Limited Liability Partnership (3rd edn, 2009), para 8-29, deduced from the subsection that a member of an LLP can be an employee. But the Minister responsible for the Bill in the Lords, Lord McIntosh of Haringey, introduced this subclause by amendment during the Committee stage to clarify ‘that a member is not an employee of the LLP’: Hansard (24 January 2000). On the other hand it is true that the LLP  Regulations and SORP envisage that a member may receive ‘salaried remuneration’ which is to be treated as an expense in the profit and loss account, and so must be different from a profit share, and this may envisage a member being an employee for some accounting purposes.   5 With whom the other two Lords Justice agreed: Tiffin v Lester Aldridge LLP UK [2012] EWCA Civ 35. They did not entirely agree with the decision of Kovats v TYO Management LLP [2009] ICR 1140.   6 [2014] UKSC 32 para 21, Lady Hale (with whom Lords Neuberger and Wilson agreed).   7 See para 2.32 above and Reinhard v Ondra LLP [2015] EWHC 26 (Ch).  8 Reinhard v Ondra LLP (No 2) [2015] EWHC 1869 (Ch).   9 [2006] EWHC 753 (Ch). 10 Clyde & Co LLP v Bates van Winkelhof [2014] UKSC 32. 11 Wilsons Solicitors LLP v Roberts [2018] EWCA Civ 52; see para 25.104 below.

H  Commencement and cesser of membership (a)  Commencement of membership 25.76  A person becomes a partner in an ordinary partnership by operation of law, sometimes irrespective of agreement, if he finds himself carrying on business in common with others with a view of profit. By contrast a person becomes a member of an LLP only by agreement, either at the date of incorporation or subsequently. Subsections 4(1) and (2) of the Limited Liability Partnerships Act 2000 provide: (1) On the incorporation of a limited liability partnership its members are the persons who subscribed their names to the incorporation document (other than those who have died or been dissolved). (2) Any other person may become a member of a limited liability partnership by and in accordance with an agreement with the existing members.

739

25.77  Limited liability partnerships

The procedure for a new member to join an existing LLP is therefore to be prescribed ad hoc or in the LLP agreement. It may require a specific majority of the members, or some other method of approval for candidates for membership. In default of any other agreement or machinery then the consent of all existing members is required1. It is the subscription of his name to the incorporation document, or later agreement, and not subsequent registration that constitutes him a member. As to the terms upon which he becomes a member, Warren J held in Reinhard v Ondra LLP2: A person becomes a member of an existing LLP on the terms of the LLP agreement which governs the relationship between the existing members among themselves and between the existing members and the LLP itself. This is subject to (i) any express agreement to the contrary (ii) to any implied term which can be established and (iii) the terms being capable of application to the new member although this may simply be part of (ii).

For tax and NIC purposes only, he may nevertheless be found to be an employee in ‘disguised employment’ and not a true member, if his membership has more of the characteristics of employment than that of partnership3. In this context, the LLP is not carrying on its trade, profession or business before it begins trading4. 1 See the Limited Liability Partnership Regulations 2001, reg 7(5) (reprinted in Appendix H below). 2 [2015] EWHC 26 (Ch) at para 321. 3 Income Tax (Trading and Other Income) Act 2005, ss 863A–865. 4 Bayonet Ventures v Howard [2018] UKFTT 262 (TC).

(b)  Cesser of membership 25.77  A person will cease to be a member1: (1) (2) (3) (4)

if the person dies or the LLP is dissolved; in accordance with agreement with the other members; in the absence of agreement, on reasonable notice to the other members; or if the register of members is rectified to correct his erroneous inclusion as a member2.

The first of these requires no explanation; the others are discussed below. 1 See the Limited Liability Partnerships Act 2000, s 4(3) (reprinted in Appendix G below). 2 Polegoshko v Ibragimov [2014] EWHC 1535 (Ch).

(c)  Breach of contractual obligation by the LLP or members 25.78  There can be no doubt that a member, or the LLP itself, may be liable in damages to the other for breach of the LLP agreement, for instance if a member is purportedly expelled by it in breach of its terms1. 1 See Henderson J in Flanagan v Liontrust Investment Partners LLP [2016] 1 BCLC 177.

740

Members 25.80

(d) Repudiation 25.79  Section 4(3) of the 2000 Act provides: (3) A person may cease to be a member of a limited liability partnership (as well as by death or dissolution) in accordance with an agreement with the other members or, in the absence of agreement with the other members as to cessation of membership, by giving reasonable notice to the other members.

This provision does not expressly provide that a member will cease to be a member if he accepts a repudiatory breach of the LLP agreement, but its opening words ‘A person may cease …’ do suggest that the subsection does not list all the ways in which membership can cease. A complicating factor is that the original members have not become members merely by agreement, but by reason of the fact that they subscribed to the incorporation document, which may pre-date the LLP agreement. The doctrine of repudiation can only apply in the ordinary law of partnership, if at all, if every partner is either effecting the repudiatory act or accepting the repudiatory act1. In the case of the members of an LLP the position might be the same, if the LLP itself can fall into one of the two camps, and be either the instigator or the victim of the breach of contract. But it is hard to see that any member will have the authority to act on behalf of the LLP to render it a party to a breach of contract; conversely it is difficult to see how an LLP could accept a repudiation of its own LLP agreement, thereby apparently putting itself out of existence. The cautious wording of this paragraph was noted by Henderson J when he considered a claim of repudiation by a member who had been served with an invalid termination notice2. He concluded that the doctrine of repudiation cannot apply to an LLP agreement unless (possibly) if it only had two members3, a question which he left open. 1 See para 14.11 above. 2 Flanagan v Liontrust Investment Partners LLP [2016] 1 BCLC 177 at para 225. 3 Ibid at para 243.

(e) Cesser of membership following agreement with the other members 25.80  Cesser of membership ‘in accordance with an agreement with the other members’1 may be either an ad hoc agreement (with all the other members) in a particular case, which requires no discussion, or agreement as found in the LLP agreement. The latter may be a provision in the LLP agreement for: (a) voluntary retirement; (b) retirement in specific circumstances; (c) removal when the member suffers a disability such as mental incapacity or bankruptcy; (d) expulsion. The LLP agreement must set out the circumstances of each of these and the consequential rights of the departing member (and the rights of the LLP 741

25.81  Limited liability partnerships

against him) in each such case, in the same way as an ordinary partnership agreement should do. But those provisions will be coloured by the possible ability of the member unilaterally to retire as considered next below. No doubt the members will ensure that the LLP agreement makes the departure terms of a member departing without consent, as unattractive as possible. But then in an extreme case such terms might be regarded as a void fetter on his statutory right to retire, which must be considered next. The fact that a former member has been lawfully expelled, in accordance with the LLP agreement, does not preclude him from claiming for future loss of profit arising out of earlier conduct by the other members or the LLP which is contrary to whistle-blowing protections afforded by the Employment Rights Act 19962. Such an expulsion does not necessarily break the chain of causation between the acts complained of and the loss suffered. The effect of the right to expel, and its exercise, on such a claim depends on what led to the expulsion. Even the fact that a member may have been in breach of the LLP agreement, so giving rise to the right to expel, is not an automatic bar to a claim for loss of profits arising out of the expulsion if, as a matter of fact, the reason for his breach (and so the expulsion) was the earlier wrongful conduct of the LLP or its members3. 1 See the Limited Liability Partnerships Act 2000, s 4(3) (reprinted in Appendix G below). 2 Employment Rights Act 1996, ss 48 and 49. The same would presumably be true of conduct contrary to the Equality Act 2010. 3 Wilsons Solicitors LLP v Roberts [2018] EWCA Civ 52.

(f)  Retirement on notice 25.81  A member has a unilateral right to retire, ‘in the absence of agreement with the other members as to cessation of membership, by giving reasonable notice to the other members’1. These words contain an ambiguity2 in which hangs the question whether the statutory right to retire can be excluded in the LLP agreement. Does the right arise: (a) when the member has failed to reach agreement for his retirement; or (b) where the LLP agreement contains no relevant retirement provision? Although (a) might be the more natural reading of the statutory words, (b) seems more likely to have been intended. So the right to retire is governed primarily by the LLP agreement, which may (for instance) prohibit retirement altogether. Only if it says nothing about the right to retire does the statutory right arise. But this presents the problem that a statutory right to retire is a hollow right for a member3 unless it is accompanied by consequential rights such as the right to repaid capital or a share in the net assets of the LLP and to be released from guarantees. Without such consequential rights, retirement will not often be a realistic option for a member. As has been mentioned above, the LLP agreement may contain provisions making it unattractive for a member to exercise a right to retire. For instance, it may contain heavy restrictions preventing him from competing with the LLP. That apart, he may only go on ‘reasonable notice’, which will presumably 742

Members 25.83

mean reasonable on the striking of a balance between his wish to retire and the need of the LLP to require him to stay. Since (by definition) this right will only be exercised where the parties have failed to reach agreement as to his retirement, disputes as to what is ‘reasonable notice’ are to be expected. The curious fact that his notice must be given to the other members (implicitly, all of them) will put him to some inconvenience in the case of a large LLP. 1 See the Limited Liability Partnerships Act 2000, s 4(3) (reprinted in Appendix G below). 2 Pointed out by Whittaker and Machell The Law of Limited Liability Partnerships (3rd edn, 2009), para 17.5. 3 Hoiles v Hood [2007] EWHC 1616 (Ch), Morgan J.

(g)  Registration of cesser of membership 25.82  It is the operation of the above machinery, and not subsequent registration of the member’s departure, that will cause him to cease to be a member. On the other hand he may continue to be liable to outsiders as a member after his membership has ceased in the circumstances explained at para 25.68 above.

(h) The effect of cesser of membership and voluntary or involuntary assignment of a member’s rights 25.83  The effect of a person ceasing to be member is that he and his representatives lose their proprietary rights in the LLP1 unless the LLP agreement allows them any, or unless the member is able to make an application to the court on the grounds of unfair prejudice, discussed at para 25.44 above. Morgan J2 approved the statement, ‘A member who exercises his right to leave as a member, has no right to payment for the value of his share, and specifically has no automatic right to payment of his capital or a share in the surplus value of the LLP assets.’ It may often however be possible to imply that the member’s capital is repayable3. As to management rights, section 7 of the Limited Liability Partnerships Act 2000 deals with the case where a member has either ceased to be a member or has: (a) (b) (c) (d) (e)

died (which will anyway have caused him to cease being a member)4; become bankrupt or has been wound up; had his estate sequestrated; granted a trust deed for the benefit of his creditors; assigned the whole or any part of his share in the LLP either absolutely or by way of charge or security.

In such a case, and regardless of any other agreement in the LLP agreement or between the members, neither the ‘former member’ nor the following of his representatives may ‘interfere’ in the management or administration of any business or affairs of the LLP5: 743

25.84  Limited liability partnerships

(a) his personal representative; (b) his trustee in bankruptcy or liquidator; (c) his trustee under the trust deed for the benefit of his creditors; or (d) his assignee. But this restriction does not extend to a continuing member as opposed to a ‘former’ member. So where the LLP agreement contains no restriction upon a bankrupt being a member, he himself may continue to act as one, even if his emoluments will pass to his trustee in bankruptcy. 1 See the inadequate wording of the Limited Liability Partnerships Act 2000, s 7(3) (reprinted in Appendix G below). 2 Hailes v Hood [2007] EWHC 1616 (Ch) Morgan J, quoting Machell The Law of Limited Liability Partnerships (2004), para 16.32. 3 See the LLP Regulations 2001, reg 7(1). 4 See the Limited Liability Partnerships Act 2000, s 4(3). 5 See the Limited Liability Partnerships Act 2000, s 7(2).

4 AUDITORS, ACCOUNTS, CHARGES AND THE CONFIRMATION STATEMENT A Companies Act obligations   25.84 B Audit  25.85 C Accounts  25.86 D Charges  25.87 E The confirmation statement   25.88

A  Companies Act obligations 25.84  The provisions of the Companies Act 2006 relating to auditors and accounts are applied to LLPs as modified by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 20081 and by the Companies and Limited Liability Partnerships (Account and Audit Exemptions and Change of Accounting Framework) Regulations 20122. What follows is a summary. 1 SI 2008/1911, as amended by the LLP, Partnerships, Groups (Accounts and Audit) Regulations 2016, SI 2016/575. 2 SI 2012/2301.

B Audit 25.85  An LLP is required to have its accounts audited1 in the same way as those of a limited company, save if the LLP is ‘exempt’ or ‘dormant’ (unless it 744

Auditors, accounts, charges and the confirmation statement 25.86

is one of an excepted class)2. The annual accounts are to be submitted to the auditors who are to report to the members3. An LLP is exempt from audit if it is a ‘small’ LLP (as defined at para 25.86 below)4. The designated members must appoint the auditors5 and may remove them, or they may resign6. 1 See the Companies Act 2006, s 475, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, reg 33, as amended by the Companies and Limited Liability Partnerships (Account and Audit Exemptions and Change of Accounting Framework) Regulations 2012, SI 2012/2301. 2 See the Companies Act 2006, ss 477–481 as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, regs 34 and 35, as amended. 3 See the Companies Act 2006, s 495, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 39, as amended. 4 See the Companies Act 2006, s 477, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 34, as amended. 5 See the Companies Act 2006, s 485, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 36. 6 See the Companies Act 2006, s 516, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 45.

C Accounts 25.86  In the same manner as a limited company, the LLP must keep accounting records1, and prepare accounts for each financial year in prescribed form. They must particularise in detail the financial relationship between the LLP and its members. A statement of recommended practice (‘Revised SORP’) has been approved by the Accountancy Standards Board with effect for periods of accountancy ended on or after 1 January 2015. The financial statements must give a ‘true and fair view’2 which imports strict accountancy standards. The LLP SORP requires that the following will usually have to be included in the accounts, which may have the effect of jeopardising the apparent solvency of the firm: (a) provision for future liabilities; (b) annuities in favour of ex-members and onerous lease covenants; (c) any defined benefit pension scheme; (d) balances on members’ capital and current accounts, because these are liabilities of the LLP which will or may rank equally with the outside creditors, see para 25.59 above; (e) depreciation. The accounts must be approved by the members and signed on their behalf by a designated member3. The accounts are to be sent to every member and every debenture-holder not later than the end of the period for filing accounts 745

25.86  Limited liability partnerships

or if earlier when it actually delivers to the registrar the accounts and auditor’s report4. The designated members must deliver them to the registrar (with the auditors’ report)5 under pain of a civil penalty6 within a period which is usually nine months after the end of the relevant accounting reference period7. Except in the case of certain financial institutions8, the accounting obligations are lessened in the case of a ‘small’ or ‘medium-sized’ LLP; for instance a ‘small’ LLP need not give information about off-balance-sheet arrangements or employee numbers and costs9. Small or medium-sized LLPs are those which respectively satisfy two out of the three following criteria: (a) a ‘small’ LLP – turnover not more than £10.2m, balance sheet total not more than £5.1m, number of employees not more than 50; (b) a ‘medium-sized’ LLP – turnover not more than £36m, balance sheet total not more than £18m, number of employees not more than 25010. In particular, a ‘small’ LLP need not comply with the obligation to disclose the profit and remuneration attributable to the member with the largest entitlement to profit (including remuneration) when the profit of the LLP exceeds £200,00011 and need not be audited12.   1 See the Companies Act 2006, ss 386–414 (with effect for years of accounting commencing on or after 1  October 2008), as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, Pt 5.   2 Section  393 of the Companies Act 2006 as amended by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, Pt 5.   3 See the Companies Act 2006, s 414, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, Pt 5.   4 See the Companies Act 2006, s 423, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, Pt 5.   5 See the Companies Act 2006, ss 441–450, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, Pt 7.   6 See the Companies Act 2006, s 451, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI  2008/1911, Pt  7 and the Limited Liability Partnerships (Filing Periods and Late Filing Penalties) Regulations 2008, SI 2008/497.   7 See the Companies Act 2006, s  442(1), as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, Pt 7.   8 An authorised LLP under the Financial Services and Markets Act 2000, Pt 4A, or an insurance LLP or one whose securities are traded, under the Companies Act 2006, s 467, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, Pt 9.   9 Companies Act 2006, ss 410A and 411, as modified and applied to LLPs by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, Pt 5, as amended by the LLP, Partnerships, Groups (Accounts and Audit) Regulations 2016, SI 2016/575. 10 See the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008, SI  2008/409, and the Large and Medium-sized Limited Liability Partnerships (Accounts) Regulations 2008, SI  2008/1913, and the Small Limited Liability Partnerships (Accounts) Regulations 2008, SI  2008/1912, as amended by the LLP, Partnerships, Groups (Accounts and Audit) Regulations 2016, SI 2016/575.

746

Insolvency, winding up, misfeasance and disqualification 25.89 11 This obligation is imposed upon large and medium-sized LLPs by the Large and Medium-sized Limited Liability Partnerships (Accounts) Regulations 2008, SI 2008/1913, Sch 1, para 66(3). 12 See ss 477 and 478 of the Companies Act 2006 and reg 34 of the Limited Liability Partnerships (Accounts and Audit) Application of Companies Act 2006) Regulations 2008, SI 2008/1911, as amended by the Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012, SI 2012/2301.

D Charges 25.87  An LLP can create fixed and floating charges over its assets and must keep a register of debentures1, and the provisions of Part 19 of the Companies Act 2006 are applied accordingly with appropriate modification2. 1 See the Companies Act 2006, s  743, as modified and applied by the Limited Liability Partnerships Regulations 2001, reg 4 and Sch 2. 2 Ie as modified and applied by the Limited Liability Partnerships Regulations 2001, reg 4 and Sch 2.

E  The confirmation statement 25.88  The LLP must deliver each year to the registrar a confirmation statement which is akin to that of a company, but must specify the names and service addresses1 of all the members, and state which of them are designated members2. It must be in Form LL CS01, which can be obtained from Companies House. 1 See para 25.50 above. 2 See the Companies Act 2006, ss 853A–853L, as modified and applied by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, reg 30.

5 INSOLVENCY, WINDING UP, MISFEASANCE AND DISQUALIFICATION A Insolvency, voluntary arrangements and administration   25.89 B Dissolution and winding up   25.90 C Investigation and misfeasance   25.94 D Recoupment from members   25.99 E Disqualification  25.100

A Insolvency, voluntary arrangements and administration 25.89  For the purposes of insolvency, the LLP is treated like a limited company1. Regulation 5 of the Limited Liability Partnerships Regulations 747

25.90  Limited liability partnerships

2001 applies to the LLP (with modification) Parts I to IV and VI to VII of the First Group of Parts of the Insolvency Act 1986, and these deal with corporate insolvency and company winding up. The only noteworthy modifications are that references to a director are to include references to a member (not just a designated member), and references to the memorandum and articles include references to the LLP agreement (not the incorporation document). It follows from this that voluntary arrangements and administration orders may be made in relation to LLPs, and receivers and managers appointed, and creditors’ voluntary and members’ voluntary resolutions, or compulsory liquidation orders, made. There can be no winding up under these provisions save by the appointment of a liquidator; the members do not have the option enjoyed by the partners in an ordinary partnership, to wind up the business themselves, as discussed in Chapter 18. A single, minority member of an LLP cannot unilaterally apply for an administration order2. The duty of the liquidator is to apply the LLP’s property in satisfaction of its liabilities (including liability to members) pari passu and (subject thereto and to the LLP agreement) to distribute it among the members according to their rights and interests in the LLP3. 1 See Lloyd LJ in Tower Taxi Technology LLP v Marsden [2005] EWCA Civ 1503. 2 Patley Wood Farm LLP v Brake [2016] EWHC 1688 (Ch). 3 See the Insolvency Act 1986, s  107, as adopted and modified by the Limited Liability Partnerships Act 2000, s 14 and the Limited Liability Partnerships Regulations 2001, reg 5 and Sch 3.

B  Dissolution and winding up (a)  The demise of the LLP 25.90  An LLP cannot be dissolved like an ordinary partnership. No equivalent to the grounds for ‘dissolution’ in the Partnership Act 1890 apply to it. The LLP remains in existence until it is brought to an end by the companies’ winding-up machinery of the Insolvency Act 1986 that has been applied (with appropriate amendments) by section 14 of the Limited Liability Partnerships Act 2000, and regulation 5 of and Schedule  3 to the Limited Liability Partnerships Regulations 2001. So an LLP can be wound up under the Insolvency Act on the ‘just and equitable’ ground1 which is analogous to section  35(f) of the Partnership Act 1890 discussed at paras 17.24 and 25.41 above and is subject to the difficulty that winding up will usually not be allowed where the petitioner is offered a fair price to be bought out2. A ‘winding-up’ order or resolution will usually commence the process, and when complete the LLP is ‘dissolved’3. The consequential modifications to the Companies Act machinery are not of enough substance to require comment here4, but (for instance) the court has power under section 1096(1) of the Companies Act 2006 to order rectification of the register to reverse the administrative restoration of an LLP where the restoration had been obtained through the provision of fraudulent material5. 748

Insolvency, winding up, misfeasance and disqualification 25.92 1 Insolvency Act 1986, s 122(1)(e), as so incorporated. 2 O’Neill v Phillips [1999] 1 WLR 1092; Eaton v Caulfield (No 2) [2013] EWHC 2214 (Ch). 3 These confusing changes of nomenclature are considered in relation to partnership winding up at para 22.2 above. 4 See LLP Legislation Handbook by Machell, Hayward and Mather (2010). 5 In the Matter of Infund LLP [2018] EWHC 1306 (Ch).

(b)  The effect of winding up 25.91  An LLP, like a limited company (but unlike an ordinary partnership in solvent dissolution)1, must cease activity the moment that a winding-up order is made, even if the LLP is solvent and the winding up is voluntary2. The LLP is dissolved: (a) in the case of voluntary winding up, three months after the liquidator has sent his final account and return to the registrar3; (b) in the case of compulsory winding up, three months after the registrar receives either a notice that the liquidator has vacated office and there has been a final meeting of creditors, or a notice from the official receiver that the winding up is complete4. 1 See the Partnership Act 1890, s 38, discussed in para 18.2 above. 2 See the Insolvency Act 1986, s  87, as adopted and modified by the Limited Liability Partnerships Act 2000, s 14 and the Limited Liability Partnerships Regulations 2001, reg 5 and Sch 3. 3 See the Insolvency Act 1986, s  201, as adopted and modified by the Limited Liability Partnerships Act 2000, s 14 and the Limited Liability Partnerships Regulations 2001, reg 5 and Sch 3. 4 See the Insolvency Act 1986, s  205(1), as adopted and modified by the Limited Liability Partnerships Act 2000, s 14 and the Limited Liability Partnerships Regulations 2001, reg 5 and Sch 3.

(c)  Striking off by the registrar 25.92  The registrar may in addition strike the LLP off the register if: (a) he has reasonable cause to believe that it is not carrying on business or in operation1 (which means in practice that it has not been filing its accounts or confirmation statements); or (b) two or more designated members apply after the LLP has been dormant for at least two months2. 1 See the Companies Act 2006, s 1000(1), as adopted and modified by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 50. 2 See the Companies Act 2006, s  1003, as adopted and modified by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 51, as amended by the Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2015, SI 2015/1695.

749

25.93  Limited liability partnerships

(d)  Priority of creditors 25.93  Nothing in the legislation suggests that the rights of a member as a creditor (for instance for unpaid profit, or his advances to the LLP or even his ‘capital’ in it) are subordinated to the claims of outside creditors. But on the hearing of a winding-up petition by an outside creditor the member may sometimes find difficulty in being heard1. 1 Charit-email Technology Partnership LLP v Vermillion International [2009] EWHC 388 (Ch).

C  Investigation and misfeasance (a) Investigation (i)  Inspection where members request it 25.94  The power of the Secretary of State to investigate the affairs of a company under Part XIV is extended to LLPs1. He may appoint inspectors in such manner as he may direct on the application of2: (a) the LLP (acting through the agency of its members according to their powers derived from the LLP agreement, or in default by a simple majority of them under the default regulation 7(6) considered at para  25.35 above); or (b) at least one-fifth of the current members3. 1 As adopted and modified by to the Limited Liability Partnerships Regulations 2001, reg 4 and Sch 2. 2 See the Companies Act 1985, s 431(2), as adopted and modified. 3 See note 2 above.

(ii)  Inspection where the court orders it 25.95  The Secretary of State must appoint inspectors if the court declares that its affairs ought to be investigated1. 1 See the Companies Act 1985, s 432(1), as adopted and modified.

(iii)  Inspection at discretion of Secretary of State 25.96  The Secretary of State may also appoint inspectors if it appears to him that there are circumstances suggesting a variety of matters including fraud or misfeasance, or that the members are not being given ‘all the information with respect to its affairs which they might reasonably expect’1. 750

Insolvency, winding up, misfeasance and disqualification 25.99

He may also require the LLP to produce documents to him2. An inspector may gain access to and remain on relevant premises if authorised to do so by the Secretary of State and if he thinks that to do so will materially assist him in the exercise of his functions3. 1 See the Companies Act 1985, s 432(2), as adopted and modified. 2 See the Companies Act 1985, s  447, as adopted and modified. Section  448 deals with the power to enter and search for documents. 3 See the Companies Act 1985, ss 453A–453C.

(iv)  The inspection 25.97  The inspectors may require the members of the LLP and its officers to produce documents and to attend and ‘give assistance’ to the inspectors1. If any of them refuses to do so or to answer questions, they may be punished as if for contempt of court2. 1 See the Companies Act 1985, s 434, as adopted and modified. 2 See the Companies Act 1985, s 436, as adopted and modified.

(b) Misfeasance 25.98  The past and present members of an LLP and its other officers will be liable for criminal penalties in similar circumstances as those in which the directors and other officers of a limited company may be liable, and may also be liable for penalties for default in the specific statutory requirements that relate to LLPs. The provisions of Chapter X of the Insolvency Act 1986 which deal with malpractice both before and during liquidation are applied to LLPs1 in the same way that they are applied to limited companies. It will be recalled that sections 212 (Summary remedy against delinquent members), 213 (Fraudulent trading) and 214 (wrongful trading) each empower the court to order a member to make contribution to the assets of the LLP agreement as the court thinks proper2. 1 See the Limited Liability Partnerships Regulations 2001, reg 5 and Sch 3. 2 For limitation periods in relation to these sections see Re Eurocruit Ltd, Goldfarb v Poppleton [2007] EWHC 1432 (Ch).

D  Recoupment from members 25.99  The effect of orders under sections  212–214 of the Insolvency Act which relate to both limited companies and LLPs, have been mentioned at the end of the last paragraph. Section 214A of the Insolvency Act 19861 is a provision that does not apply to limited companies but only to LLPs. It 751

25.99  Limited liability partnerships

provides that the liquidator may apply to the court for an order that a member should make recoupment to the LLP up to the level of his last two years’ remuneration and other ‘withdrawals’ if the member then had reasonable grounds for believing that the LLP was insolvent. In practice this adds little to section 214 (wrongful trading). It is in these terms: 214A Adjustment of withdrawals (1) This section has effect in relation to a person who is or has been a member of a limited liability partnership where, in the course of the winding up of that limited liability partnership, it appears that subsection (2) of this section applies in relation to that person. (2) This subsection applies in relation to a person if – (a) within the period of two years ending with the commencement of the winding up, he was a member of the limited liability partnership who withdrew property of the limited liability partnership, whether in the form of a share of profits, salary, repayment of or payment of interest on a loan to the limited liability partnership or any other withdrawal of property, and (b) it is proved by the liquidator to the satisfaction of the Court that at the time of the withdrawal he knew or had reasonable ground for believing that the limited liability partnership – (i) was at the time of the withdrawal unable to pay its debts within the meaning of section 123, or (ii) would become so unable to pay its debts after the assets of the limited liability partnership had been depleted by that withdrawal taken together with all other withdrawals (if any) made by any members contemporaneously with that withdrawal or in contemplation when that withdrawal was made. (3) Where this section has effect in relation to any person the Court, on the application of the liquidator, may declare that a person is to be liable to make such contribution (if any) to the limited liability partnership’s assets as the Court thinks proper. (4) The court shall not make a declaration in relation to any person the amount of which exceeds the aggregate of the amounts or values of all the withdrawals referred to in subsection (2) made by that person within the period of two years referred to in that subsection. (5) The Court shall not make a declaration under this section with respect to any person unless that person knew or ought to have concluded that after each withdrawal referred to in subsection (2) there was no reasonable prospect that the limited liability partnership would avoid going into insolvent liquidation. (6) For the purposes of subsection (5) the facts which a member ought to know or ascertain and the conclusions which he ought to reach are those which would be known, ascertained, or reached by a reasonably diligent person having both – (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that member in relation to the limited liability partnership, and (b) the general knowledge, skill and experience that that member has.

752

Insolvency, winding up, misfeasance and disqualification 25.100 (7) For the purposes of this section a limited liability partnership goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up. (8) In this section ‘member’ includes a shadow member. (9) This section is without prejudice to section 214.

It will be seen that although this section is wide in that it extends to shadow members and ‘withdrawal’ is defined as extending to the receipt of profit and the repayment of loans and interest on loans, the burden upon the liquidator in establishing a claim is a heavy one. He must establish the state of mind or knowledge of the member – that he ‘knew or had reasonable ground for believing’ the precarious financial position. The knowledge of the LLP is not imputed to the member, who is only expected to know what ‘a person carrying out the same functions’ as he would be expected to know. A liquidator will seldom have either the inclination or the finance to bring such a question as this before the court. Furthermore, the section is only triggered by ‘withdrawals’, and not by some other transaction between the member and the LLP, such as the LLP giving him security for what the LLP may owe him by way of profit share. Even if the case against the member is made out, the consequence for him is unlikely to be disastrous. At most he can be compelled to repay to the LLP the sums he has received in the two years before the commencement of the winding up. (This date is the earlier of the presentation of the winding-up petition, or a determination for voluntary winding up2.) After he has repaid the LLP he may still have a good claim to prove in the liquidation for the same sum, for he will still be a creditor, with a status as good as that of an outside unsecured creditor. 1 As adopted and modified by the Limited Liability Partnerships Act 2000, s 14, and the Limited Liability Partnerships Regulations 2001, reg 5 and Sch 3. 2 See the Insolvency Act 1986, s 129, as so adopted and modified.

E Disqualification (a) Disqualification under the Company Directors Disqualification Act 1986 generally 25.100  Regulation 41 applies to LLPs the provisions of the Company Directors Disqualification Act 1986, with consequential modifications. References to a company director are to include references to an LLP member (not just to a designated member). A member (or shadow member) will be disqualified from taking an active part in a LLP if a company director’s disqualification order is made against him2. An individual or corporate person may be disqualified from being a member or being directly or indirectly concerned, or take part in, 753

25.101  Limited liability partnerships

the promotion, formation or management of a company or of an LLP under the terms of a disqualification order made by the court under the Company Directors Disqualification Act 1986 as applied to insolvent memberships by regulation 4 of the Limited Liability Partnerships Regulations 2001. 1 Limited Liability Partnerships Regulations 2001 (reprinted in Appendix H below). 2 See the Company Directors Disqualification Act 1986, s 1. This Act does not just apply to company directors.

(b)  The making of a disqualification order – general 25.101  The provisions of the Company Directors Disqualification Act 1986 and its Rules and other subordinate legislation1 relating to the disqualification of company directors is applied to LLPs by regulation 4(2) of the 2001 Regulations. A disqualification order in relation to an LLP member can be made either under sections 2–6, or 8 of the 1986 Act. Under sections 2–5 an order may be made if he is guilty of a criminal offence or default in his statutory duties. Orders under sections 6 and 8, which are considered next, both involve the existence of a statutory winding-up order or an administration order against the LLP. 1 Note in particular the amended Companies (Disqualification Orders) Regulations 2009 and the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987, and Practice Direction (Directors Disqualification Proceedings) available on the Ministry of Justice website.

(c)  Section 6 – insolvency applications 25.102  Under subsection 6(1) the court shall make an order against a person where his conduct as a director of the company in question or member of the LLP in question (with or without consideration of his conduct as a company director or member of any other LLP) renders him unfit to be concerned in the management of an LLP or company. The matters to be taken into account in determining unfitness are contained in section 12C of and Schedule 1 to the 1986 Act1. The official receiver (if the LLP is being wound up) or the administrator (if there is an administration order in force) have a duty to report to the Secretary of State if it appears to them that the conditions for an order are satisfied2. The Secretary of State or the official receiver may require a liquidator or former liquidator or administrator or former administrator to provide him with information and documents in relation to a person’s conduct3. The LLP must have become insolvent either when the person was a member or subsequently4, and ‘insolvent’ here has the narrow meaning that either an administration order has been made or an administrative receiver appointed or the LLP went into liquidation ‘at a time when its assets are insufficient for 754

Insolvency, winding up, misfeasance and disqualification 25.103

the payments of its debts and other liabilities and the expenses of the winding up’. Strictly ‘other liabilities’ includes the LLP’s liabilities to its own members. An application for an order may not (without leave) be made more than three years after the LLP became insolvent5. The minimum period of disqualification under this section is two years, and the maximum 156. The court with jurisdiction under this section of the 1986 Act is, where the LLP is being wound up, the court having jurisdiction to wind it up (which may be either the High Court or the county court), and otherwise the High Court7. But where winding-up proceedings in the county court have been completed, that court still has jurisdiction to make a disqualification order8. The appointment of an administrative receiver is now only permissible in very narrow circumstances9. 1 As introduced and amended respectively by the Small Business, Enterprise and Employment Act 2015 and applied to LLPs by the Limited Liability Partnerships Regulations 2001, reg 4. 2 See the Company Directors Disqualification Act 1986, s  7(3), as modified by the Limited Liability Partnerships Regulations 2001, reg 4. 3 See note 2, s 7(4) and (5). 4 See note 2, s 6(1)(a). 5 See note 2, s 7(2). 6 See note 2, s 6(5). 7 See the Company Directors Disqualification Act 1986, s 6(3). 8 Re Working Project Ltd; Re Fosterdown Ltd; Re Davies Flooring (Southern) Ltd [1995] 1 BCLC 226, Carnwath J. 9 Enterprise Act 2002, s 250 introduced ss 72A–72H into the Insolvency Act 1986 (applicable both to companies and to LLPs) which prohibit such appointment save in certain specified instances which were considered by the Court of Appeal in Cabvision v Feetum [2005] EWCA Civ 1601.

(d)  Section 8 – public interest applications 25.103  If it appears to the Secretary of State (in practice the Department for Business Innovation and Skills) as a result of certain statutory investigations, that ‘it is expedient in the public interest’ that an order should be made against a member or former member, he may apply to the court accordingly1. The court may make the order if satisfied that the person’s conduct ‘in relation to the LLP makes him unfit to be concerned in the management of an LLP’. The conduct in question may either be in relation to the LLP alone or taken together with his conduct as member (or shadow member) of any other LLP or as director (or shadow director) of any other company2. The court with jurisdiction is the High Court alone; the maximum period of disqualification is 15 years and there is no minimum. 1 See the Company Directors Disqualification Act 1986, s 8(1). 2 See the Company Directors Disqualification Act 1986, s  8(2) as amended by the Small Business, Enterprise and Employment Act 2015.

755

25.104  Limited liability partnerships

(e)  The making of a disqualification order – grounds 25.104  Section 12C and Schedule 11 state the matters to which the court is to have regard when determining whether a person’s conduct as a member of the LLP makes him unfit to be concerned in the management of an LLP. The matters are listed in Schedule 1. Its provisions follow those relating to company directors2. 1 See the Company Directors Disqualification Act 1986, as modified by the Limited Liability Partnerships Regulations 2001, reg 4. 2 As regards company directors it has been held that ordinary commercial misjudgement is insufficient to justify disqualification, provided that the misbehaviour is short of gross negligence or extreme incompetence: Re Lo-Line Electric Motors Ltd [1988] Ch 477 at 486.

(f)  The effect of disqualification 25.105  A disqualification order will prohibit a person from directly or indirectly being concerned or taking part in the promotion, formation or management of an LLP or limited company1. This may not preclude him from continuing, rather than starting up as, a limited or sleeping member. Although any breach of the order by the member will be a criminal act2, there is no provision rendering the whole LLP illegal as a consequence of a member being disqualified3. A disqualification order may affect a non-member. A person who is involved in the management of an LLP although not a member will render himself liable for its debts if he is himself disqualified or if he acts or is willing to act on instructions from a person he knows to be disqualified4. Whether a disqualification order can prevent a person from being a partner in an ordinary firm is discussed at para 3.28 above. 1 See the Company Directors Disqualification Act 1986, s 1. The order states the nature of his disqualification: Official Receiver v Hannan [1997] 2 BCLC 473, CA. 2 Although s 13 which contains the criminal penalties in the 1986 Act is oddly not one of the sections applied in the case of memberships by Art 16 of the 1994 Order. The offence is one of strict liability: R v Brockley (1993) 99 Cr App Rep 385. 3 Contrast Chapter 4. 4 See the Company Directors Disqualification Act 1986, s 15, as applied by the Limited Liability Partnerships Regulations 2001, reg 4 and Sch 2.

6 TRANSFER OF ASSETS FROM PARTNERSHIP TO LLP A Transfers generally  25.106 B Existing leases, contracts, liabilities and substitution of defendants  25.107 C Executorships  25.108 D Trusteeships and other appointments   25.109 756

Transfer of assets from partnership to LLP 25.107

E CFA agreements  25.110 F Clients  25.111 G Taxation  25.112

A  Transfers generally 25.106  An LLP may commence trading by taking over the business and some or all assets and liabilities of an existing partnership which will then be dissolved. Such a transfer poses no more difficulties than on an ordinary sale of a business. But it poses no fewer problems either. It is particularly vital that it is absolutely clear to what extent assets and liabilities are to pass to the LLP (mortgage loans? partners’ current accounts? unascertained claims against the firm?) and what continuing contractual rights and obligations are to pass. A claimant alleging professional negligence against solicitors now practising as a company has been refused permission to amend to proceed against the LLP in which they practised when they gave the negligent advice1. In an ordinary partnership there is no disadvantage in the firm owning all assets that relate to the business, rather than such assets being held by the partners individually outside the partnership as tenants in common: the assets are equally available to creditors. Where the partners trade in an LLP it is conversely important that as few assets as possible are within the LLP because they are then available for LLP creditors which they would not be if they belonged to the members. 1 Jenkins v JCP Solicitors Ltd [2019] EWHC 852 (QB).

B Existing leases, contracts, liabilities and substitution of defendants 25.107  The transfer of the benefit and burden of leases and contractual arrangements with employees, service providers and landlords, will usually require their consent. In the case of service providers (including banks) this may also require new guarantees and security to be given. They and retired annuitants of the old firm will have to agree to accept the LLP in place of the old partners as their debtor, or the old firm will remain liable. An outsider who has a claim must consider whether it is a claim against the old firm or the new LLP. To claim against the wrong one may be fatal. If he claims wrongly against the LLP and then seeks to substitute the firm as defendant after the limitation period has expired, substitution may be allowed1 if his mistake was caused by an error of fact but not if by an error of law2. 1 CPR 19.5(3)(a). 2 The Insight Group Ltd v Kingston Smith [1212] EWHC 3644 (QB) discussed and followed in American Leisure Group v Olswang [2015] EWHC 629 (Ch).

757

25.108  Limited liability partnerships

C Executorships 25.108  Wills often empower ‘the partners’ for the time being in a solicitors’ firm to nominate two or more of themselves to be the executors of a deceased client, and accordingly contain a charging clause1. Such wills comprise a valuable asset in the hands of a long-established firm. This raises the question whether the appointment is effective if the firm has ceased and been replaced by an LLP. The issue was raised in Re Edith Lilian Rogers Deceased2 by a solicitors’ LLP which had succeeded to the practice of a firm whose partners (or ‘the partners in any firm which succeeded to its practice’) were appointed executors by the deceased’s will. The members of the LLP contended that they equated to partners in a firm, and that would have been the desire of the deceased. Lightman J rejected this, preferring to hold that the clause was in favour of ‘the profit sharing members’ of the LLP, but not ‘employee members’. This poses some potential difficulties because in many LLPs the question ‘who are members?’ is clear, but not who are ‘profit-sharing’. The impossibility of the employment of members is discussed at para 25.75 above, and the meaning of ‘firm name’ at para 8.55 above. 1 The validity of such an appointment was approved by Latey J in Re Horgan [1971] P 50. 2 [2006]  EWHC  753 (Ch), Lightman J. Oddly neither the estate nor any beneficiaries were directly represented at the hearing.

D  Trusteeships and other appointments 25.109  Trusteeships and other appointments such as directorships and receiverships are almost invariably required to be taken in the names of individual partners rather than in the name of the firm, and so they cannot be transferred with the firm’s other assets, but an arrangement must be made with the LLP as to how their profits are to be dealt with when the partner in question has become a member.

E  CFA agreements 25.110  A conditional fee agreement is an agreement between a litigation solicitor (or a solicitor’s firm or LLP), and a client, regulated by rules made under section 58 of the Courts and Legal Services Act 1990. It will usually be personal to the client and to the solicitor, in the sense that it will implicitly be non-assignable. If made with a firm, the question will arise whether it can be transferred to an LLP. There will be difficulties of ordinary contract law if the firm purports to transfer the benefit and burden without the express consent of the client, but with such consent there is no objection1. 1 This is implicit from [2006] EWHC 151 (QB).

the

judgment

in

758

Jenkins

v

Young

Brothers

Transport

Transfer of assets from partnership to LLP 25.112

F Clients 25.111  Clients, and in particular clients with long-term contracts, will have to consent to the transfer of their business to the new LLP. Provided that the LLP (and, separately, its members) are adequately insured against any claim for negligence or other loss that the client might suffer, this is unlikely to be a problem.

G Taxation 25.112  The transfer of an existing business to an LLP from an ordinary partnership is only treated for tax purposes as giving rise to a cessation of the business of the partnership which is making the transfer if the same transfer would have been treated as a cessation if it had been made between ordinary partnerships. Similarly the transfer of assets between an ordinary partnership and an LLP will only be a chargeable gain or give rise to a capital allowance if it would have done so had the transfer been between ordinary partnerships. Stamp Duty Land Tax is not chargeable on an instrument transferring property from an ordinary partnership to an LLP within one year of its incorporation, provided that the former partners are the same as the new LLP members and hold the same shares in each1. This generosity does not extend to transfers to LLPs from limited companies, or vice versa. Nor does it extend to the transfer of a business back from an LLP to an ordinary partnership. 1 See the Limited Liability Partnerships Act 2000, s 12 and the Finance Act 2003, s 65.

759

Appendix A Partnership Act 1890 c. 39 [14th August 1890] An Act to declare and amend the Law of Partnership.

NATURE OF PARTNERSHIP 1 Definition of partnership (1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit. (2) But the relation between members of any company or association which is– [(a) registered under the Companies Act 2006, or]1 (b) Formed or incorporated by or in pursuance of any other Act of Parliament or letters patent, or Royal Charter; […]2 (c) […]2 is not a partnership within the meaning of this Act. 1 Substituted by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI 2009/1941, art 2(1), Sch 1, para 2 (1 October 2009). 2 Repealed by the Statute Law (Repeals) Act 1998, s  1(1), Sch  1, Pt X  (19  November 1998 except for repeals specified in Statute Law (Repeals) Act 1998, s  2(3); not yet in force otherwise).

2  Rules for determining existence of partnership In determining whether a partnership does or does not exist, regard shall be had to the following rules: (1) Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof. (2) The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived. (3) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of such a share, or of a

761

Appendix A  Partnership Act 1890 c. 39 payment contingent on or varying with the profits of a business, does not of itself make him a partner in the business; and in particular– (a) The receipt by a person of a debt or other liquidated amount by instalments or otherwise out of the accruing profits of a business does not of itself make him a partner in the business or liable as such: (b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such: (c) A person being the widow[, widower, surviving civil partner]1 or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such: (d) The advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such. Provided that the contract is in writing, and signed by or on behalf of all the parties thereto: (e) A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by him of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such. 1 Inserted by the Civil Partnership Act 2004, s 261(1), Sch 27, para 2 (5 December 2005).

3 Postponement of rights of person lending or selling in consideration of share of profits in case of insolvency In the event of any person to whom money has been advanced by way of loan upon such a contract as is mentioned in the last foregoing section, or of any buyer of a goodwill in consideration of a share of the profits of the business, being adjudged a bankrupt, entering into an arrangement to pay his creditors less than [100p]1 in the pound, or dying in insolvent circumstances, the lender of the loan shall not be entitled to recover anything in respect of his loan, and the seller of the goodwill shall not be entitled to recover anything in respect of the share of profits contracted for, until the claims of the other creditors of the borrower or buyer for valuable consideration in money or money’s worth have been satisfied. 1 Substituted by the Decimal Currency Act 1969, s 10(1) (16 May 1969).

4  Meaning of firm (1) Persons who have entered into partnership with one another are for the purposes of this Act called collectively a firm, and the name under which their business is carried on is called the firm-name. (2) In Scotland a firm is a legal person distinct from the partners of whom it is composed, but an individual partner may be charged on a decree or diligence directed against the firm, and on payment of the debts is entitled to relief pro rata from the firm and its other members.

762

Partnership Act 1890 c. 39 Appendix A RELATIONS OF PARTNERS TO PERSONS DEALING WITH THEM 5  Power of partner to bind the firm Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner. 6  Partners bound by acts on behalf of firm An act or instrument relating to the business of the firm done or executed in the firmname, or in any other manner showing an intention to bind the firm, by any person thereto authorised, whether a partner or not, is binding on the firm and all the partners. Provided that this section shall not affect any general rule of law relating to the execution of deeds or negotiable instruments. 7  Partner using credit of firm for private purposes Where one partner pledges the credit of the firm for a purpose apparently not connected with the firm’s ordinary course of business, the firm is not bound, unless he is in fact specially authorised by the other partners; but this section does not affect any personal liability incurred by an individual partner. 8  Effect of notice that firm will not be bound by acts of partner If it has been agreed between the partners that any restriction shall be placed on the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement. 9  Liability of partners Every partner in a firm is liable jointly with the other partners, and in Scotland severally also, for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in a due course of administration for such debts and obligations, so far as they remain unsatisfied, but subject in England or Ireland to the prior payment of his separate debts. 10  Liability of the firm for wrongs Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act. 11  Misapplication of money or property received for or in custody of the firm In the following cases; namely– (a) Where one partner acting within the scope of his apparent authority receives the money or property of a third person and misapplies it; and (b) Where a firm in the course of its business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm; the firm is liable to make good the loss.

763

Appendix A  Partnership Act 1890 c. 39 12  Liability for wrongs joint and several Every partner is liable jointly with his co-partners and also severally for everything for which the firm while he is a partner therein becomes liable under either of the two last preceding sections. 13  Improper employment of trust-property for partnership purposes If a partner, being a trustee, improperly employs trust-property in the business or on the account of the partnership, no other partner is liable for the trust property to the persons beneficially interested therein: Provided as follows:– (1) This section shall not affect any liability incurred by any partner by reason of his having notice of a breach of trust; and (2) Nothing in this section shall prevent trust money from being followed and recovered from the firm if still in its possession or under its control. 14  Persons liable by ‘holding out’ (1) Every one who by words spoken or written or by conduct represents himself, or who knowingly suffers himself to be represented, as a partner in a particular firm, is liable as a partner to any one who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made. (2) Provided that where after a partner’s death the partnership business is continued in the old firm’s name, the continued use of that name or of the deceased partner’s name as part thereof shall not of itself make his executors or administrators estate or effects liable for any partnership debts contracted after his death. 15  Admissions and representations of partners An admission or representation made by any partner concerning the partnership affairs, and in the ordinary course of its business, is evidence against the firm. 16  Notice to acting partner to be notice to the firm Notice to any partner who habitually acts in the partnership business of any matter relating to partnership affairs operates as notice to the firm, except in the case of a fraud on the firm committed by or with the consent of that partner. 17  Liabilities of incoming and outgoing partners (1) A person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he became a partner. (2) A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement. (3) A retiring partner may be discharged from any existing liabilities, by an agreement to that effect between himself and the members of the firm as newly constituted and the creditors, and this agreement may be either expressed or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted.

764

Partnership Act 1890 c. 39 Appendix A 18  Revocation of continuing guaranty by change in firm A continuing guaranty or cautionary obligation given either to a firm or to a third person in respect of the transactions of a firm is, in the absence of agreement to the contrary, revoked as to future transactions by any change in the constitution of the firm to which, or of the firm in respect of the transactions of which, the guaranty or obligation was given. RELATIONS OF PARTNERS TO ONE ANOTHER 19  Variation by consent of terms of partnership The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all the partners, and such consent may be either express or inferred from a course of dealing. 20  Partnership property (1) All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement. (2) Provided that the legal estate or interest in any land, or in Scotland the title to and interest in any heritable estate, which belongs to the partnership shall devolve according to the nature and tenure thereof, and the general rules of law thereto applicable, but in trust, so far as necessary, for the persons beneficially interested in the land under this section. (3) Where co-owners of an estate or interest in any land, or in Scotland of any heritable estate, not being itself partnership property, are partners as to profits made by the use of that land or estate, and purchase other land or estate out of the profits to be used in like manner, the land or estate so purchased belongs to them, in the absence of an agreement to the contrary, not as partners, but as co-owners for the same respective estates and interests as are held by them in the land or estate first mentioned at the date of the purchase. 21  Property bought with partnership money Unless the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm. 22 […]1 […]1 1 Repealed subject to savings by the Trusts of Land and Appointment of Trustees Act 1996, s 25(2), Sch 4 (1 January 1997: repeal has effect subject to savings specified in the Trusts of Land and Appointment of Trustees Act 1996, s 25(5)).

23  Procedure against partnership property for a partner’s separate judgment debt (1) A writ of execution shall not issue against any partnership property except on a judgment against the firm.

765

Appendix A  Partnership Act 1890 c. 39 (2) The High Court, or a judge thereof, […]1 [or the county court in England and Wales or a county court in Northern Ireland,]2 may, on the application by summons of any judgment creditor of a partner, make an order charging that partner’s interest in the partnership property and profits with payment of the amount of the judgment debt and interest thereon, and may by the same or a subsequent order appoint a receiver of that partner’s share of profits (whether already declared or accruing), and of any other money which may be coming to him in respect of the partnership, and direct all accounts and inquiries, and give all other orders and directions which might have been directed or given if the charge had been made in favour of the judgment creditor by the partner, or which the circumstances of the case may require. (3) The other partner or partners shall be at liberty at any time to redeem the interest charged, or in case of a sale being directed, to purchase the same. (4) […]3 (5) This section shall not apply to Scotland. 1 Repealed by the Courts Act 1971, s 56(4), Sch 11, Pt II (1 January 1972). 2 Substituted by the Crime and Courts Act 2013, s  17(5), Sch  9, para  118 (22  April 2014: substitution has effect as the Crime and Courts Act 2013 (Commencement No. 10 and Transitional Provision) Order 2014, SI 2014/954 subject to savings and transitional provisions specified in the Crime and Courts Act 2013, s 15 and Sch 8 and transitional provision specified in the Crime and Courts Act 2013 (Commencement No. 10 and Transitional Provision) Order 2014, arts 2(c), 3). 3 Repealed by the Statute Law (Repeals) Act 1998, s 1(1), Sch 1, Pt X (19 November 1998 except for repeals specified in Statute Law (Repeals) Act 1998, s 2(3); not yet in force otherwise).

24  Rules as to interests and duties of partners subject to special agreement The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement express or implied between the partners, by the following rules:– (1) All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses whether of capital or otherwise sustained by the firm. (2) The firm must indemnify every partner in respect of payments made and personal liabilities incurred by him– (a) In the ordinary and proper conduct of the business of the firm; or, (b) In or about anything necessarily done for the preservation of the business or property of the firm. (3) A partner making, for the purpose of the partnership, any actual payment or advance beyond the amount of capital which he has agreed to subscribe, is entitled to interest at the rate of five per cent. per annum from the date of the payment or advance. (4) A partner is not entitled, before the ascertainment of profits, to interest on the capital subscribed by him. (5) Every partner may take part in the management of the partnership business. (6) No partner shall be entitled to remuneration for acting in the partnership business. (7) No person may be introduced as a partner without the consent of all existing partners.

766

Partnership Act 1890 c. 39 Appendix A (8) Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners, but no change may be made in the nature of the partnership business without the consent of all existing partners. (9) The partnership books are to be kept at the place of business of the partnership (or the principal place, if there is more than one), and every partner may, when he thinks fit, have access to and inspect and copy any of them. 25  Expulsion of partner No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners. 26  Retirement from partnership at will (1) Where no fixed term has been agreed upon for the duration of the partnership, any partner may determine the partnership at any time on giving notice of his intention so to do to all the other partners. (2) Where the partnership has originally been constituted by deed, a notice in writing, signed by the partner giving it, shall be sufficient for this purpose. 27 Where partnership for term is continued over, continuance on old terms presumed (1) Where a partnership entered into for a fixed term is continued after the term has expired, and without any express new agreement, the rights and duties of the partners remain the same as they were at the expiration of the term, so far as is consistent with the incidents of a partnership at will. (2) A continuance of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is presumed to be a continuance of the partnership. 28  Duty of partners to render accounts, &c Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives. 29  Accountability of partners for private profits (1) Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership, or from any use by him of the partnership property name or business connexion. (2) This section applies also to transactions undertaken after a partnership has been dissolved by the death of a partner, and before the affairs thereof have been completely wound up, either by any surviving partner or by the representatives of the deceased partner. 30  Duty of partner not to compete with firm If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business.

767

Appendix A  Partnership Act 1890 c. 39 31  Rights of assignee of share in partnership (1) An assignment by any partner of his share in the partnership, either absolute or by way of mortgage or redeemable charge, does not, as against the other partners, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any accounts of the partnership transactions, or to inspect the partnership books, but entitles the assignee only to receive the share of profits to which the assigning partner would otherwise be entitled, and the assignee must accept the account of profits agreed to by the partners. (2) In case of a dissolution of the partnership, whether as respects all the partners or as respects the assigning partner, the assignee is entitled to receive the share of the partnership assets to which the assigning partner is entitled as between himself and the other partners, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution.

DISSOLUTION OF PARTNERSHIP, AND ITS CONSEQUENCES 32  Dissolution by expiration or notice Subject to any agreement between the partners, a partnership is dissolved– (a) If entered into for a fixed term, by the expiration of that term: (b) If entered into for a single adventure or undertaking, by the termination of that adventure or undertaking: (c) If entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership. In the last-mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is so mentioned, as from the date of the communication of the notice. 33  Dissolution by bankruptcy, death, or charge (1) Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner. (2) A partnership may, at the option of the other partners, be dissolved if any partner suffers his share of the partnership property to be charged under this Act for his separate debt. 34  Dissolution by illegality of partnership A partnership is in every case dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it on in partnership. 35  Dissolution by the Court On application by a partner the Court may decree a dissolution of the partnership in any of the following cases: (a) […]1

768

Partnership Act 1890 c. 39 Appendix A (b) When a partner, other than the partner suing, becomes in any other way permanently incapable of performing his part of the partnership contract: (c) When a partner, other than the partner suing, has been guilty of such conduct as, in the opinion of the Court, regard being had to the nature of the business, is calculated to prejudicially affect the carrying on of the business: (d) When a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him: (e) When the business of the partnership can only be carried on at a loss: (f) Whenever in any case circumstances have arisen which, in the opinion of the Court, render it just and equitable that the partnership be dissolved. 1 Repealed by the Mental Health Act 1959, s 149(2), Sch 8, Pt I (1 November 1960).

36  Rights of persons dealing with firm against apparent members of firm (1) Where a person deals with a firm after a change in its constitution he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change. (2) An advertisement in the London Gazette as to a firm whose principal place of business is in England or Wales, in the Edinburgh Gazette as to a firm whose principal place of business is in Scotland, and in the [Belfast Gazette]1 as to a firm whose principal place of business is in Ireland, shall be notice as to persons who had not dealings with the firm before the date of the dissolution or change so advertised. (3) The estate of a partner who dies, or who becomes bankrupt, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable for partnership debts contracted after the date of the death, bankruptcy, or retirement respectively. 1 Substituted by SR & O 1921/1804 (Rev. XVI, p. 967; 1921, p. 422) art 7(a).

37  Right of partners to notify dissolution On the dissolution of a partnership or retirement of a partner any partner may publicly notify the same, and may require the other partner or partners to concur for that purpose in all necessary or proper acts, if any, which cannot be done without his or their concurrence. 38  Continuing authority of partners for purposes of winding up After the dissolution of a partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue notwithstanding the dissolution so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution[, and in relation to any prosecution of the partnership by virtue of section 1 of the Partnerships (Prosecution) (Scotland) Act 2013]1, but not otherwise.

769

Appendix A  Partnership Act 1890 c. 39 Provided that the firm is in no case bound by the acts of a partner who has become bankrupt; but this proviso does not affect the liability of any person who has after the bankruptcy represented himself or knowingly suffered himself to be represented as a partner of the bankrupt. 1 Inserted by the Partnerships (Prosecution) (Scotland) Act 2013, s 6(1), (2) (26 April 2013).

39  Rights of partners as to application of partnership property On the dissolution of a partnership every partner is entitled, as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm; and for that purpose any partner or his representatives may on the termination of the partnership apply to the Court to wind up the business and affairs of the firm. 40  Apportionment of premium where partnership prematurely dissolved Where one partner has paid a premium to another on entering into a partnership for a fixed term, and the partnership is dissolved before the expiration of that term otherwise than by the death of a partner, the Court may order the repayment of the premium, or of such part thereof as it thinks just, having regard to the terms of the partnership contract and to the length of time during which the partnership has continued; unless (a) the dissolution is, in the judgment of the Court, wholly or chiefly due to the misconduct of the partner who paid the premium, or (b) the partnership has been dissolved by an agreement containing no provision for a return of any part of the premium. 41  Rights where partnership dissolved for fraud or misrepresentation Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled– (a) to a lien on, or right of retention of, the surplus of the partnership assets, after satisfying the partnership liabilities, for any sum of money paid by him for the purchase of a share in the partnership and for any capital contributed by him, and is (b) to stand in the place of the creditors of the firm for any payments made by him in respect of the partnership liabilities, and (c) to be indemnified by the person guilty of the fraud or making the representation against all the debts and liabilities of the firm. 42  Right of outgoing partner in certain cases to share profits made after dissolution (1) Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or his estate, then, in the absence of any agreement to the contrary, the outgoing partner or his estate is entitled at the option of himself or

770

Partnership Act 1890 c. 39 Appendix A his representatives to such share of the profits made since the dissolution as the Court may find to be attributable to the use of his share of the partnership assets, or to interest at the rate of five per cent. per annum on the amount of his share of the partnership assets. (2) Provided that where by the partnership contract an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or other share of profits; but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section. 43  Retiring or deceased partner’s share to be a debt Subject to any agreement between the partners, the amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased partner in respect of the outgoing or deceased partner’s share is a debt accruing at the date of the dissolution or death. 44  Rule for distribution of assets on final settlement of accounts In settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed: (a) Losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits: (b) The assets of the firm including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order: 1. In paying the debts and liabilities of the firm to persons who are not partners therein: 2. In paying to each partner rateably what is due from the firm to him for advances as distinguished from capital: 3. In paying to each partner rateably what is due from the firm to him in respect of capital: 4. The ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible. SUPPLEMENTAL 45  Definitions of ‘court’ and ‘business’ In this Act, unless the contrary intention appears,– The expression ‘court’ includes every court and judge having jurisdiction in the case: The expression ‘business’ includes every trade, occupation, or profession. 46  Saving for rules of equity and common law The rules of equity and of common law applicable to partnership shall continue in force except so far as they are inconsistent with the express provisions of this Act.

771

Appendix A  Partnership Act 1890 c. 39 47  Provision as to bankruptcy in Scotland (1) In the application of this Act to Scotland the bankruptcy of a firm or of an individual shall mean sequestration under the Bankruptcy (Scotland) Acts, and also in the case of an individual the issue against him of a decree of cessio bonorum. (2) Nothing in this Act shall alter the rules of the law of Scotland relating to the bankruptcy of a firm or of the individual partners thereof. 48 […]1 […]1 1 Repealed by the Statute Law Revision Act 1908, s 1, Schedule.

49 […]1 […]1 1 Repealed by the Statute Law Revision Act 1908, s 1, Schedule.

50  Short title This Act may be cited as the Partnership Act 1890.

[…]1

SCHEDULE ARRANGEMENT OF PROVISIONS

1 Repealed by the Statute Law Revision Act 1908, s 1, Schedule.

772

Appendix B Limited Partnerships Act 1907 [28th August 1907] An Act to establish Limited Partnerships. 1 Short title This Act may be cited for all purposes as the Limited Partnerships Act 1907. 2 […]1 […]1 1 Repealed by the Statute Law Revision Act 1927.

3  Interpretation of terms In the construction of this Act the following words and expressions shall have the meanings respectively assigned to them in this section, unless there be something in the subject or context repugnant to such construction:– ‘Firm’, ‘firm name’, and ‘business’ have the same meanings as in the Partnership Act 1890: ‘General partner’ shall mean any partner who is not a limited partner as defined by this Act; [‘Private fund limited partnership’ means a limited partnership that is designated under section 8(2) as a private fund limited partnership.]1 1 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (2) (6 April 2017).

4  Definition and constitution of limited partnership (1) […]1 limited partnerships may be formed in the manner and subject to the conditions by this Act provided. (2)

A limited partnership […]2, 3 must consist of one or more persons called general partners, who shall be liable for all debts and obligations of the firm, and one or more persons to be called limited partners […]4.

773

Appendix B  Limited Partnerships Act 1907 [(2A) Each limited partner in a limited partnership that is not a private fund limited partnership shall, at the time of entering into the partnership, contribute to the partnership a sum or sums as capital or property valued at a stated amount, and shall not be liable for the debts or obligations of the firm beyond the amount so contributed. (2B) A limited partner in a private fund limited partnership– (a) is under no obligation to contribute any capital or property to the partnership unless otherwise agreed between the partners, and (b) is not liable for the debts or obligations of the firm beyond the amount of the partnership property which is available to the general partners to meet such debts or obligations.]5 (3)

[Subject to subsection (3A), a limited partner]6 shall not during the continuance of the partnership, either directly or indirectly, draw out or receive back any part of his contribution, and if he does so draw out or receive back any such part shall be liable for the debts and obligations of the firm up to the amount so drawn out or received back.

[(3A) In the case of a limited partner in a private fund limited partnership– (a)

where the limited partnership was registered on or after 6th April 2017, subsection (3) does not apply; (b) where the limited partnership was registered before 6th April 2017, subsection (3) applies only in relation to the amount of any contribution made by the limited partner when the limited partnership was not a private fund limited partnership.]5 (4)

A body corporate may be a limited partner.

1 Repealed by the Statute Law Revision Act 1927. 2 Repealed by the Regulatory Reform (Removal of 20 Member Limit in Partnerships etc.) Order 2002, SI 2002/3203, art 3 (21 December 2002). 3 Repealed by the Banking Act 1979, s 51(2), Sch 7 (19 February 1982). 4 Repealed by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (3)(a) (6 April 2017). 5 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (3)(b), (d) (6 April 2017). 6 Substituted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (3)(c) (6 April 2017).

5  Registration of limited partnership required Every limited partnership must be registered as such in accordance with the provisions of this Act […]1. 1 Repealed by the Legislative Reform (Limited Partnerships) Order 2009, SI 2009/1940, art 8 (1 October 2009).

6  Modifications of general law in case of limited partnerships (1) A limited partner shall not take part in the management of the partnership business, and shall not have power to bind the firm: Provided that a limited partner may by himself or his agent at any time inspect the books of the firm and examine into the state and prospects of the partnership business, and may advise with the partners thereon.

774

Limited Partnerships Act 1907 Appendix B If a limited partner takes part in the management of the partnership business he shall be liable for all debts and obligations of the firm incurred while he so takes part in the management as though he were a general partner. [(1A) Section 6A (private fund limited partnerships: actions by limited partners) makes provision, in respect of limited partners in private fund limited partnerships, supplementing subsection (1).]1 (2) A limited partnership shall not be dissolved by the death or bankruptcy of a limited partner, and the lunacy of a limited partner shall not be a ground for dissolution of the partnership by the court unless the lunatic’s share cannot be otherwise ascertained and realised. (3)

In the event of the dissolution of a limited partnership[, other than a private fund limited partnership,]1 its affairs shall be wound up by the general partners unless the court otherwise orders.

[(3A) If a private fund limited partnership is dissolved at a time when the partnership has at least one general partner, the affairs of the partnership must be wound up by those who are general partners at that time, subject to any express or implied agreement between the partners as to the winding up of the affairs of the partnership. (3B) If a private fund limited partnership is dissolved at a time when the partnership does not have a general partner, the affairs of the partnership must be wound up by a person who is not a limited partner, appointed by those who are limited partners at that time, subject to any express or implied agreement between them as to the winding up of the affairs of the limited partnership. (3C) Except in the phrase ‘a person who is not a limited partner’ in subsection (3B), references in subsections (3A) and (3B) to partners do not include a partner who is insolvent. (3D) Subsections (3A) and (3B) have effect subject to any order of the court as to the winding up of the affairs of the partnership.]1 (4) […]2 (5)

Subject to any agreement expressed or implied between the partners– (a)

Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the general partners; (b) A limited partner may, with the consent of the general partners, assign his share in the partnership, and upon such an assignment the assignee shall become a limited partner with all the rights of the assignor; (c) The other partners shall not be entitled to dissolve the partnership by reason of any limited partner suffering his share to be charged for his separate debt; (d) A person may be introduced as a partner without the consent of the existing limited partners; (e) A limited partner shall not be entitled to dissolve the partnership by notice; [(f) A limited partner in a private fund limited partnership is not subject to the duties in– (i) section 28 of the Partnership Act 1890 (duty of partners to render accounts, etc), or (ii) section 30 of that Act (duty of partner not to compete with firm).]1 [(6) Section 36(1) of the Partnership Act 1890 (rights of persons dealing with firm against apparent members of firm) does not apply where a partner in a private fund limited partnership ceases to be a member of the firm.]1

775

Appendix B  Limited Partnerships Act 1907 1 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (4) (6 April 2017). 2 Repealed by the Companies (Consolidation) Act 1908, s 286, Sch 6, Pt I (1 April 1909).

[6A  Private fund limited partnerships: actions by limited partners (1) A limited partner in a private fund limited partnership is not to be regarded as taking part in the management of the partnership business for the purposes of section  6(1) merely because the limited partner takes any action listed in subsection (2). (2)

The actions are– (a)

(b) (c) (d)

(e) (f) (g) (h) (i) (j) (k)

(l)

(m)

taking part in a decision about– (i) the variation of, or waiver of a term of, the partnership agreement or associated documents; (ii) whether the general nature of the partnership business should change; (iii) whether a person should become or cease to be a partner; (iv) whether the partnership should end or the term of the partnership should be extended; appointing a person to wind up the partnership pursuant to section 6(3B); enforcing an entitlement under the partnership agreement, provided that the entitlement does not involve a limited partner taking part in the management of the partnership business; entering into, or acting under, a contract with the other partners in the partnership, provided that the contract does not require, or the action under the contract does not involve, a limited partner taking part in the management of the partnership business; providing surety or acting as guarantor for the partnership; approving the accounts of the partnership; reviewing or approving a valuation of the partnership’s assets; discussing the prospects of the partnership business; consulting or advising with a general partner or any person appointed to manage or advise the partnership about the affairs of the partnership or about its accounts; taking part in a decision regarding changes in the persons responsible for the day-to-day management of the partnership; acting, or authorising a representative to act, as a director, member, employee, officer or agent of, or a shareholder or partner in– (i) a general partner in the partnership; or (ii) another person appointed to manage or advise the partnership in relation to the affairs of the partnership, provided that this does not involve a limited partner taking part in the management of the partnership business or authorising a representative to take any action that would involve taking part in the management of the partnership business if taken by a limited partner; appointing or nominating a person to represent the limited partner on a committee, authorising such a person to take any action in that capacity that would not involve taking part in the management of the partnership business if taken by the limited partner, or revoking such an appointment or nomination; taking part in a decision about how the partnership should exercise any right as an investor in another collective investment scheme as defined in section 8D(4) (‘master fund’), provided that the partnership’s exercise of the right would not cause the partnership to be liable for the debts or

776

Limited Partnerships Act 1907 Appendix B obligations of the master fund beyond the amount contributed, or agreed to be contributed, by the partnership to the master fund; (n) taking part in a decision approving or authorising an action proposed to be taken by a general partner or another person appointed to manage the partnership, including in particular a proposal in relation to– (i) the disposal of all or part of the partnership business or the acquisition of another business by the partnership; (ii) the acquisition or disposal of a type of investment or a particular investment by the partnership; (iii) the exercise of the partnership’s rights in respect of an investment; (iv) the participation by a limited partner in a particular investment by the partnership; (v) the incurring, extension, variation or discharge of debt by the partnership; (vi) the creation, extension, variation or discharge of any other obligation owed by the partnership. (3)

The fact that a decision that affects or relates to a private fund limited partnership involves an actual or potential conflict of interest is not of itself a reason to regard a limited partner in the partnership who takes part in the decision as taking part in the management of the partnership business for the purposes of section 6(1).

(4)

Nothing in this section– (a) (b)

limits the circumstances in which a limited partner in a private fund limited partnership is not to be regarded as taking part in the management of the partnership business; or affects the circumstances in which a limited partner in a limited partnership that is not a private fund limited partnership may, or may not, be regarded as taking part in the management of the partnership business.]1

1 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (5) (6 April 2017).

7  Law as to private partnerships to apply where not excluded by this Act Subject to the provisions of this Act, the Partnership Act 1890, and the rules of equity and of common law applicable to partnerships, except so far as they are inconsistent with the express provisions of the last-mentioned Act, shall apply to limited partnerships. [8  Duty to register [and designate]1 [(1)]1 The registrar shall register a limited partnership if an application is made to the registrar in accordance with section 8A. [(2) The registrar must designate a limited partnership on the register as a private fund limited partnership if an application for such designation is made to the registrar in accordance with section 8D.]1]2 1 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (6) (6 April 2017). 2 Substituted by the Legislative Reform (Limited Partnerships) Order 2009, SI 2009/1940, art 4 (1 October 2009).

777

Appendix B  Limited Partnerships Act 1907 [8A  Application for registration (1)

An application for registration must– (a)

specify the firm name, complying with section 8B, under which the limited partnership is to be registered, (b) contain the details listed in subsection (2) [or (3)]1, (c) be signed or otherwise authenticated by or on behalf of each partner, and (d) be made to the registrar for the part of the United Kingdom in which the principal place of business of the limited partnership is to be situated. (2) [Except in the case of an application that is accompanied by an application for designation as a private fund limited partnership, the required]2 details are– (a) (b) (c) (d)

the general nature of the partnership business, the name of each general partner, the name of each limited partner, the amount of the capital contribution of each limited partner (and whether the contribution is paid in cash or in another specified form), (e) the address of the proposed principal place of business of the limited partnership, and (f) the term (if any) for which the limited partnership is to be entered into (beginning with the date of registration). [(3) In the case of an application that is accompanied by an application for designation as a private fund limited partnership, the required details are– (a) the name of each general partner, (b) the name of each limited partner, and (c) the address of the proposed principal place of business of the limited partnership.]1 [(4) An application for registration of a limited partnership whose principal place of business is to be situated in Scotland must contain a statement of initial significant control. (5)

The statement of initial significant control must– (a)

state whether, on registration, there will be any person who will count as either a registrable person or a registrable relevant legal entity in relation to the limited partnership for the purposes of regulation 10 of the Scottish Partnerships PSC Regulations (duty to investigate and obtain information), (b) include the required particulars of any person identified under paragraph (a), and (c) if there is no person identified under paragraph (a), state that fact. (6)

It is not necessary to include under subsection (5)(b) the date on which a person becomes a registrable person or a registrable relevant legal entity in relation to the limited partnership.

(7) If the statement of initial significant control includes required particulars of a registrable person, it must also contain a statement that those particulars are included with the knowledge of that individual. (8)

In this section– ‘the Scottish Partnerships PSC  Regulations’ means the Scottish Partnerships (Register of People with Significant Control) Regulations 2017; ‘registrable person’, ‘registrable relevant legal entity’ and ‘required particulars’ have the same meaning as in the Scottish Partnerships PSC Regulations.]3]4

778

Limited Partnerships Act 1907 Appendix B 1 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (7)(a), (c) (6 April 2017). 2 Substituted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (7)(b) (6 April 2017). 3 Inserted by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017, SI 2017/694, reg 4 (24 July 2017). 4 Inserted by the Legislative Reform (Limited Partnerships) Order 2009, SI 2009/1940, art 5 (1 October 2009).

[8B  Name of limited partnership (1) This section sets out conditions which must be satisfied by the firm name of a limited partnership as specified in the application for registration. (2)

The name must end with– (a) the words ‘limited partnership’ (upper or lower case, or any combination), or (b) the abbreviation ‘LP’ (upper or lower case, or any combination, with or without punctuation).

(3)

But if the principal place of business of a limited partnership is to be in Wales, its firm name may end with– (a) the words ‘partneriaeth cyfyngedig’ (upper or lower case, or any combination), or (b) the abbreviation ‘PC’ (upper or lower case, or any combination, with or without punctuation).]1

1 Inserted by the Legislative Reform (Limited Partnerships) Order 2009, SI 2009/1940, art 6 (1 October 2009).

[8C  Certificate of registration [and certificate of designation as a private fund limited partnership]1 (1) On registering a limited partnership the registrar shall issue a certificate of registration. (2)

The certificate must be– (a) (b)

(3)

signed by the registrar, or authenticated with the registrar’s seal.

The certificate must state– (a) the firm name of the limited partnership given in the application for registration, (b) the limited partnership’s registration number, (c) the date of registration, and (d) that the limited partnership is registered as a limited partnership under this Act.

(4) The certificate is conclusive evidence that a limited partnership came into existence on the date of registration. [(5) If a limited partnership is designated on the register as a private fund limited partnership, the registrar must issue a certificate of designation as a private fund limited partnership.

779

Appendix B  Limited Partnerships Act 1907 (6) The certificate must be signed by the registrar or authenticated with the registrar’s seal. (7)

The certificate must state– (a) the firm name and registration number of the limited partnership, (b) the date of designation as a private fund limited partnership, and (c) that the limited partnership is designated as a private fund limited partnership under this Act.

(8) A certificate of designation as a private fund limited partnership is conclusive evidence that the limited partnership was designated as a private fund limited partnership on the date of designation. (9) If a limited partnership is designated as a private fund limited partnership at the same time as it is registered, the registrar may issue a combined certificate instead of issuing separate certificates under subsections (1) and (5), and that combined certificate– (a) (b) (c)

must be signed by the registrar or authenticated with the registrar’s seal, must state the particulars mentioned in subsections (3) and (7), and is conclusive evidence that– (i) a limited partnership came into existence on the date of registration, and (ii) the limited partnership was designated as a private fund limited partnership on the date of registration.]1]2

1 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (8) (6 April 2017). 2 Inserted by the Legislative Reform (Limited Partnerships) Order 2009, SI 2009/1940, art 7 (1 October 2009).

[8D  Application for designation as a private fund limited partnership (1) An application for designation as a private fund limited partnership may be made with an application for registration under section 8A or at any time after a limited partnership has been registered. (2)

An application for designation as a private fund limited partnership must– (a) specify the firm name of the partnership; (b) specify the address of the partnership’s principal place of business or proposed principal place of business; (c) in the case of an application made after the firm is registered as a limited partnership, specify the limited partnership’s registration number and the date of registration; (d) include confirmation by a general partner that the partnership meets the private fund conditions; (e) be signed or otherwise authenticated by or on behalf of each general partner; and (f) be made to the registrar.

(3)

The private fund conditions are that the partnership– (a) (b)

is constituted by an agreement in writing, and is a collective investment scheme.

780

Limited Partnerships Act 1907 Appendix B (4)

In subsection (3) ‘collective investment scheme’ has the same meaning as in Part 17 of the Financial Services and Markets Act 2000 (see section 235 of that Act), ignoring any order made under section 235(5) of that Act.]1

1 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (9) (6 April 2017).

9  Registration of changes in partnerships [(1) If during the continuance of a limited partnership any change is made or occurs as mentioned in subsection (1A), a statement, signed by the firm, specifying the nature of the change must within seven days be sent by post or delivered to the registrar. (1A) The changes are– (a)

in the case of any limited partnership, changes to– (i) the firm name, (ii) the principal place of business, (iii) the partners or the name of any partner, (iv) the liability of any partner by reason of the partner becoming a limited instead of a general partner or a general instead of a limited partner; (b) in the case of a limited partnership that is not a private fund limited partnership, changes to– (i) the general nature of the business, (ii) the term or character of the partnership, (iii) the sum contributed by any limited partner; (c) in the case of a private fund limited partnership that was registered as a limited partnership before 6th April 2017, any withdrawal by a limited partner of the partner’s contribution which has the effect that the amount of the partner’s contribution is less than it was on the date on which the limited partnership was designated as a private fund limited partnership.]1

(2) If default is made in compliance with the requirements of this section each of the general partners shall, on conviction under [the Magistrates’ Courts Act 1952]2, be liable to a fine not exceeding one pound for each day during which the default continues. 1 Substituted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (10) (6 April 2017). 2 Substituted by virtue of the Magistrates’ Courts Act 1952, s 132(1), Sch 6 and the Interpretation Act 1978, s 17(2)(a) (1 June 1953).

10  Advertisement in Gazette of statement of general partner becoming a limited partner and of assignment of share of limited partner (1)

Notice of any arrangement or transaction under which any person will cease to be a general partner in any firm [that is not a private fund limited partnership]1, and will become a limited partner in that firm, or under which the share of a limited partner in a firm [that is not a private fund limited partnership]1 will be assigned to any person, shall be forthwith advertised in the Gazette, and until notice of the arrangement or transaction is so advertised the arrangement or transaction shall, for the purposes of this Act, be deemed to be of no effect.

781

Appendix B  Limited Partnerships Act 1907 [(1A) Notice of any arrangement or transaction under which any person will cease to be a general partner in a private fund limited partnership shall be forthwith advertised in the Gazette. (1B) Where a person deals with a private fund limited partnership after an arrangement or transaction of the type referred to in subsection (1A), that person is entitled to treat the person who is ceasing to be a general partner as still being a general partner of the firm until the person has notice of the arrangement or transaction. (1C) Advertisement of a notice in accordance with subsection (1A) is notice to a person dealing with the firm for the purpose of subsection (1B).]1 (2)

For the purposes of this section, the expression ‘the Gazette’ means– In the case of a limited partnership registered in England, the London Gazette; In the case of a limited partnership registered in Scotland, the Edinburgh Gazette; In the case of a limited partnership registered in [Northern Ireland]2, [the Belfast Gazette]3.

1 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (11) (6 April 2017). 2 Substituted by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI 2009/1941, art 2(1), Sch 1, para 3(1), (3)(a) (1 October 2009). 3 Substituted by virtue of SR & O 1921/1804 (Rev XVI, p 967; 1921, p 422), art 7(a).

11 […]1 […]1 1 Repealed by the Finance Act 1973, s 59(7), Sch 22, Pt V (25 March 1973).

12 […]1 […]1 1 Repealed by the Perjury Act 1911, s 17, Schedule (1 January 1912) and by the False Oaths (Scotland) Act 1933, s 8, Schedule (28 June 1933).

13  Registrar to file statement and issue certificate of registration On receiving any statement made in pursuance of this Act the registrar shall cause the same to be filed, and he shall send by post to the firm from whom such statement shall have been received a certificate of the registration thereof. 14  Register and index to be kept [The]1 registrar shall keep, in proper books to be provided for the purpose, a register and an index of all the limited partnerships registered as aforesaid, and of all the statements registered in relation to such partnerships. 1 Repealed by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI 2009/1941, art 2(1), Sch 1, para 3(1), (4) (1 October 2009).

[15 The registrar (1)

The registrar of companies is the registrar of limited partnerships.

(2)

In this Act–

782

Limited Partnerships Act 1907 Appendix B (a) references to the registrar in relation to the registration of a limited partnership are to the registrar to whom the application for registration is to be made (see section 8A(1)(d)); (b) references to registration in a particular part of the United Kingdom are to registration by the registrar for that part of the United Kingdom; [(ba) references to the registrar in relation to an application for designation of a limited partnership as a private fund limited partnership made with an application for registration are to the registrar to whom the application for registration is to be made (see section 8A(1)(d));]1 (c) references to the registrar in relation to any other matter relating to a limited partnership are to the registrar for the part of the United Kingdom in which the partnership is registered.]2 1 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (12) (6 April 2017). 2 Substituted by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI 2009/1941, art 2(1), Sch 1, para 3(1), (5) (1 October 2009).

16  Inspection of statements registered (1) Any person may inspect the statements filed by the registrar […]1 […]2; and any person may require a certificate [mentioned in section 8C]3, or a copy of or extract from any registered statement, to be certified by the registrar, and there shall be paid for such certificate of registration, certified copy, or extract such fees as the Board of Trade may appoint, not exceeding [10p]4 for the certificate of registration, and not exceeding [2½p]4 for each folio of seventy-two words, or in Scotland for each sheet of two hundred words. (2) A certificate [mentioned in section 8C]3, or a copy of or extract from any statement registered under this Act, if duly certified to be a true copy under the hand of the registrar […]5 (whom it shall not be necessary to prove to be the registrar […]5) shall, in all legal proceedings, civil or criminal, and in all cases whatsoever be received in evidence. 1 Repealed by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI 2009/1941, art 2(1), Sch 1, para 3(1), (6)(a) (1 October 2009). 2 Repealed by the Companies Act 2006, s 1295, Sch 16 (6 April 2007: repeal has effect subject to savings specified in the Companies Act 2006 (Commencement No. 1, Transitional Provisions and Savings) Order 2006, SI 2006/3428, Sch 5, para 6(2)). 3 Substituted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 2(1), (13) (6 April 2017). 4 Substituted by the Decimal Currency Act 1969, s 10(1) (16 May 1969). 5 Repealed by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI 2009/1941, art 2(1), Sch 1, para 3(1), (6)(b) (1 October 2009).

17  Power to Board of Trade to make rules The Board of Trade may make rules […]1 concerning any of the following matters:– (a) […]2 (b) The duties or additional duties to be performed by the registrar for the purposes of this Act; (c)

The performance by assistant registrars and other officers of acts by this Act required to be done by the registrar;

783

Appendix B  Limited Partnerships Act 1907 (d)

The forms to be used for the purposes of this Act;

(e)

Generally the conduct and regulation of registration under this Act and any matters incidental thereto.

1 Repealed by the Companies Act 2006, s 1295, Sch 16 (6 April 2007: repeal has effect subject to savings specified in the Companies Act 2006 (Commencement No. 1, Transitional Provisions and Savings) Order 2006, SI 2006/3428, Sch 5, para 6(2)). 2 Repealed by the Companies Act 2006, s 1295, Sch 16 (6 April 2007: repeal has effect subject to savings specified in the Companies Act 2006 (Commencement No. 1, Transitional Provisions and Savings) Order 2006, SI 2006/3428, Sch 5, para 6(2)).

784

Appendix C Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) [31st July 2009] The Secretary of State makes the following Rules in exercise of the powers conferred by section 17 of the Limited Partnerships Act 1907 and now vested in the Secretary of State. 1  Citation, commencement and interpretation (1) These Rules may be cited as the Limited Partnerships (Forms) Rules 2009 and come into force on 1st October 2009. (2)

In these Rules– (a) (b)

‘the 1907 Act’ means the Limited Partnerships Act 1907; and ‘the 1907 Rules’ means the Limited Partnerships Rules 1907.

2  Revocation of the Limited Partnerships Rules 1907 The 1907 Rules (except for rule 3) are revoked. 3  Forms to be used for the purpose of the Limited Partnerships Act 1907 (1) The form in Part 1 of the Schedule must be used for any application for the registration of a limited partnership under the 1907 Act [in England and Wales or Northern Ireland]1 [which is not accompanied by an application for designation as a private fund limited partnership under that Act]2. [(1A) Subject to paragraph (1B), the form in Part 2 of the Schedule must be used for an application for the registration of a limited partnership under the 1907 Act in Scotland which is not accompanied by an application for designation as a private fund limited partnership under that Act. (1B) Where an application under Part 8 of the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 is being made to omit disclosure of secured information about an individual who will count as a registrable person from the register, the prospective limited partnership must obtain from the registrar and use an alternative version of the form in Part 2 of the Schedule enabled with security features to apply for registration of the limited partnership under the 1907 Act in Scotland.]1

785

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) (2) The form in Part 2 of the Schedule must be used for any statement sent or delivered to the registrar under section 9 of the 1907 Act. [(3) The form in Part 3 of the Schedule must be used for any application for the registration of a limited partnership under the 1907 Act [in England and Wales or Northern Ireland]1 which is accompanied by an application for designation as a private fund limited partnership under that Act. [(3A) Subject to paragraph (3B), the form in Part 5 of the Schedule must be used for any application for the registration of a limited partnership under the 1907 Act in Scotland which is accompanied by an application for designation as a private fund limited partnership under that Act. (3B) Where an application under Part 8 of the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 is being made to omit disclosure of secured information about an individual who will count as a registrable person from the register, the prospective private fund limited partnership must obtain from the registrar and use an alternative version of the form in Part 5 of the Schedule enabled with security features to apply for registration of the limited partnership under the 1907 Act in Scotland.]1 (4) The form in Part 4 of the Schedule must be used for any application for designation as a private fund limited partnership under the 1907 Act which does not accompany an application for registration of a limited partnership under that Act.]2 [(5) In this regulation ‘secured information’ means the required particulars of a registrable person other than the information in regulation 17(1)(i) of the Scottish Partnerships (Register of People with Significant Control) Regulations 2017.]1 1 Inserted by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017, SI 2017/694, reg 81(1), (2) (24 July 2017). 2 Inserted by the Legislative Reform (Private Fund Limited Partnerships) Order 2017, SI 2017/514, art 4(1), (2) (6 April 2017).

[4  Reproduction of Forms (1) A person reproducing the form in Part 2 or 5 of the Schedule for delivery to the registrar must obtain an image of the barcode set out on that form from the registrar. (2) The barcode must be included in the form in Part 2 or 5 of the Schedule in the format supplied by the registrar, in black ink, 13.5 mm high and 70.5 mm wide. (3)

The barcode must be located on the form as shown in Part 2 or 5 of the Schedule as follows– (a) (b) (c) (d)

41mm from the left edge of the A4 page, 47.5mm from the top edge of the A4 page, 236mm from the bottom of the A4 page; and 98.55mm from the right edge of the A4 page.]1

1 Inserted by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017, SI 2017/694, reg 81(1), (3) (24 July 2017).

786

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C [SCHEDULE FORMS TO BE USED FOR THE PURPOSES OF THE LIMITED PARTNERSHIPS ACT 1907 Part 1 Form for registration of limited partnerships in England, Wales and Northern Ireland

787

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

788

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

]1 1 Substituted by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017, SI 2017/694, reg 81(1), (4), Sch 6 (24 July 2017).

789

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) [Part 2 Form for registration of limited partnerships in Scotland

790

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

791

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

792

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

793

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

794

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

795

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

796

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

797

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

798

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

799

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

800

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

801

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

802

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

]1 1 Substituted by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017, SI 2017/694, reg 81(1), (4), Sch 6 (24 July 2017).

803

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) [Part 3 Form for registering changes to limited partnerships

804

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

805

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

]1 1 Substituted by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017, SI 2017/694, reg 81(1), (4), Sch 6 (24 July 2017).

806

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C [Part 4 Form for registration of limited partnerships to be designated as private fund limited partnerships in England, Wales and Northern Ireland

807

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

]1 1 Substituted by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017, SI 2017/694, reg 81(1), (4), Sch 6 (24 July 2017).

808

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C [Part 5 Form for registration of limited partnerships to be designated as private fund limited partnerships in Scotland

809

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

810

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

811

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

812

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

813

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

814

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

815

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

816

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

817

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

818

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

819

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

820

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C

821

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

]1 1 Substituted by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017, SI 2017/694, reg 81(1), (4), Sch 6 (24 July 2017).

822

Limited Partnerships (Forms) Rules 2009 (SI 2009/2160) Appendix C [Part 6 Form for designation of existing limited partnerships as private fund limited partnerships

823

Appendix C  Limited Partnerships (Forms) Rules 2009 (SI 2009/2160)

]1 1 Substituted by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017, SI 2017/694, reg 81(1), (4), Sch 6 (24 July 2017).

824

Appendix D Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2014 (SI 2014/3140) [26th November 2014] The Secretary of State makes the following Regulations in exercise of the powers conferred by sections  55(1), 56(1)(b), 1194(1), 1195(1)(b) and 1292(1) of the Companies Act 2006 and sections 55(1), 56(1)(b) and 1292(1) of the Companies Act 2006 as applied to limited liability partnerships by regulations 8 and 81 of the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009. 1  Citation and commencement These Regulations may be cited as the Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2014 and come into force on 31st January 2015. 2 Interpretation (1)

In these Regulations ‘the 2006 Act’ means the Companies Act 2006.

(2)

Any reference in these Regulations to section 55 or 88 of the 2006 Act includes a reference to that section as applied by regulation 8 or 17 of the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009.

3  Specified words and expressions to which sections 55 and 1194 of the 2006 Act apply The following words and expressions are specified for the purposes of sections 55(1) and 1194(1) of the 2006 Act– (a) the words and expressions set out in Part 1 of Schedule 1; (b) the plural and possessive forms of those words and expressions, and, where relevant, the feminine form; and (c) in the case of the words and expressions set out in Part 1 of Schedule 1 which are marked with an asterisk, the grammatically mutated forms of those words and expressions.

825

Appendix D  Company, LLP and Business Names (etc) Regulations 2014 4  Specified words and expressions to which section 55 of the 2006 Act applies The following words and expressions are specified for the purposes of section 55(1) of the 2006 Act– (a) the words and expressions set out in Part 2 of Schedule 1; (b) the plural and possessive forms of those words and expressions, and, where relevant, the feminine form; and (c) in the case of the words and expressions set out in Part 2 of Schedule 1 which are marked with an asterisk, the grammatically mutated forms of those words and expressions. 5  Applications where situation of registered office or principal place of business is irrelevant In connection with an application for the approval of the Secretary of State under section  55 or 1194 of the 2006 Act in relation to a name that includes a word or expression specified in column (1) of Part 1 of Schedule  2, the applicant must seek the view of the Government department or other body set out opposite that word or expression in column (2) of Part 1 of Schedule 2. 6  Applications where situation of registered office or principal place of business is relevant In connection with an application for the approval of the Secretary of State under section  55 or 1194 of the 2006 Act in relation to a name that includes a word or expression specified in column (1) of Part 2 of Schedule 2, the applicant must seek the view of a Government department or other body as follows– (a)

(b)

(c)

in the case of– (i) a company or limited liability partnership that has already been registered, whose registered office is situated in England and Wales; (ii) a proposed company or limited liability partnership that has not yet been registered under the 2006 Act, whose registered office is to be situated in England and Wales; (iii) a business, whose principal place of business is or is to be situated in England; and (iv) an overseas company (see section 1044 of the 2006 Act), the Government department or other body set out in column (2) of Part 2 of Schedule 2 opposite that word or expression; in the case of– (i) a company or limited liability partnership that has already been registered, that is a Welsh company or Welsh LLP (see section 88 of the 2006 Act); (ii) a proposed company or limited liability partnership that has not yet been registered, that is to be a Welsh company or Welsh LLP; and (iii) a business, whose principal place of business is or is to be situated in Wales, the Government department or other body set out in column (3) of Part 2 of Schedule 2 opposite that word or expression; in the case of– (i) a company or limited liability partnership that has already been registered, whose registered office is situated in Scotland; (ii) a proposed company or limited liability partnership that has not yet been registered, whose registered office is to be situated in Scotland; and

826

Company, LLP and Business Names (etc) Regulations 2014 Appendix D

(d)

(iii) a business, whose principal place of business is or is to be situated in Scotland, the Government department or other body set out in column (4) of Part 2 of Schedule 2 opposite that word or expression; and in the case of– (i) a company or limited liability partnership that has already been registered, whose registered office is situated in Northern Ireland; (ii) a proposed company or limited liability partnership that has not yet been registered, whose registered office is to be situated in Northern Ireland; and (iii) a business, whose principal place of business is or is to be situated in Northern Ireland, the Government department or other body set out in column (5) of Part 2 of Schedule 2 opposite that word or expression.

7 Revocation The Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2009 are revoked. SCHEDULE 1 SPECIFIED WORDS AND EXPRESSIONS Part 1 Words and expressions specified for the purposes of sections 55(1) and 1194(1) of the 2006 Act Child maintenance Child support *Coimisean *Comhairle *Comisiwn Commission Co-operative Council *Cyngor Dental Dentistry *Diùc *Dug Duke Ei Fawrhydi England English Federation Friendly Society Foundation Fund Government *Gwasanaeth iechyd Health centre Health service Health visitor

Accredit Accreditation Accredited Accrediting Adjudicator Association Assurance Assurer Audit office Auditor General *Banc Bank Banking Benevolent *Breatannach *Breatainn *Brenhinol *Brenin *Brenhiniaeth Britain British Chamber of commerce Charitable Charity Charter Chartered

827

Appendix D  Company, LLP and Business Names (etc) Regulations 2014 *Prydeinig Queen Reassurance Reassurer Registrar Regulator Reinsurance Reinsurer *Riaghaltas *Rìgh Rìoghachd Aonaichte Rìoghail Rìoghalachd Royal Royalty Scotland Scottish Senedd Sheffield Siambr fasnach Social service Society Special school Standards Stock exchange Swyddfa archwilio *Teyrnas Gyfunol *Teyrnas Unedig Trade union Tribunal Trust *Tywysog Underwrite Underwriting University Wales Welsh Windsor

His Majesty HPSS HSC Inspectorate Institute Institution Insurance Insurer Judicial appointment King Licensing *Llywodraeth Medical centre Midwife Midwifery *Mòrachd Mutual NHS Northern Ireland Northern Irish Nurse Nursing Oifis sgrùdaidh *Oilthigh Ombudsman *Ombwdsmon *Parlamaid Parliament Parliamentarian Parliamentary Patent Patentee Police Polytechnic Post office *Prifysgol Prince *Prionnsa *Prydain

Part 2 Words and expressions specified for the purposes of section 55(1) of the 2006 Act *Cymru *Cymraeg *Cymreig

Alba Albannach Na h-Alba

828

Company, LLP and Business Names (etc) Regulations 2014 Appendix D SCHEDULE 2 LIST OF GOVERNMENT DEPARTMENTS AND OTHER BODIES WHOSE VIEWS MUST BE SOUGHT Part 1 Applications where situation of registered office or principal place of business is irrelevant Column (1)

Column (2)

Word or expression specified under regulation 3

Specified Government department or other body whose view must be sought

Accredit

[Department for Business, Energy and Industrial Strategy]1

Accreditation

[Department for Business, Energy and Industrial Strategy]1

Accredited

[Department for Business, Energy and Industrial Strategy]1

Accrediting

[Department for Business, Energy and Industrial Strategy]1

Assurance

Financial Conduct Authority

Assurer

Financial Conduct Authority

Banc

Financial Conduct Authority

Bank

Financial Conduct Authority

Banking

Financial Conduct Authority

Brenhinol

The [Welsh Government]2

Brenin

The [Welsh Government]2

Brenhiniaeth

The [Welsh Government]2

Child maintenance

Department for Work and Pensions

Child support

Department for Work and Pensions

Dental

General Dental Council

Dentistry

General Dental Council

Diùc

The Scottish Government

Dug

The [Welsh Government]2

Ei Fawrhydi

The [Welsh Government]2

Friendly Society

Financial Conduct Authority

Fund

Financial Conduct Authority

Gwasanaeth iechyd

The [Welsh Government]2

Health visitor

Nursing & Midwifery Council

HPSS

Department of Health, Social Services and Public Safety

HSC

Department of Health, Social Services and Public Safety

Insurance

Financial Conduct Authority

Insurer

Financial Conduct Authority

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Appendix D  Company, LLP and Business Names (etc) Regulations 2014 Column (1)

Column (2)

Judicial appointment

Ministry of Justice

Llywodraeth

The [Welsh Government]2

Medical centre

Department of Health, Social Services and Public Safety

Midwife

Nursing & Midwifery Council

Midwifery

Nursing & Midwifery Council

Mòrachd

The Scottish Government

Mutual

Financial Conduct Authority

NHS

Department of Health [and Social Care]3

Nurse

Nursing & Midwifery Council

Nursing

Nursing & Midwifery Council

Oifis sgrùdaidh

Audit Scotland

Oilthigh

The Scottish Government

Parlamaid

The Scottish Parliamentary Corporate Body

Parliament

The Corporate Officer of the House of Lords and The Corporate Officer of the House of Commons

Parliamentarian

The Corporate Officer of the House of Lords and The Corporate Officer of the House of Commons

Parliamentary

The Corporate Officer of the House of Lords and The Corporate Officer of the House of Commons

Patent

The Patent Office

Patentee

The Patent Office

Polytechnic

[Department for Education]1

Prifysgol

The [Welsh Government]2

Prionnsa

The Scottish Government

Reassurance

Financial Conduct Authority

Reassurer

Financial Conduct Authority

Reinsurance

Financial Conduct Authority

Reinsurer

Financial Conduct Authority

Riaghaltas

The Scottish Government

Rìgh

The Scottish Government

Rìoghail

The Scottish Government

Rìoghalachd

The Scottish Government

Senedd

The National Assembly for Wales

Sheffield

The Company of Cutlers in Hallamshire

Swyddfa archwilio

Auditor General for Wales

830

Company, LLP and Business Names (etc) Regulations 2014 Appendix D Column (1)

Column (2)

Tywysog

The [Welsh Government]2

Underwrite

Financial Conduct Authority

Underwriting

Financial Conduct Authority

1 Substituted by the Secretaries of State for Business, Energy and Industrial Strategy, for International Trade and for Exiting the European Union and the Transfer of Functions (Education and Skills) Order 2016, SI 2016/992, art 14, Schedule, para 51(1), (2) (9 November 2016). 2 Substituted by the Wales Act 2014, s 4(4)(a) (17 February 2015). 3 Inserted by the Secretaries of State for Health and Social Care and for Housing, Communities and Local Government and Transfer of Functions (Commonhold Land) Order 2018, SI 2018/378, art 15, Schedule, para 20(bb)(i) (11 April 2018).

831

Appendix D  Company, LLP and Business Names (etc) Regulations 2014 Part 2 Applications where situation of registered office or principal place of business is relevant Column (1)

Column (2)

Column (3)

Column (4)

Column (5)

Word or Specified Government department or other body whose view expression must be sought specified under regulation 3 under under under regulation 6(a) regulation 6(b) regulation 6(c)

under regulation 6(d)

Audit office

Comptroller & Auditor General

Auditor General for Wales

Audit Scotland Northern Ireland Audit Office

Charitable Charity

The Charity Commission

The Charity Commission

Office of the Scottish Charity Regulator

The Charity Commission

Duke His Majesty King Prince Queen Royal Royalty Windsor

Ministry of Justice

The [Welsh Government]1

The Scottish Government

Ministry of Justice

Health centre Health service

Department of Health [and Social Care]2

The [Welsh Government]1

The Scottish Government

Department of Health, Social Services and Public Safety

Police

The Home Office

The Home Office

The Scottish Government

Department of Justice in Northern Ireland

Special school

Department for Education

The [Welsh Government]1

The Scottish Government

Department of Education

University

[Department for Education]3

The [Welsh Government]1

The Scottish Government

Department for Employment and Learning

1 Substituted by the Wales Act 2014, s 4(4)(a) (17 February 2015). 2 Inserted by the Secretaries of State for Health and Social Care and for Housing, Communities and Local Government and Transfer of Functions (Commonhold Land) Order 2018, SI 2018/378, art 15, Schedule, para 20(bb)(ii) (11 April 2018). 3 Substituted by the Secretaries of State for Business, Energy and Industrial Strategy, for International Trade and for Exiting the European Union and the Transfer of Functions (Education and Skills) Order 2016, SI 2016/992, art 14, Schedule, para 51(1), (3) (9 November 2016).

832

Appendix E Partnerships (Accounts) Regulations 2008 (SI 2008/569) [26th February 2008] The Secretary of State is a Minister designated for the purposes of section 2(2) of the European Communities Act 1972 in relation to the creation, operation, regulation or dissolution of companies and other forms of business organisation, and in relation to auditors and the audit of accounts. The Secretary of State makes the following Regulations in exercise of the powers conferred by section  2(2) of that Act and sections  1210(1)(h) and 1292(2) of the Companies Act 2006. PART 1 INTRODUCTION 1  Citation, commencement and application (1)

These Regulations may be cited as the Partnerships (Accounts) Regulations 2008.

(2)

These Regulations come into force on 6th April 2008 and apply in relation to– (a) (b)

qualifying partnerships’ financial years beginning on or after that date, and auditors appointed in respect of those financial years.

2 Interpretation (1)

In these Regulations– [‘the Accounting Directive’ means Directive 2013/34/EU of the European Parliament and of the Council of 26  June 2013 on the annual financial statements, consolidated financial reports of certain types of undertakings,]1 ‘the accounts’, in relation to a qualifying partnership, means the annual accounts [and reports]2 […]3 required by regulation 4, ‘dealt with on a consolidated basis’ means dealt with by the method of full consolidation, the method of proportional consolidation or the equity method of accounting, ‘financial year’, in relation to a qualifying partnership, means any period of not more than 18 months in respect of which a profit and loss account of

833

Appendix E  Partnerships (Accounts) Regulations 2008 (SI 2008/569) the partnership is required to be made up by or in accordance with its constitution or, failing any such requirement, each period of 12 months beginning with 1st April,

[…]4 ‘general partner’ has the same meaning as in the Limited Partnerships Act 1907, ‘the Large and Medium-sized Companies Accounts Regulations’ means the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, ‘limited company’ means a company limited by shares or limited by guarantee, ‘limited partnership’ means a partnership formed in accordance with the Limited Partnerships Act 1907, ‘qualifying partnership’ has the meaning given by regulation 3, […]4 ‘the Small Companies Accounts Regulations’ means the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008, and except as otherwise provided in these Regulations, words and expressions used in the Companies Act 2006 have the same meaning in these Regulations as they have in that Act. (2) […]3 1 Inserted by the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, SI  2015/980, reg  42(1), (2)(a) (1  January 2015: insertion has effect in relation to a financial year beginning on or after 1 January 2015 if the directors of the company so decide subject to the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, regs 2(3) and 3; in relation to a financial year beginning on or after 1 January 2016 otherwise). 2 Substituted by the Companies and Partnerships (Accounts and Audit) Regulations 2013, SI 2013/2005, reg 4(1), (2)(a) (1 October 2013: substitution has effect in relation to a financial year of a qualifying partnership beginning on or after 1 October 2013 and auditors appointed in respect of that financial year subject to savings provision specified in the Companies and Partnerships (Accounts and Audit) Regulations 2013, reg 1(5)). 3 Repealed by the Companies and Partnerships (Accounts and Audit) Regulations 2013, SI 2013/2005, reg 4(1), (2) (1 October 2013: revocation has effect in relation to a financial year of a qualifying partnership beginning on or after 1 October 2013 and auditors appointed in respect of that financial year subject to savings provision specified in the Companies and Partnerships (Accounts and Audit) Regulations 2013, reg 1(5)). 4 Repealed by the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, SI 2015/980, reg 42(1), (2)(b), (c) (1 January 2015: revocation has effect in relation to a financial year beginning on or after 1 January 2015 if the directors of the company so decide subject to the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, regs 2(3) and 3; in relation to a financial year beginning on or after 1 January 2016 otherwise).

[3 Qualifying partnerships (1) A ‘qualifying partnership’ is a partnership formed under the law of any part of the United Kingdom each of whose members or, in the case of a limited partnership, each of whose general partners is– (a) (b) (c) (d)

a limited company; an unlimited company each of whose members is a limited company; a Scottish partnership which is not a limited partnership, each of whose members is a limited company; or a Scottish partnership which is a limited partnership, each of whose general partners is a limited company.

834

Partnerships (Accounts) Regulations 2008 (SI 2008/569) Appendix E (2) Each reference in paragraph  (1) to a limited company includes a reference to any comparable undertaking incorporated in a country or territory outside the United Kingdom. (3)

The reference in paragraph (1)(b) to an unlimited company includes a reference to any comparable undertaking incorporated in a country or territory outside the United Kingdom.

(4)

The reference in paragraph (1)(c) to a Scottish partnership which is not a limited partnership includes a reference to any undertaking comparable to such a Scottish partnership incorporated in or formed under the law of a country or territory outside the United Kingdom.

(5) The reference in paragraph  (1)(d) to a Scottish partnership which is a limited partnership includes a reference to any undertaking comparable to such a Scottish partnership incorporated in or formed under the law of a country or territory outside the United Kingdom; and in relation to such an undertaking the reference in that paragraph to the general partners is to be construed as a reference to the members of the undertaking comparable to general partners. (6)

The requirements of these Regulations apply without regard to any change in the members (or in the members of any member) of a qualifying partnership which does not result in it ceasing to be a qualifying partnership.]1

1 Substituted by the Companies and Partnerships (Accounts and Audit) Regulations 2013, SI 2013/2005, reg 4(1), (3) (1 October 2013: substitution has effect in relation to a financial year of a qualifying partnership beginning on or after 1 October 2013 and auditors appointed in respect of that financial year subject to savings provision specified in the Companies and Partnerships (Accounts and Audit) Regulations 2013, reg 1(5)).

[3A  References to members of a qualifying partnership (1) The references in regulations 4 to 15 to the members, or any member, of a qualifying partnership are to be construed as follows. (2) Where the qualifying partnership is not a limited partnership its members are, for the purposes of those regulations– (a)

its members (irrespective of their place of incorporation or the law under which they were formed); (b) where any of its members is an unlimited company, the limited companies which are the members of that unlimited company; (c) where any of its members is a Scottish partnership which is not a limited partnership, the limited companies which are the members of that Scottish partnership; and (d) where any of its members is a Scottish partnership which is a limited partnership, the limited companies which are the general partners of that Scottish limited partnership. (3) Where the qualifying partnership is a limited partnership its members are, for the purposes of those regulations– (a)

its general partners (irrespective of their place of incorporation or the law under which they were formed); (b) where any of its general partners is an unlimited company, the limited companies which are the members of that unlimited company;

835

Appendix E  Partnerships (Accounts) Regulations 2008 (SI 2008/569) (c) (d)

where any of its general partners is a Scottish partnership which is not a limited partnership, the limited companies which are the members of that Scottish partnership; and where any of its general partners is a Scottish partnership which is a limited partnership, the limited companies which are the general partners of that Scottish limited partnership.

(4) Each reference in paragraphs (2) and (3) to a limited company includes a reference to any comparable undertaking incorporated in a country or territory outside the United Kingdom. (5)

The references in paragraphs (2)(b) and (3)(b) to an unlimited company include references to any comparable undertaking incorporated in a country or territory outside the United Kingdom.

(6)

The references in paragraphs (2)(c) and (3)(c) to a Scottish partnership which is not a limited partnership include references to any undertaking comparable to such a Scottish partnership incorporated in or formed under the law of a country or territory outside the United Kingdom.

(7)

The references in paragraphs (2)(d) and (3)(d) to a Scottish partnership which is a limited partnership include references to any undertaking comparable to such a Scottish partnership incorporated in or formed under the law of a country or territory outside the United Kingdom; and in relation to such an undertaking the references in those paragraphs to the general partners are to be construed as references to the members of the undertaking comparable to general partners.]1

1 Inserted by the Companies and Partnerships (Accounts and Audit) Regulations 2013, SI 2013/2005, reg 4(1), (3) (1 October 2013: substitution has effect in relation to a financial year of a qualifying partnership beginning on or after 1 October 2013 and auditors appointed in respect of that financial year subject to savings provision specified in the Companies and Partnerships (Accounts and Audit) Regulations 2013, reg 1(5)).

PART 2 PARTNERSHIP ACCOUNTS 4  Preparation of accounts of qualifying partnerships (1)

Subject to regulation 7, the persons who are members of a qualifying partnership at the end of any financial year of the partnership must, in respect of that year– (a) (b)

prepare the like annual accounts and [reports]1, and cause to be prepared such an auditor’s report,

as would be required, if the partnership were a company, under Part 15 (accounts and reports) and Chapter 1 of Part 16 (requirement for audited accounts) of the Companies Act 2006, and under the Small Companies Accounts Regulations or the Large and Medium-sized Companies Accounts Regulations (as the case may be). (2) Regulations 4 to 6 of the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 apply in relation to the accounts required by this regulation as they apply in relation to the annual accounts of a company or group. (3)

The accounts required by this regulation must–

836

Partnerships (Accounts) Regulations 2008 (SI 2008/569) Appendix E (a) (b)

be prepared within the period of 9 months beginning immediately after the end of the partnership’s financial year, and state that they are prepared under this regulation.

(4) Part 1 of the Schedule to these Regulations sets out certain modifications and adaptations for the purposes of this regulation. 1 Substituted by the Companies and Partnerships (Accounts and Audit) Regulations 2013, SI 2013/2005, reg 4(1), (4) (1 October 2013: substitution has effect in relation to a financial year of a qualifying partnership beginning on or after 1 October 2013 and auditors appointed in respect of that financial year subject to savings provision specified in the Companies and Partnerships (Accounts and Audit) Regulations 2013, reg 1(5)).

5  Delivery of accounts of qualifying partnerships to registrar etc. (1)

Subject to regulation 7, each limited company which is a member of a qualifying partnership at the end of any financial year of the partnership must append to the copy of its accounts and reports which is next delivered to the registrar in accordance with section 441(1) of the Companies Act 2006 (duty to file accounts and reports with the registrar) a copy of the accounts of the partnership prepared for that year under regulation 4.

(2) Subject to regulation 7, a limited company which is a member of a qualifying partnership must supply to any person upon request– (a) the name of each member of the partnership which is to deliver, or has delivered, a copy of the latest accounts of the partnership to the registrar under paragraph (1), and (b) the name of each member of the partnership incorporated in a member State other than the United Kingdom which is to publish, or has published, the latest accounts for the partnership in accordance with the provisions of [the Accounting Directive]1. 1 Substituted by the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, SI  2015/980, reg  42(1), (3) (1  January 2015: substitution has effect in relation to a financial year beginning on or after 1 January 2015 if the directors of the company so decide subject to the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, regs 2(3) and 3; in relation to a financial year beginning on or after 1 January 2016 otherwise).

6  Publication of accounts of qualifying partnerships at head office [(1) This regulation applies where none of the members of a qualifying partnership is a limited company. (2)

But this regulation is subject to regulation 7 and does not apply where– (a) any member of the qualifying partnership is an undertaking which is incorporated in a member State other than the United Kingdom and is comparable to a limited company; and (b) the latest accounts of the partnership have been or are to be appended to the accounts of that undertaking and published under the law of that member State in accordance with the provisions of the Fourth or Seventh Directive.]1

(3)

The members of the qualifying partnership–

837

Appendix E  Partnerships (Accounts) Regulations 2008 (SI 2008/569) [(a) must make the latest accounts available for inspection by any person, without charge and during business hours as follows– (i) where a qualifying partnership has a principal place of business in the United Kingdom, at that principal place of business; (ii) where the qualifying partnership has no principal place of business in the United Kingdom, but at least one of its members has a principal place of business or a head office in the United Kingdom, at a member’s principal place of business or head office in the United Kingdom nominated by the members of the qualifying partnership for the purposes of this regulation; (iii) where the qualifying partnership has no principal place of business in the United Kingdom and none of its members has a principal place of business or a head office in the United Kingdom, at an address in the United Kingdom nominated by the members of a qualifying partnership, and]1 (b) if any document comprised in those accounts is in a language other than English, must annex to that document a translation of it into English, certified as an accurate translation– (i) if the translation was made in the United Kingdom, by– (aa) a notary public in any part of the United Kingdom; (bb) a solicitor (if the translation was made in Scotland), a solicitor of the Supreme Court of Judicature of England and Wales (if it was made in England or Wales), or a solicitor of the Supreme Court of Judicature of Northern Ireland (if it was made in Northern Ireland); or (cc) a person certified by a person mentioned above to be known to be competent to translate the document into English; or (ii) if the translation was made outside the United Kingdom, by– (aa) a notary public; (bb) a person authorised in the place where the translation was made to administer an oath; (cc) any of the British officials mentioned in section  6 of the Commissioners for Oaths Act 1889; (dd) a person certified by a person mentioned above to be known to be competent to translate the document into English. (4)

A member of the qualifying partnership must supply to any person upon request– (a)

a copy of the accounts required by paragraph (3)(a) to be made available for inspection, and (b) a copy of any translation required by paragraph (3)(b) to be annexed to any document comprised in those accounts, at a price not exceeding the administrative cost of making the copy. 1 Substituted by the Companies and Partnerships (Accounts and Audit) Regulations 2013, SI 2013/2005, reg 4(1), (5) (1 October 2013: substitution has effect in relation to a financial year of a qualifying partnership beginning on or after 1 October 2013 and auditors appointed in respect of that financial year subject to savings provision specified in the Companies and Partnerships (Accounts and Audit) Regulations 2013, reg 1(5)).

7  Exemption from regulations 4 to 6 where accounts consolidated (1) The members of a qualifying partnership are exempt from the requirements of regulations 4 to 6 if the partnership is dealt with on a consolidated basis in group accounts prepared by–

838

Partnerships (Accounts) Regulations 2008 (SI 2008/569) Appendix E (a) a member of the partnership which is established under the law of a member State, or (b) a parent undertaking of such a member which parent undertaking is so established, and (in either case) the conditions mentioned in paragraph (2) are complied with. (2)

The conditions are– (a) that the group accounts are prepared and audited under the law of the member State concerned in accordance with the provisions of [the Accounting Directive]1 or of international accounting standards, and (b) the notes to those accounts disclose that advantage has been taken of the exemption conferred by this regulation.

(3) Where advantage is taken of the exemption conferred by this regulation, any member of the qualifying partnership which is a limited company must disclose on request the name of at least one member or parent undertaking in whose group accounts the partnership has been or is to be dealt with on a consolidated basis. 1 Substituted by the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, SI  2015/980, reg  42(1), (4) (1  January 2015: substitution has effect in relation to a financial year beginning on or after 1 January 2015 if the directors of the company so decide subject to the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, regs 2(3) and 3; in relation to a financial year beginning on or after 1 January 2016 otherwise).

PART 3 AUDITORS 8  Appointment of auditor An auditor may be appointed for the purposes of regulation 4(1)(b) only by the members of a qualifying partnership. 9  Functions of auditor (1) The following provisions of the Companies Act 2006 apply to the auditor of a qualifying partnership as they apply to an auditor of a company– (a) section 495 (auditor’s report on company’s annual accounts); [(aa) section 496 (auditor’s report on strategic report and director’s report);]1 (b) section 498 (duties of auditor); (c) section 499 (auditor’s general right to information). (2) The auditor of a qualifying partnership must supply the members of the qualifying partnership with such information as is necessary to enable any disclosure required by regulation 4(2) to be made. 1 Inserted by the Statutory Auditors and Third Country Auditors Regulations 2016, SI 2016/649, reg 14 (17 June 2016).

10  Signature of auditor’s report Sections 503 to 506 of the Companies Act 2006 (signature of auditor’s report) apply in relation to the auditor’s report required by regulation 4(1)(b), subject to–

839

Appendix E  Partnerships (Accounts) Regulations 2008 (SI 2008/569) (a) (b)

any necessary modifications to take account of the fact that the qualifying partnership is unincorporated, and the modification set out in Part 2 of the Schedule to these Regulations.

11  Removal of auditors on improper grounds (1) Where the auditor of a qualifying partnership is removed from office an application may be made to the High Court under this regulation. (2)

The persons who may make such an application are– (a) (b)

(3)

any member of the qualifying partnership who was also a member at the time of the removal, and the Secretary of State.

If the court is satisfied that the removal was– (a) on grounds of divergence of opinion on accounting treatments or audit procedures, or (b) on any other improper grounds, it may make such order as it thinks fit for giving relief in respect of the removal.

(4)

The court may, in particular– (a)

declare that any decision of the qualifying partnership removing an auditor, or appointing a new auditor in his place, is void; (b) require the members of the qualifying partnership to re-appoint the dismissed auditor; (c) give directions as to the conduct of the qualifying partnership’s affairs in the future. (5)

In the application of this regulation to a qualifying partnership formed under the law of Scotland or Northern Ireland, references to the High Court are to be read as references to the Court of Session or, as the case may be, the High Court in Northern Ireland.

12  Duty of auditor to notify supervisory body (1) Where an auditor of a qualifying partnership ceases to hold office before the end of his term of office, he must notify the supervisory body of which he is a member. (2)

The notice must– (a) inform the supervisory body that he has ceased to hold office, and (b) be accompanied by a statement of any circumstances connected with his ceasing to hold office.

(3) The auditor must notify the supervisory body not more than 14 days after the date on which he ceases to hold office. (4)

In this regulation and regulation 13, ‘supervisory body’ has the same meaning as in Part 42 of the Companies Act 2006 (statutory auditors) (see section 1217).

13  Duty of members of qualifying partnership to notify supervisory body (1)

Where an auditor of a qualifying partnership ceases to hold office before the end of his term of office, the members of the partnership must notify the supervisory body of which the auditor is a member.

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Partnerships (Accounts) Regulations 2008 (SI 2008/569) Appendix E (2)

The notice must– (a) (b)

(3)

inform the supervisory body that the auditor has ceased to hold office, and be accompanied by a statement by the body of the reasons for his ceasing to hold office.

The members of the qualifying partnership must notify the supervisory body not more than 14 days after the date on which the auditor ceases to hold office.

14 Statutory auditors For the purposes of section  1210(1)(h) of the Companies Act 2006 (meaning of ‘statutory auditor’)– (a) (b)

a qualifying partnership is a prescribed person, and regulation 4(1)(b) is a prescribed enactment,

and accordingly a person appointed as auditor of a qualifying partnership for the purposes of regulation 4(1)(b) is a statutory auditor. PART 4 OFFENCES 15  Penalties for non-compliance by members of qualifying partnership (1) If, in respect of a financial year of a qualifying partnership, the requirements of paragraph (1) of regulation 4 are not complied with within the period referred to in paragraph (3) of that regulation, every person who was a member of the partnership or a director of such a member at the end of that year is liable on summary conviction to a fine not exceeding level 5 on the standard scale. (2)

If the accounts of a qualifying partnership– (a) (b)

a copy of which is delivered to the registrar under regulation 5, or which are made available for inspection under regulation 6,

do not comply with the requirements of regulation 4(1), every person who, at the time when the copy was so delivered or (as the case may be) the accounts were first made available for inspection, was a member of the partnership or a director of such a member is liable on summary conviction to a fine not exceeding level 5 on the standard scale. (3) If a member of a qualifying partnership fails to comply with regulation 5, 6, 7(3) or 13, that member and any director of that member is liable on summary conviction to a fine not exceeding level 5 on the standard scale. (4) In proceedings for an offence under this section it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence. (5)

The following provisions of the Companies Act 2006, namely– (a) (b)

sections 1127 and 1128 (summary proceedings: venue and time limit for proceedings), and section 1130 (proceedings against unincorporated bodies),

apply to an offence under this regulation.

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Appendix E  Partnerships (Accounts) Regulations 2008 (SI 2008/569) 16  Penalties for non-compliance by auditors of qualifying partnerships (1) If a person ceasing to hold office as auditor fails to comply with regulation 12, an offence is committed by– (a) (b)

that person, and if that person is a firm, every officer of the firm who is in default.

(2) In proceedings for an offence under this section it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence. (3)

A person guilty of an offence under this regulation is liable– (a) (b)

(4)

on conviction on indictment, to a fine, and on summary conviction, to a fine not exceeding the statutory maximum.

The following provisions of the Companies Act 2006, namely– (a) sections 1121 to 1123 (liability of officer in default), (b) sections 1127 and 1128 (summary proceedings: venue and time limit for proceedings), and (c) section 1130 (proceedings against unincorporated bodies), apply to an offence under this regulation. PART 5 FINAL PROVISIONS

17 Consequential amendments (1) In the following provisions of the Small Companies Accounts Regulations, for ‘Partnerships and Unlimited Companies (Accounts) Regulations 1993’ substitute ‘Partnerships (Accounts) Regulations 2008’– (a) (b)

paragraph 8(5) and (6) in Part 1 of Schedule 2, and paragraph 34(5) and (6) in Part 2 of Schedule 6.

(2) In paragraph  7(5) and (6) in Part 1 of Schedule  4 to the Large and Mediumsized Companies Accounts Regulations for ‘Partnerships and Unlimited Companies (Accounts) Regulations 1993’ substitute ‘Partnerships (Accounts) Regulations 2008’. 18  Revocation and transitional provisions etc. (1) The Partnerships and Unlimited Companies (Accounts) Regulations 1993 and the Partnerships and Unlimited Companies (Accounts) Regulations (Northern Ireland) 1994 are revoked. (2)

The regulations specified in paragraph (1) continue to apply to any financial year of a qualifying partnership beginning before 6th April 2008.

[19 Review (1)

The Secretary of State must from time to time– (a)

carry out a review of regulations 4(1) and 9(1) and Part 1 of the Schedule,

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Partnerships (Accounts) Regulations 2008 (SI 2008/569) Appendix E (b) (c) (2)

set out the conclusions of the review in a report, and publish the report.

The report must, in particular– (a) (b) (c) (d)

set out the objectives intended to be achieved by those provisions, assess the extent to which those objectives are achieved, assess whether those objectives remain appropriate, and if those objectives remain appropriate, assess the extent to which they could be achieved in another way which involves less onerous regulatory provision.

(3) In carrying out the review, the Secretary of State must have regard to how the provisions of Directive 2013/34/EU of 26  June 2013 on the annual financial statements etc. of certain types of undertakings are implemented in other Member States. (4) The first report under this regulation must be published before the end of the period of 5 years beginning with the date on which the Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016 come into force. (5) Subsequent reports under this regulation must be published at intervals not exceeding 5 years. (6)

In this regulation, ‘regulatory provision’ has the meaning given by section 32(4) of the Small Business, Enterprise and Employment Act 2015.]1

1 Inserted by the Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016, SI 2016/575, reg 64.

SCHEDULE 1

1

Part 1 Modifications and adaptations for purposes of regulation 4

(1) Accounts prepared under regulation 4 of these Regulations must comply with the requirements of Part 15 and Chapter  1 of Part 16 of the Companies Act 2006, and with the Small Companies Accounts Regulations or the Large and Medium-sized Companies Accounts Regulations (as the case may be) subject to– (a) the provisions of section  1161(2) and (3) of that Act (how to construe ‘shares’ and other expressions appropriate to companies), (b) the omission of the provisions of the Small Companies Accounts Regulations mentioned in paragraph 2(1) below, (c) the omission of the provisions of the Large and Medium-sized Companies Accounts Regulations mentioned in paragraph 2(2) below, and (d) any necessary modifications to take account of the fact that partnerships are unincorporated. (2) For the purposes of the provisions of Part 15 and Chapter 1 of Part 16 of the Companies Act 2006 and of the Small Companies Accounts Regulations and the Large and Medium-sized Companies Accounts Regulations as applied to the accounts and report so prepared, these Regulations are to be regarded as part of the requirements of that Act and those regulations.

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Appendix E  Partnerships (Accounts) Regulations 2008 (SI 2008/569) 2 (1) The provisions of the Small Companies Accounts Regulations referred to in paragraph 1(1)(b) are– (a)

in Part 1 of Schedule 1– (i) in paragraph 3(2), the words from ‘used’ to the end, and (ii) paragraph 6, (b) in Part 2 of Schedule 1, paragraph 21, [(c) in Part 3 of Schedule 1, paragraph 49,]1 (d) […]2 (e) […]2 (f) Schedule 5, and (g) in Part 1 of Schedule 6, paragraphs 13(3) and (4), 14 and 15, and in Part 2 of that Schedule, paragraph 36. (2)

The provisions of the Large and Medium-sized Companies Accounts Regulations referred to in paragraph 1(1)(c) are– (a) (b) (c) (d) (e) (f) (g)

(3)

in Part 1 of Schedule 1– (i) in paragraph 3(2), the words from ‘used’ to the end, and (ii) paragraph 6, in Part 2 of Schedule 1, paragraph 21, in Part 3 of Schedule 1, paragraphs 45, 50, 52, 53, 54, 64(2), 66 and 67, in Part 1 of Schedule 4, paragraph 9, and in Part 2 paragraph 12, in Schedule 5, paragraphs 2, 4 and 5, in Part 1 of Schedule 6 to those Regulations, paragraphs 13(3) and (4), 14 and 15, and Schedule 7 to those Regulations except paragraph 7.

Sub-paragraphs (1) and (2) are not to be construed as affecting the requirement to give a true and fair view under sections 393, 396 and 404 of the Companies Act 2006.

1 Substituted by the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, SI 2015/980, reg 42(1), (5)(a) (1 January 2015: substitution has effect in relation to a financial year beginning on or after 1 January 2015 if the directors of the company so decide subject to the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, regs 2(3) and 3; in relation to a financial year beginning on or after 1 January 2016 otherwise). 2 Repealed by the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, SI 2015/980, reg 42(1), (5)(b), (c) (1 January 2015: revocation has effect in relation to a financial year beginning on or after 1 January 2015 if the directors of the company so decide subject to the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, regs 2(3) and 3; in relation to a financial year beginning on or after 1 January 2016 otherwise).

Part 2 Modification for purposes of regulation 10

3 In section 506(1)(b) of the Companies Act 2006 the reference to the copy of the report delivered to the registrar under Chapter 10 of Part 15 (filing of accounts and reports) is treated as a reference to the copy of the accounts required to be delivered to the registrar under regulation 5(1).

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

Appendix F Insolvent Partnerships Order 1994 (SI 1994/2421) [13th September 1994] The Lord Chancellor, in exercise of the powers conferred on him by section 420(1) and (2) of the Insolvency Act 1986 and section  21(2) of the Company Directors Disqualification Act 1986 and of all other powers enabling him in that behalf, with the concurrence of the Secretary of State, hereby makes the following Order:– PART I GENERAL 1  Citation, commencement and extent (1) This Order may be cited as the Insolvent Partnerships Order 1994 and shall come into force on 1st December 1994. (2) This Order– (a) in the case of insolvency proceedings in relation to companies and partnerships, relates to companies and partnerships which the courts in England and Wales have jurisdiction to wind up; and (b) in the case of insolvency proceedings in relation to individuals, extends to England and Wales only. (3) In paragraph (2) the term ‘insolvency proceedings’ has the meaning ascribed to it by article 2 below. 2 Interpretation: definitions (1)

In this Order, except in so far as the context otherwise requires– ‘the Act’ means the Insolvency Act 1986; ‘agricultural charge’ has the same meaning as in the Agricultural Credits Act 1928; ‘agricultural receiver’ means a receiver appointed under an agricultural charge; ‘corporate member’ means an insolvent member which is a company; ‘the court’, in relation to an insolvent partnership, means the court which has jurisdiction to wind up the partnership; ‘individual member’ means an insolvent member who is an individual; ‘insolvency order’ means – (a) in the case of an insolvent partnership or a corporate member, a winding-up order; and (b) in the case of an individual member, a bankruptcy order; ‘insolvency petition’ means, in the case of a petition presented to the court– (a) against a corporate member, a petition for its winding up by the court;

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (b) against an individual member, a petition for a bankruptcy order to be made against that individual, where the petition is presented in conjunction with a petition for the winding up of the partnership by the court as an unregistered company under the Act; ‘insolvency proceedings’ means any proceedings under the Act, this Order or the [Insolvency (England and Wales) Rules 2016]1; ‘insolvent member’ means a member of an insolvent partnership, against whom an insolvency petition is being or has been presented; ‘joint bankruptcy petition’ means a petition by virtue of article 11 of this Order; ‘joint debt’ means a debt of an insolvent partnership in respect of which an order is made by virtue of Part IV or V of this Order; ‘joint estate’ means the partnership property of an insolvent partnership in respect of which an order is made by virtue of Part IV or V of this Order; ‘joint expenses’ means expenses incurred in the winding up of an insolvent partnership or in the winding up of the business of an insolvent partnership and the administration of its property; ‘limited partner’ has the same meaning as in the Limited Partnerships Act 1907; ‘member’ means a member of a partnership and any person who is liable as a partner within the meaning of section 14 of the Partnership Act 1890; ‘officer’, in relation to an insolvent partnership, means – (a) a member; or (b) a person who has management or control of the partnership business; ‘partnership property’ has the same meaning as in the Partnership Act 1890; ‘postponed debt’ means a debt the payment of which is postponed by or under any provision of the Act or of any other enactment; ‘responsible insolvency practitioner’ means – (a) in winding up, the liquidator of an insolvent partnership or corporate member; and (b) in bankruptcy, the trustee of the estate of an individual member, and in either case includes the official receiver when so acting; ‘separate debt’ means a debt for which a member of a partnership is liable, other than a joint debt; ‘separate estate’ means the property of an insolvent member against whom an insolvency order has been made; ‘separate expenses’ means expenses incurred in the winding up of a corporate member, or in the bankruptcy of an individual member; and ‘trustee of the partnership’ means a person authorised by order made by virtue of article 11 of this Order to wind up the business of an insolvent partnership and to administer its property. (2)

The definitions in paragraph (1), other than the first definition, shall be added to those in section 436 of the Act.

(3) References in provisions of the Act applied by this Order to any provision of the Act so applied shall, unless the context otherwise requires, be construed as references to the provision as so applied. (4)

Where, in any Schedule to this Order, all or any of the provisions of two or more sections of the Act are expressed to be modified by a single paragraph of the Schedule, the modification includes the combination of the provisions of those sections into the one or more sections set out in that paragraph.

1 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg  2, Sch  2, paras 1, 2 (8  December 2017: substitution has effect subject to transitional

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10).

3  Interpretation: expressions appropriate to companies (1) This article applies for the interpretation in relation to insolvent partnerships of expressions appropriate to companies in provisions of the Act and of the Company Directors Disqualification Act 1986 applied by this Order, unless the contrary intention appears. (2)

References to companies shall be construed as references to insolvent partnerships and all references to the registrar of companies shall be omitted.

(3)

References to shares of a company shall be construed– (a)

in relation to an insolvent partnership with capital, as references to rights to share in that capital; and (b) in relation to an insolvent partnership without capital, as references to interests– (i) conferring any right to share in the profits or liability to contribute to the losses of the partnership, or (ii) giving rise to an obligation to contribute to the debts or expenses of the partnership in the event of a winding up. (4) Other expressions appropriate to companies shall be construed, in relation to an insolvent partnership, as references to the corresponding persons, officers, documents or organs (as the case may be) appropriate to a partnership.

PART II VOLUNTARY ARRANGEMENTS 4  Voluntary arrangement of insolvent partnership [(1) The provisions of Part I of, and Schedule A1 to, the Act shall apply in relation to an insolvent partnership, certain of those provisions being modified in such manner that, after modification, they are as set out in Schedule 1 to this Order.]1 (2) For the purposes of the provisions of the Act applied by paragraph  (1), the provisions of the Act specified in paragraph  (3) below, insofar as they relate to company voluntary arrangements, shall also apply in relation to insolvent partnerships. (3)

The provisions referred to in paragraph (2) are– [(za) section 176AZA in Part IV,]2 (a) section 233 [and section 233A]3 in Part VI, (b) Part VII, with the exception of section 250, (c) Part XII, (d) Part XIII, (e) sections 411, 413, 414 and 419 in Part XV, and (f) Parts XVI to XIX.

1 Substituted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI 2002/2708, art 4 (1 January 2003).

847

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 2 Inserted by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, arts 15, 16 (19 December 2018). 3 Inserted by the Insolvency (Protection of Essential Supplies) Order 2015, SI 2015/989, art 6, Schedule, para 1 (1 October 2015).

5  Voluntary arrangements of members of insolvent partnership (1) Where insolvency orders are made against an insolvent partnership and an insolvent member of that partnership in his capacity as such, Part I of the Act shall apply to corporate members and Part VIII to individual members of that partnership, with the modification that any reference to the creditors of the company or of the debtor, as the case may be, includes a reference to the creditors of the partnership. (2) Paragraph (1) is not to be construed as preventing the application of Part I or (as the case may be) Part VIII of the Act to any person who is a member of an insolvent partnership (whether or not a winding-up order has been made against that partnership) and against whom an insolvency order has not been made under this Order or under the Act.

[PART III ADMINISTRATION 6  Administration in relation to insolvent partnership (1) The provisions of Part II of, and Schedule B1 to, the Act shall apply in relation to an insolvent partnership, certain of those provisions being modified in such manner that, after modification, they are as set out in Schedule 2 to this Order. (2) In its application to insolvent partnerships, Part II of, and Schedule B1 to, the Act (as modified as set out in Schedule 2 to this Order) shall be read subject to paragraph (3). (3)

For every reference to– (a) (b)

‘administrative receiver’ there shall be substituted ‘agricultural receiver’; and ‘floating charge’ there shall be substituted ‘agricultural floating charge’.

(4) For the purposes of the provisions of the Act applied by paragraph  (1), the provisions of the Act specified in paragraph (5) below, insofar as they relate to the appointment of an administrator, shall also apply in relation to insolvent partnerships. (5)

The provisions referred to in paragraph (4) are– [(za) section 176AZA in Part IV,]1 (a) Part VI, (b) Part VII (with the exception of section 250), (c) Part XII, (d) Part XIII, (e) sections 411, 413, 414 and 419 in Part XV, and (f) Parts XVI to XIX.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (6) For the purposes of this Article and the provisions of the Act applied by paragraph (1), ‘agricultural floating charge’ shall be construed as a reference to a floating charge created under section 5 of the Agricultural Credits Act 1928.]2 1 Inserted by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, arts 15, 17 (19 December 2018). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  3 (1 July 2005).

PART IV CREDITORS’ ETC. WINDING-UP PETITIONS 7  Winding up of insolvent partnership as unregistered company on petition of creditor etc. where no concurrent petition presented against member (1)

Subject to paragraph (2) below, the provisions of Part V of the Act shall apply in relation to the winding up of an insolvent partnership as an unregistered company on the petition of a creditor, [of a liquidator (within the meaning of Article 2(b) of the EC Regulation) appointed in proceedings by virtue of Article 3(1) of the EC Regulation, of a temporary administrator (within the meaning of Article 38 of the EC Regulation),]1 of a responsible insolvency practitioner[, of the Secretary of State or of any other person other than a member,]2 where no insolvency petition is presented by the petitioner against a member or former member of that partnership in his capacity as such.

(2) Certain of the provisions referred to in paragraph  (1) are modified in their application in relation to insolvent partnerships which are being wound up by virtue of that paragraph in such manner that, after modification, they are as set out in Part I of Schedule 3 to this Order. (3) The provisions of the Act specified in Part II of Schedule 3 to this Order shall apply as set out in that Part for the purposes of section 221(5) of the Act, as modified by Part I of that Schedule. 1 Inserted by the Insolvent Partnerships (Amendment) Order 2002, SI 2002/1308, art 3 (31 May 2002). 2 Substituted by the Insolvent Partnerships (Amendment) Order 1996, SI  1996/1308, art  2 (14 June 1996).

8  [Winding up of insolvent partnership as unregistered company on the petition of creditor etc. where concurrent petitions presented against one or more members]1 (1) Subject to paragraph (2) below, the provisions of Part V of the Act (other than sections 223 and 224, shall apply in relation to the winding up of an insolvent partnership as an unregistered company on [the petition of a creditor, of a liquidator (within the meaning of Article 2(b) of the EC Regulation) appointed in proceedings by virtue of Article 3(1) of the EC Regulation, or of a temporary administrator (within the meaning of Article 38 of the EC Regulation)]1 where insolvency petitions are presented by the petitioner against the partnership and against one or more members or former members of the partnership in their capacity as such. (2) Certain of the provisions referred to in paragraph  (1) are modified in their application in relation to insolvent partnerships which are being wound up by

849

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) virtue of that paragraph in such manner that, after modification, they are as set out in Part I of Schedule 4 to this Order. (3) The provisions of the Act specified in Part II of Schedule 4 to this Order shall apply as set out in that Part for the purposes of section 221(5) of the Act, as modified by Part I of that Schedule. (4)

The provisions of the Act specified in paragraph (5) below, insofar as they relate to winding up of companies by the court in England and Wales on a creditor’s petition, shall apply in relation to the winding up of a corporate member or former corporate member (in its capacity as such) of an insolvent partnership which is being wound up by virtue of paragraph (1).

(5)

The provisions referred to in paragraph (4) are– (a) Part IV [[…]2]3, (b) Part VI, (c) Part VII, and (d) Parts XII to XIX.

(6)

The provisions of the Act specified in paragraph (7) below, insofar as they relate to the bankruptcy of individuals in England and Wales on a petition presented by a creditor, shall apply in relation to the bankruptcy of an individual member or former individual member (in his capacity as such) of an insolvent partnership which is being wound up by virtue of paragraph (1).

(7)

The provisions referred to in paragraph (6) are– (a) (b)

Part IX (other than sections 269, 270, 287 and 297), and Parts X to XIX.

(8) Certain of the provisions referred to in paragraphs (4) and (6) are modified in their application in relation to the corporate or individual members or former corporate or individual members of insolvent partnerships in such manner that, after modification, they are as set out in Part II of Schedule 4 to this Order. (9)

The provisions of the Act applied by this Article shall further be modified so that references to a corporate or individual member include any former such member against whom an insolvency petition is being or has been presented by virtue of this Article.

1 Substituted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art  4 (31 May 2002). 2 Repealed by the Insolvent Partnerships (Amendment) Order 2006, SI 2006/622, art 3 (6 April 2006). 3 Inserted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 4 (1 July 2005).

PART V MEMBERS’ PETITIONS 9  Winding up of insolvent partnership as unregistered company on member’s petition where no concurrent petition presented against member The following provisions of the Act shall apply in relation to the winding up of an insolvent partnership as an unregistered company on the petition of a member where no insolvency petition is presented by the petitioner against a member of that partnership in his capacity as such–

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (a) sections 117 and 221, modified in such manner that, after modification, they are as set out in Schedule 5 to this Order; and (b) the other provisions of Part V of the Act, certain of those provisions being modified in such manner that, after modification, they are as set out in Part I of Schedule 3 to this Order. 10  Winding up of insolvent partnership as unregistered company on member’s petition where concurrent petitions presented against all members (1) The following provisions of the Act shall apply in relation to the winding up of an insolvent partnership as an unregistered company on a member’s petition where insolvency petitions are presented by the petitioner against the partnership and against all its members in their capacity as such– (a)

sections 117, 124, 125, 221, 264, [265 and 271]1 of the Act, modified in such manner that, after modification, they are as set out in Schedule 6 to this Order and (b) sections 220, 225 and 227 to 229 in Part V of the Act, section 220 being modified in such manner that, after modification, it is as set out in Part I of Schedule 4 to this Order. (2)

The provisions of the Act specified in paragraph (3) below, insofar as they relate to winding up of companies by the court in England and Wales on a member’s petition, shall apply in relation to the winding up of a corporate member (in its capacity as such) of an insolvent partnership which is wound up by virtue of paragraph (1).

(3)

The provisions referred to in paragraph (2) are– (a) Part IV [[…]2]3, (b) Part VI, (c) Part VII, and (d) Parts XII to XIX.

(4)

The provisions of the Act specified in paragraph (5) below, insofar as they relate to the bankruptcy of individuals in England and Wales where [a bankruptcy application is made]4 by a debtor, shall apply in relation to the bankruptcy of an individual member (in his capacity as such) of an insolvent partnership which is being wound up by virtue of paragraph (1).

(5)

The provisions referred to in paragraph (4) are– (a) (b)

Part IX (other than sections […]5 287 and 297, and Parts X to XIX.

[(6) Certain of the provisions referred to in paragraphs (2) and (4) are modified in their application in relation to the corporate or individual members of insolvent partnerships in such manner that, after modification, they are as set out in Part II of Schedule 4 to this Order.]6 1 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg  2, Sch  2, paras 1, 3 (8  December 2017: substitution has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10). 2 Repealed by the Insolvent Partnerships (Amendment) Order 2006, SI 2006/622, art 4 (6 April 2006). 3 Inserted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  5(a) (1 July 2005).

851

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 4 Substituted by the Enterprise and Regulatory Reform Act 2013 (Consequential Amendments) (Bankruptcy) and the Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) Regulations 2016, SI 2016/481, reg 2(2), Sch 2, para 5(1), (2)(a) (6 April 2016). 5 Repealed by the Enterprise and Regulatory Reform Act 2013 (Consequential Amendments) (Bankruptcy) and the Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) Regulations 2016, SI 2016/481, reg 2(2), Sch 2, para 5(1), (2)(b) (6 April 2016). 6 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 5(b) (1 July 2005).

11  Insolvency proceedings not involving winding up of insolvent partnership as unregistered company where individual members present joint bankruptcy petition (1)

The provisions of the Act specified in paragraph (2) below shall apply in relation to the bankruptcy of the individual members of an insolvent partnership where those members jointly present a petition to the court for orders to be made for the bankruptcy of each of them in his capacity as a member of the partnership, and the winding up of the partnership business and administration of its property, without the partnership being wound up as an unregistered company under Part V of the Act.

(2)

The provisions referred to in paragraph (1) are– (a) (b)

Part IX (other than [section]1 287), and Parts X to XIX,

insofar as they relate to the insolvency of individuals in England and Wales where [a bankruptcy application is made]1 by a debtor. (3) Certain of the provisions referred to in paragraph  (1) are modified in their application in relation to the individual members of insolvent partnerships in such manner that, after modification, they are as set out in Schedule 7 to this Order. 1 Substituted by the Enterprise and Regulatory Reform Act 2013 (Consequential Amendments) (Bankruptcy) and the Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) Regulations 2016, SI 2016/481, reg 2(2), Sch 2, para 5(1), (3) (6 April 2016).

PART VI PROVISIONS APPLYING IN INSOLVENCY PROCEEDINGS IN RELATION TO INSOLVENT PARTNERSHIPS [11A  Decision procedure in insolvency proceedings in relation to insolvent partnerships Sections 246ZE, 246ZF, 379ZA and 379ZB of the Act apply in insolvency proceedings in relation to insolvent partnerships with the modifications set out in Schedule 7A to this Order.]1 1 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 3(1) (6 April 2017).

12  Winding up of unregistered company which is a member of insolvent partnership being wound up by virtue of this Order Where an insolvent partnership or other body which may be wound up under Part V of the Act as an unregistered company is itself a member of an insolvent partnership

852

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F being so wound up, articles 8 and 10 above shall apply in relation to the latter insolvent partnership as though the former body were a corporate member of that partnership. 13  Deposit on petitions (1) Where an order under section  414(4) or 415(3) of the Act (security for fees) provides for any sum to be deposited on presentation of a winding-up or bankruptcy petition, that sum shall, in the case of petitions presented by virtue of articles  8 and 10 above, only be required to be deposited in respect of the petition for winding up the partnership, but shall be treated as a deposit in respect of all those petitions. (2) Production of evidence as to the sum deposited on presentation of the petition for winding up the partnership shall suffice for the filing in court of an insolvency petition against an insolvent member. 14  Supplemental powers of court (1) At the end of section  168 of the Act there shall be inserted the following subsections:– ‘(5A) Where at any time after a winding-up petition has been presented to the court against any person (including an insolvent partnership or other body which may be wound up under Part V of the Act as an unregistered company), whether by virtue of the provisions of the Insolvent Partnerships Order 1994 or not, the attention of the court is drawn to the fact that the person in question is a member of an insolvent partnership, the court may make an order as to the future conduct of the insolvency proceedings and any such order may apply any provisions of that Order with any necessary modifications. (5B) Any order or directions under subsection (5A) may be made or given on the application of the official receiver, any responsible insolvency practitioner, the trustee of the partnership or any other interested person and may include provisions as to the administration of the joint estate of the partnership, and in particular how it and the separate estate of any member are to be administered. (5C) Where the court makes an order under section 72(1)(a) of the Financial Services Act 1986 or section 92(1)(a) of the Banking Act 1987 for the winding up of an insolvent partnership, the court may make an order as to the future conduct of the winding-up proceedings, and any such order may apply any provisions of the Insolvent Partnerships Order 1994 with any necessary modifications.’. (2) At the end of section  303 of the Act there shall be inserted the following subsections:– ‘(2A) Where at any time after a bankruptcy petition has been presented to the court against any person, whether under the provisions of the Insolvent Partnerships Order 1994 or not, the attention of the court is drawn to the fact that the person in question is a member of an insolvent partnership, the court may make an order as to the future conduct of the insolvency proceedings and any such order may apply any provisions of that Order with any necessary modifications. (2B) Where a bankruptcy petition has been presented against more than one individual in the circumstances mentioned in subsection (2A) above, the court may give such directions for consolidating the proceedings, or any of them, as it thinks just.

853

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (2C) Any order or directions under subsection (2A) or (2B) may be made or given on the application of the official receiver, any responsible insolvency practitioner, the trustee of the partnership or any other interested person and may include provisions as to the administration of the joint estate of the partnership, and in particular how it and the separate estate of any member are to be administered.’. 15  Meaning of ‘act as insolvency practitioner’ (1)

After section 388(2) of the Act there shall be inserted the following–

‘(2A) A person acts as an insolvency practitioner in relation to an insolvent partnership by acting– (a) (b) (c) (2)

as its liquidator, provisional liquidator or administrator, or as trustee of the partnership under article 11 of the Insolvent Partnerships Order 1994, or as supervisor of a voluntary arrangement approved in relation to it under Part I of this Act.’.

In section 388(3) the words ‘to a partnership and’ shall be omitted.

PART VII DISQUALIFICATION 16  Application of Company Directors Disqualification Act 1986 Where an insolvent partnership is wound up as an unregistered company under Part V of the Act, the provisions of [sections 1, 1A, 5A, 6 to 10, 13 to 15C, 17, 19(c) and 20 of, and Schedule 1 to]1, the Company Directors Disqualification Act 1986 shall apply, certain of those provisions being modified in such manner that, after modification, they are as set out in Schedule 8 to this Order. 1 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg  2, Sch  2, paras 1, 4 (8  December 2017: substitution has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10).

PART VIII MISCELLANEOUS 17 Forms (1) The forms contained in Schedule  9 to this Order shall be used in and in connection with proceedings by virtue of this Order, whether in the High Court or a county court. (2) The forms shall be used with such variations, if any, as the circumstances may require. 18  Application of subordinate legislation (1)

The subordinate legislation specified in Schedule 10 to this Order shall apply as from time to time in force and with such modifications as the context requires

854

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F for the purpose of giving effect to the provisions of the Act and of the Company Directors Disqualification Act 1986 which are applied by this Order. (2) In the case of any conflict between any provision of the subordinate legislation applied by paragraph (1) and any provision of this Order, the latter provision shall prevail. 19  Supplemental and transitional provisions (1) This Order does not apply in relation to any case in which a winding-up or a bankruptcy order was made under the Insolvent Partnerships Order 1986 in relation to a partnership or an insolvent member of a partnership, and where this Order does not apply the law in force immediately before this Order came into force continues to have effect. (2)

Where winding-up or bankruptcy proceedings commenced under the provisions of the Insolvent Partnerships Order 1986 were pending in relation to a partnership or an insolvent member of a partnership immediately before this Order came into force, either– (a) those proceedings shall be continued, after the coming into force of this Order, in accordance with the provisions of this Order, or (b) if the court so directs, they shall be continued under the provisions of the 1986 Order, in which case the law in force immediately before this Order came into force continues to have effect.

(3)

For the purpose of paragraph (2) above, winding-up or bankruptcy proceedings are pending if a statutory or written demand has been served or a winding-up or bankruptcy petition has been presented.

[(4) Nothing in this Order is to be taken as preventing a petition being presented against an insolvent partnership under section  367 of the Financial Services and Markets Act 2000, or any other enactment [except where paragraph 12 of Schedule A1 to the Act, as applied by this Order, has the effect of preventing a petition being so presented]1.]2 (5)

Nothing in this Order is to be taken as preventing any creditor or creditors owed one or more debts by an insolvent partnership from presenting a petition under the Act against one or more members of the partnership liable for that debt or those debts (as the case may be) without including the others and without presenting a petition for the winding up of the partnership as an unregistered company.

(6) Bankruptcy proceedings may be consolidated by virtue of article  14(2) above irrespective of whether they were commenced under the Bankruptcy Act 1914 or the Insolvency Act 1986 or by virtue of the Insolvent Partnerships Order 1986 or this Order, and the court shall, in the case of proceedings commenced under or by virtue of different enactments, make provision for the manner in which the consolidated proceedings are to be conducted. 1 Inserted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI 2002/2708, art 5 (1 January 2003). 2 Substituted by the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001, SI 2001/3649, art 467 (1 December 2001).

20 Revocation The Insolvent Partnerships Order 1986 is hereby revoked.

855

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) [SCHEDULE 1 MODIFIED PROVISIONS OF PART I OF, AND SCHEDULE A1 TO, THE ACT (COMPANY VOLUNTARY ARRANGEMENTS) AS APPLIED BY ARTICLE 4 Part I Modified provisions of sections 1 to 7B of the Act For sections 1 to 7B of the Act there shall be substituted:– ‘Part I Partnership voluntary arrangements The proposal 1  Those who may propose an arrangement (1) The members of an insolvent partnership (other than one [which is in administration]1, or which is being wound up as an unregistered company, or in respect of which an order has been made by virtue of article  11 of the Insolvent Partnerships Order 1994) may make a proposal under this Part to the partnership’s creditors for a composition in satisfaction of the debts of the partnership or a scheme of arrangement of its affairs (from here on referred to, in either case, as a ‘voluntary arrangement’). (2)

A proposal under this Part is one which provides for some person (‘the nominee’) to act in relation to the voluntary arrangement either as trustee or otherwise for the purpose of supervising its implementation; and the nominee must be a person who is qualified to act as an insolvency practitioner […]2 in relation to the voluntary arrangement.

(3)

Such a proposal may also be made– (a) where [the partnership is in administration]1, by the administrator, (b) where the partnership is being wound up as an unregistered company, by the liquidator, and (c) where an order has been made by virtue of article  11 of the Insolvent Partnerships Order 1994, by the trustee of the partnership.

(4) […]3 1A Moratorium (1)

Where the members of an eligible insolvent partnership intend to make a proposal for a voluntary arrangement, they may take steps to obtain a moratorium for the insolvent partnership.

(2)

Subject to subsections (3), (4), (5), (6) and (7), the provisions of Schedule A1 to this Act have effect with respect to– (a) (b) (c) (d)

insolvent partnerships eligible for a moratorium under this section, the procedure for obtaining such a moratorium, the effects of such a moratorium, and the procedure applicable (in place of sections 2 to 6 and 7) in relation to the approval and implementation of a voluntary arrangement where such a moratorium is or has been in force.

(3) Certain of the provisions applied in relation to insolvent partnerships by virtue of subsection (2) are modified in their application in relation to insolvent

856

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F partnerships in such manner that, after modification, they are as set out in Part II of Schedule 1 to the Insolvent Partnerships Order 1994. (4) Paragraphs 4A, 4B, 4C, 4D, 4E, 4F, 4G, 4H, 4I, 4J, 4K, 5, 7(4), 8(8), 32(7), 34(2), 41(5) and 45 of Schedule A1 to this Act shall not apply. (5) An insolvent partnership is not liable to a fine under paragraphs 16(2), 17(3), 18(3), 19(3), 22 or 23(1) of Schedule A1 to the Act. (6) Notwithstanding subsection (5) an officer of an insolvent partnership may be liable to imprisonment or a fine under the paragraphs referred to in that subsection in the same manner as an officer of a company. (7)

In the application of Schedule A1, and the application of the entries in Schedule 10 relating to offences under Schedule A1, to insolvent partnerships– (a)

references to the directors or members of a company shall be construed as references to the members of an insolvent partnership, (b) references to officers of a company shall be construed as references to the officers of an insolvent partnership, (c) references to a meeting of a company shall be construed as references to a meeting of the members of an insolvent partnership, and (d) references to a floating charge shall be construed as references to a floating charge created under section 5 of the Agricultural Credits Act 1928.

2  Procedure where nominee is not the liquidator, administrator or trustee (1) This section applies where the nominee under section  1 is not the liquidator, administrator or trustee of the insolvent partnership and the members of the partnership do not propose to take steps to obtain a moratorium under section 1A for the insolvent partnership. (2)

The nominee shall, within 28 days (or such longer period as the court may allow) after he is given notice of the proposal for a voluntary arrangement, submit a report to the court stating– (a) whether, in his opinion, the proposed voluntary arrangement has a reasonable prospect of being approved and implemented, [(b) whether, in his opinion, the proposal should be considered by a meeting of the members of the partnership and by the partnership’s creditors, and (c) if in his opinion it should, the date on which, and time and place at which, he proposes a meeting should be held.]4

(3) The nominee shall also state in his report whether there are in existence any insolvency proceedings in respect of the insolvent partnership or any of its members. (4) For the purposes of enabling the nominee to prepare his report, the person intending to make the proposal shall submit to the nominee– (a) a document setting out the terms of the proposed voluntary arrangement, and (b) a statement of the partnership’s affairs containing– (i) such particulars of the partnership’s creditors and of the partnership’s debts and other liabilities and of the partnership property as may be prescribed, and (ii) such other information as may be prescribed.

857

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (5)

The court may– (a) (b)

on an application made by the person intending to make the proposal, in a case where the nominee has failed to submit the report required by this section or has died, or on an application made by that person or the nominee, in a case where it is impracticable or inappropriate for the nominee to continue to act as such,

direct that the nominee be replaced as such by another person qualified to act as an insolvency practitioner […]2 in relation to the voluntary arrangement. 3  Summoning of meetings (1) Where the nominee under section  1 is not the liquidator, administrator or trustee of the insolvent partnership, and it has been reported to the court [under section 2(2) that the proposal should be considered by a meeting of the members of the partnership and by the partnership’s creditors]4, the person making the report shall (unless the court otherwise [directs)– (a) summon a meeting of the members of the partnership to consider the proposal for the time, date and place proposed in the report, and (b) seek a decision from the partnership’s creditors as to whether they approve the proposal.]4 (2) Where the nominee is the liquidator, administrator or trustee of the insolvent partnership, he [must– (a) summon a meeting of the members of the partnership to consider the proposal for such time, date and place as he thinks fit, and (b) seek a decision from the partnership’s creditors as to whether they approve the proposal.]4 [(3) A decision of the partnership’s creditors as to whether they approve the proposal is to be made by a qualifying decision procedure. (4) Notice of the qualifying decision procedure must be given to every creditor of the partnership of whose claim and address the person summoning the meeting is aware.]4 Consideration and implementation of proposal 4  Decisions of [the members of the partnership and its creditors]4 [(1) This section applies where, under section 3– (a)

a meeting of the members of the partnership is summoned to consider the proposed voluntary arrangement, and (b) the partnership’s creditors are asked to decide whether to approve the proposed voluntary arrangement. (1A) The members of the partnership and its creditors may approve the proposed voluntary arrangement with or without modifications.]4 (2) The modifications may include one conferring the functions proposed to be conferred on the nominee on another person qualified to act as an insolvency practitioner […]2 in relation to the voluntary arrangement. But they shall not include any modification by virtue of which the proposal ceases to be a proposal such as is mentioned in section 1.

858

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (3) [Neither the members of the partnership nor its creditors may]4 approve any proposal or modification which affects the right of a secured creditor of the partnership to enforce his security, except with the concurrence of the creditor concerned. (4) Subject as follows, [neither the members of the partnership nor its creditors may]4 approve any proposal or modification under which– (a) any preferential debt of the partnership is to be paid otherwise than in priority to such of its debts as are not preferential debts, […]5 [(aa) any ordinary preferential debt of the partnership is to be paid otherwise than in priority to any secondary preferential debts that it may have,]6 (b) a preferential creditor of the partnership is to be paid an amount in respect of [an ordinary preferential debt]7 that bears to that debt a smaller proportion than is borne to [another ordinary]7 preferential debt by the amount that is to be paid in respect of that other debt[, […]8 (c) a preferential creditor of the partnership is to be paid an amount in respect of a secondary preferential debt that bears to that debt a smaller proportion than is borne to another secondary preferential debt by the amount that is to be paid in respect of that other debt, [or (d) in the case of a company which is a relevant financial institution (see section 387A), any non-preferential debt is to be paid otherwise than in accordance with the rules in section 176AZA(2) or (3).]9]6 However, [such a proposal or modification may be approved]4 with the concurrence of the […]8 creditor concerned. (5) Subject as above, [the meeting of the members of the partnership and the qualifying decision procedure]4 shall be conducted in accordance with the rules. (6) After the conclusion of [the meeting of the members of the partnership]4 in accordance with the rules, the chairman of the meeting shall report the result of the meeting to the court, and, immediately after reporting to the court, shall give notice of the result of the meeting to all those who were sent notice of the meeting in accordance with the rules. [(6A) After the partnership’s creditors have decided whether to approve the proposed voluntary arrangement the person who sought the decision must– (a) report the creditors’ decision to the court, and (b) immediately after reporting to the court, give notice of the creditors’ decision to everyone who was invited to consider the proposal or to whom notice of a decision procedure or meeting was delivered.]10 (7) References in this section to preferential debts[, ordinary preferential debts, secondary preferential debts]6 and preferential creditors are to be read in accordance with section 386 in Part XII of this Act. 4A  Approval of arrangement (1) This section applies to a decision, under section 4, with respect to the approval of a proposed voluntary arrangement. (2)

The decision has effect if, in accordance with the rules– (a) it has been taken by [the meeting of the members of the partnership summoned under section 3 and by the partnership’s creditors pursuant to that section]4, or

859

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (b) (subject to any order made under subsection (6)) it has been taken by the [partnership’s creditors’ pursuant to]4 that section. (3) If the decision taken by the [partnership’s creditors]4 differs from that taken by the meeting of the members of the partnership, a member of the partnership may apply to court. (4)

An application under subsection (3) shall not be made after the end of the period of 28 days beginning with– (a) the day on which the decision was taken by the [partnership’s creditors]4, or (b) where the decision of the meeting of the members of the partnership was taken on a later day, that day.

[(5) Where a member of an insolvent partnership which is regulated applies to the court under subsection (3), the appropriate regulator is entitled to be heard on the application. (5A) ‘The appropriate regulator’ means– (a) where the partnership is a PRA-regulated partnership, the Prudential Regulation Authority and the Financial Conduct Authority; (b) in any other case the Financial Conduct Authority. (5B) For the purposes of subsection (5A), a ‘PRA-regulated partnership’ means a partnership which– (a) is or has been, a PRA-authorised person (within the meaning of the Financial Services and Markets Act 2000), (b) is, or has been, an appointed representative within the meaning given by section 39 of that Act, whose principal (or one of whose principals) is, or was, a PRAauthorised person, or (c) is carrying on, or has carried on, a PRA-regulated activity (within the meaning of that Act) in contravention of the general prohibition under section 19 of that Act.]11 (6)

On an application under subsection (3), the court may– (a) order the decision of the meeting of the members of the partnership to have effect instead of the decision of the [partnership’s creditors]4, or (b) make such other order as it thinks fit.

(7) In this section ‘regulated’ in relation to an insolvent partnership means a person who– (a)

is, or has been, an authorised person within the meaning given by section 31 of the Financial Services and Markets Act 2000, (b) is, or has been, an appointed representative within the meaning given by section 39 of that Act, or (c) is carrying on, or has carried on, a regulated activity, within the meaning given by section 22 of that Act, in contravention of the general prohibition within the meaning given by section 19 of that Act. 5  Effect of approval (1) This section applies where a decision approving a voluntary arrangement has effect under section 4A. (2)

The voluntary arrangement–

860

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (a) (b)

takes effect as if made by the members of the partnership at the [time the creditors decided to approve the voluntary arrangement]4, and binds every person who in accordance with the rules– (i) was entitled to vote [in the qualifying decision procedure by which the creditors’ decision to approve the voluntary arrangement was made]4, or (ii) would have been so entitled if he had had notice of [the procedure]4, as if he were a party to the voluntary arrangement.

(2A) If– (a) (b)

when the arrangement ceases to have effect any amount payable under the arrangement to a person bound by virtue of subsection 2(b)(ii) has not been paid, and the arrangement did not come to an end prematurely,

the insolvent partnership shall at that time become liable to pay to that person the amount payable under the arrangement. (3) Subject as follows, if the partnership is being wound up as an unregistered company, or [is in administration]1 or an order by virtue of article  11 of the Insolvent Partnerships Order 1994 is in force, the court may do one or both of the following, namely– (a) by order– (i) stay all proceedings in the winding up or in the proceedings under the order made by virtue of the said article 11 (as the case may be), including any related insolvency proceedings of a member of the partnership in his capacity as such, or (ii) [provide for the appointment of the administrator to cease to have effect]1; (b) give such directions as it thinks appropriate for facilitating the implementation of the voluntary arrangement with respect to– (i) the conduct of the winding up, the proceedings by virtue of the said article 11 or the administration (as the case may be), and (ii) the conduct of any related insolvency proceedings as referred to in paragraph (a)(i) above. (4)

The court shall not make an order under subsection (3)(a)– (a)

at any time before the end of the period of 28 days beginning with the first day on which each of the reports required by section 4(6) [and (6A)]10 has been made to the court, or (b) at any time when an application under the next section or an appeal in respect of such an application is pending, or at any time in the period within which such an appeal may be brought.

6  Challenge of decisions (1) Subject to this section, an application to the court may be made, by any of the persons specified below, on one or both of the following grounds, namely– (a)

that a voluntary arrangement which has effect under section 4A unfairly prejudices the interests of a creditor, member or contributory of the partnership;

861

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (b) that there has been some material irregularity at or in relation to [the meeting of the members of the partnership or in the relevant qualifying decision procedure]4. (2)

The persons who may apply under this section are– (a) a person entitled, in accordance with the rules, to vote at [the meeting of the members of the partnership or in the relevant qualifying decision procedure]4; (b) a person who would have been entitled, in accordance with the rules, to vote [in the relevant qualifying decision procedure]4 if he had had notice of it; (c) the nominee or any person who has replaced him under section  2(5) or 4(2); and (d) if the partnership is being wound up as an unregistered company or [is in administration or an]1 order by virtue of article  11 of the Insolvent Partnerships Order 1994 is in force, the liquidator, administrator or trustee of the partnership.

(3)

An application under this section shall not be made– (a) (b)

after the end of the period of 28 days beginning with the first day on which each of the reports required by section 4(6) [and (6A)]10 has been made to the court, or in the case of a person who was not given notice of the [relevant qualifying decision procedure]4, after the end of the period of 28 days beginning with the day on which he became aware that [the relevant qualifying decision procedure]4 had taken place,

but (subject to that) an application made by a person within subsection (2)(b) on the ground that the voluntary arrangement prejudices his interests may be made after the voluntary arrangement has ceased to have effect, unless it came to an end prematurely. (4) Where on such an application the court is satisfied as to either of the grounds mentioned in subsection (1), it may do [any]4 of the following, namely– (a) revoke or suspend any decision approving the voluntary arrangement which has effect under section 4A or, in a case falling within subsection (1) (b), any decision taken by the meeting [of the members of the partnership, or in the relevant qualifying decision procedure,]4 which has effect under that section; (b) give a direction to any person for the summoning of [a further meeting of the members of the partnership]4 to consider any revised proposal the person who made the original proposal may make or, in a case falling within subsection (1)(b) [and relating to the meeting of the members of the partnership, a further meeting of the members of the partnership]4 to reconsider the original proposal; [(c) direct any person– (i) to seek a decision from the partnership’s creditors (using a qualifying decision procedure) as to whether they approve any revised proposal the person who made the original proposal may make, or (ii) in a case falling within subsection (1)(b) and relating to the relevant qualifying decision procedure, to seek a decision from the partnership’s creditors (using a qualifying decision procedure) as to whether they approve the original proposal.]10

862

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (5) Where at any time after giving a direction under subsection (4)(b) [or (c) in relation to]4 a revised proposal the court is satisfied that the person who made the original proposal does not intend to submit a revised proposal, the court shall revoke the direction and revoke or suspend any decision approving the voluntary arrangement which has effect under section 4A. (6) In a case where the court, on an application under this section with respect to any meeting [or relevant qualifying decision procedure]10– (a) (b)

gives a direction under subsection (4)(b) [or (c)]10, or revokes or suspends an approval under subsection (4)(a) or (5),

the court may give such supplemental directions as it thinks fit, and, in particular, directions with respect to things done under the voluntary arrangement since it took effect. (7)

Except in pursuance of the preceding provisions of this section– [(a)]10 a decision taken at a meeting [of the members of the partnership]10 summoned under section 3 is not invalidated by any irregularity at or in relation to the meeting[, and (b) a decision of the creditors of the partnership made in the relevant qualifying decision procedure is not invalidated by any irregularity in relation to the relevant qualifying decision procedure.]10

6A  False representations, etc. (1) If, for the purpose of obtaining the approval of the members or creditors of an insolvent partnership or of the members or creditors of any of its members to a proposal for a voluntary arrangement in relation to the partnership or any of its members, a person who is an officer of the partnership or an officer (which for this purpose includes a shadow director) of a corporate member in relation to which a voluntary arrangement is proposed– (a) (b)

makes a false representation, or fraudulently does, or omits to do, anything,

he commits an offence. (2)

Subsection (1) applies even if the proposal is not approved.

(3) A person guilty of an offence under this section is liable to imprisonment or a fine, or both.

7  Implementation of proposal (1)

This section applies where a voluntary arrangement has effect under section 4A.

(2) The person who is for the time being carrying out in relation to the voluntary arrangement the functions conferred– (a) on the nominee by virtue of the approval [of the voluntary arrangement by the members of the partnership or its creditors (or both) pursuant to]4 section 3, or (b) by virtue of section 2(5) or 4(2) on a person other than the nominee, shall be known as the supervisor of the voluntary arrangement.

863

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (3)

If any of the partnership’s creditors or any other person is dissatisfied by any act, omission or decision of the supervisor, he may apply to the court; and on the application the court may– (a) (b) (c)

confirm, reverse or modify any act or decision of the supervisor, give him directions, or make such other order as it thinks fit.

(4) The supervisor– (a) (b)

(5)

may apply to the court for directions in relation to any particular matter arising under the voluntary arrangement, and is included among the persons who may apply to the court for the winding up of the partnership as an unregistered company or for an administration order to be made in relation to it.

The court may, whenever– (a) it is expedient to appoint a person to carry out the functions of the supervisor, and (b) it is inexpedient, difficult or impracticable for an appointment to be made without the assistance of the court, make an order appointing a person who is qualified to act as an insolvency practitioner […]2 in relation to the voluntary arrangement, either in substitution for the existing supervisor or to fill a vacancy.

(6) The power conferred by subsection (5) is exercisable so as to increase the number of persons exercising the functions of supervisor or, where there is more than one person exercising those functions, so as to replace one or more of those persons. 7A  Prosecution of delinquent officers of partnership (1)

This section applies where a moratorium under section 1A has been obtained for an insolvent partnership or the approval of a voluntary arrangement in relation to an insolvent partnership has taken effect under section 4A or paragraph 36 of Schedule A1.

(2) If it appears to the nominee or supervisor that any past or present officer of the insolvent partnership has been guilty of any offence in connection with the moratorium or, as the case may be, voluntary arrangement for which such officer is criminally liable, the nominee or supervisor shall forthwith– (a) report the matter to the Secretary of State, and (b) provide the Secretary of State with such information and give him such access to and facilities for inspecting and taking copies of documents (being information or documents in the possession or under the control of the nominee or supervisor and relating to the matter in question) as the Secretary of State requires. (3) Where a prosecuting authority institutes criminal proceedings following any report under subsection (2), the nominee or supervisor, and every officer and agent of the insolvent partnership past or present (other than the defendant), shall give the authority all assistance in connection with the prosecution which he is reasonably able to give. For this purpose–

864

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F ‘agent’ includes any banker or solicitor of the insolvent partnership and any person employed by the insolvent partnership as auditor, whether that person is or is not an officer of the insolvent partnership, ‘prosecuting authority’ means the Director of Public Prosecutions or the Secretary of State. (4)

The court may, on the application of the prosecuting authority, direct any person referred to in subsection (3) to comply with that subsection if he has failed to do so.

7B  Arrangements coming to an end prematurely For the purposes of this Part, a voluntary arrangement the approval of which has taken effect under section 4A or paragraph 36 of Schedule A1 comes to an end prematurely if, when it ceases to have effect, it has not been fully implemented in respect of all persons bound by the arrangement by virtue of section 5(2)(b)(i) or, as the case may be, paragraph 37(2)(b)(i) of Schedule A1.’.]12   1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 6(1), (2)(a), (b), (3), (4) (1 July 2005).  2 Repealed by the Deregulation Act 2015 (Insolvency) (Consequential Amendments and Transitional and Savings Provisions) Order 2015, SI  2015/1641, art  5, Sch  2, para  1 (1 October 2015).   3 Repealed by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 6(1), (2) (c) (1 July 2005).   4 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 4(1)–(3), (4)(a)–(e), (g), (5), (6)(a), (7)(a), (b), (d)–(g), (i), (8) (6 April 2017).   5 Repealed by the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, SI  2014/3486, art  12(1), (2)(a) (1  January 2015: substitution has effect subject to transitional provisions specified in the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, art 3).  6 Inserted by the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, SI 2014/3486, art 12(1), (2)(b), (d), (3) (1 January 2015: substitution has effect subject to transitional provisions specified in the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, art 3).   7 Substituted by the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, SI  2014/3486, art  12(1), (2)(c) (1  January 2015: substitution has effect subject to transitional provisions specified in the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, art 3).  8 Repealed by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, arts 15, 18(1), (2)(a), (c) (19 December 2018).  9 Inserted by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, arts 15, 18(1), (2)(b) (19 December 2018). 10 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 4(1), (4)(f), (6)(b), (7)(c), (h), (j), (k) (6 April 2017). 11 Substituted by the Financial Services Act 2012 (Consequential Amendments and Transitional Provisions) Order 2013, SI 2013/472, art 3, Sch 2, para 11(a)(i) (1 April 2013). 12 Substituted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI 2002/2708, art 6, Sch 1 (1 January 2003).

[Part II Modified provisions of Schedule A1 to the Act The following provisions of Schedule A1 to the Act are modified so as to read as follows:

865

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) ‘3 (1) An insolvent partnership meets the requirements of this paragraph if the qualifying conditions are met– (a) in the year ending with the date of filing, or (b) in the tax year of the insolvent partnership which ended last before that date. (2) For the purposes of sub-paragraph (1) the qualifying conditions are met by an insolvent partnership in a period if, in that period, it satisfies two or more of the requirements set out in sub-paragraph (3). (3)

The qualifying conditions referred to in this paragraph are– (a) (b) (c)

(4)

For the purposes of sub-paragraph (3)– (a) (b)

(c)

(5)

turnover of not more than [£5.6]1 million, assets of not more than [£2.8]1 million, and no more than 50 employees. the total of turnover is the amount which is or would be, as the case may be, entered as turnover in the partnership’s tax return, the total of assets is the amount which– (i) in the case of the period referred to in paragraph 3(1)(a), is entered in the partnership’s statement of affairs which must be filed with the court under paragraph 7(1)(b), or (ii) in the case of the period referred to in paragraph 3(1)(b), would be entered in the partnership’s statement of affairs had it prepared such a statement on the last day of the period to which the amount for turnover is calculated for the purposes of paragraph 3(4)(a), the number of employees is the average number of persons employed by the insolvent partnership– (i) in the case of the period referred to in paragraph  3(1)(a), in the period ending with the date of filing, (ii) in the case of the period referred to in paragraph 3(1)(b), in the period to which the amount for turnover is calculated for the purposes of paragraph 3(4)(a).

Where the period covered by the qualifying conditions in respect of the insolvent partnership is not a year the total of turnover referred to in paragraph 3(3)(a) shall be proportionately adjusted.

(6) The average number of persons employed by the insolvent partnership shall be calculated as follows– (a) (b) (c) (7)

by ascertaining the number of persons employed by it under contracts of service for each month of the year (whether throughout the month or not), by adding those figures together, and by dividing the resulting figure by the number of months during which persons were so employed by it during the year.

In this paragraph– ‘tax return’ means a return under section 12AA of the Taxes Management Act 1970, ‘tax year’ means the 12 months beginning with 6th April in any year.

866

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 4 (1)

An insolvent partnership is excluded from being eligible for a moratorium if, on the date of filing– (a) (b) (c) (d) (e) (f)

(g)

(h)

[the partnership is in administration]1, the insolvent partnership is being wound up as an unregistered company, there is an agricultural receiver of the insolvent partnership, a voluntary arrangement has effect in relation to the insolvent partnership, there is a provisional liquidator of the insolvent partnership, a moratorium has been in force for the insolvent partnership at any time during the period of 12 months ending with the date of filing and– (i) no voluntary arrangement had effect at the time at which the moratorium came to an end, or (ii) a voluntary arrangement which had effect at any time in that period has come to an end prematurely, a voluntary arrangement in relation to the insolvent partnership which had effect in pursuance of a proposal under section 1(3) has come to an end prematurely and, during the period of 12 months ending with the date of filing, an order under section 5(3)(a) has been made, or an order has been made by virtue of article 11 of the Insolvent Partnerships Order 1994.

(2) Sub-paragraph  (1)(b) does not apply to an insolvent partnership which, by reason of a winding-up order made after the date of filing, is treated as being wound up on that date. Effect on creditors, etc. 12 (1)

During the period for which a moratorium is in force for an insolvent partnership– (a) no petition may be presented for the winding-up of the insolvent partnership as an unregistered company, (b) no meeting of the members of the partnership may be called or requisitioned except with the consent of the nominee or the leave of the court and subject (where the court gives leave) to such terms as the court may impose, (c) no order may be made for the winding-up of the insolvent partnership as an unregistered company, [(d) no administration application may be made in respect of the partnership, (da) no administrator of the partnership may be appointed under paragraph 14 or 22 of Schedule B1,]1 (e) no agricultural receiver of the partnership may be appointed except with the leave of the court and subject to such terms as the court may impose, (f) no landlord or other person to whom rent is payable may exercise any rights of forfeiture by peaceable re-entry in relation to premises forming part of the partnership property or let to one or more officers of the partnership in their capacity as such in respect of a failure by the partnership or one or more officers of the partnership to comply with any term or condition of the tenancy of such premises, except with the leave of the court and subject to such terms as the court may impose, (g) no other steps may be taken to enforce any security over the partnership property, or to repossess goods in the possession, under any hire-purchase agreement, of one or more officers of the partnership in their capacity as

867

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) such, except with the leave of the court and subject to such terms as the court may impose, (h) no other proceedings and no execution or other legal process may be commenced or continued, and no distress may be levied, against the insolvent partnership or the partnership property except with the leave of the court and subject to such terms as the court may impose, (i) no petition may be presented, and no order may be made, by virtue of article 11 of the Insolvent Partnerships Order 1994, and (j) no application or order may be made under section 35 of the Partnership Act 1890 in respect of the insolvent partnership. (2) Where a petition, other than an excepted petition, for the winding-up of the insolvent partnership has been presented before the beginning of the moratorium, section 127 shall not apply in relation to any disposition of partnership property, any transfer of an interest in the insolvent partnership or alteration in status of a member of the partnership made during the moratorium or at a time mentioned in paragraph 37(5)(a). (3) Paragraph (a) of sub-paragraph (1) does not apply to an excepted petition and, where such a petition has been presented before the beginning of the moratorium or is presented during the moratorium, paragraphs (b) and (c) of that subparagraph do not apply in relation to proceedings on the petition. (4)

For the purposes of this paragraph, ‘excepted petition’ means a petition under– (a) article  7(1) of the Insolvent Partnerships Order 1994 presented by the Secretary of State on the grounds mentioned in subsections (b), (c) and (d) of section 124A of this Act, (b) section 72 of the Financial Services Act 1986 on the ground mentioned in subsection (1)(b) of that section, (c) section 92 of the Banking Act 1987 on the ground mentioned in subsection (1)(b) of that section, or (d) section 367 of the Financial Services and Markets Act 2000 on the ground mentioned in subsection (3)(b) of that section. Disposal of charged property, etc

20 (1)

This paragraph applies where– (a) any partnership property of the insolvent partnership is subject to a security, or (b) any goods are in possession of one or more officers of the partnership in their capacity as such under a hire-purchase agreement.

(2) If the holder of the security consents, or the court gives leave, the insolvent partnership may dispose of the property as if it were not subject to the security. (3) If the owner of the goods consents, or the court gives leave, the insolvent partnership may dispose of the goods as if all rights of the owner under the hirepurchase agreement were vested in the members of the partnership. (4) Where property subject to a security which, as created, was a floating charge is disposed of under sub-paragraph (2), the holder of the security has the same priority in respect of any partnership property directly or indirectly representing the property disposed of as he would have had in respect of the property subject to the security.

868

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (5)

Sub-paragraph (6) applies to the disposal under sub-paragraph (2) or (as the case may be) sub-paragraph (3) of– (a)

any property subject to a security other than a security which, as created, was a floating charge, or (b) any goods in the possession of one or more officers of the partnership in their capacity as such under a hire-purchase agreement. (6)

It shall be a condition of any consent or leave under sub-paragraph (2) or (as the case may be) sub-paragraph (3) that– (a) the net proceeds of the disposal, and (b) where those proceeds are less than such amount as may be agreed, or determined by the court, to be the net amount which would be realised on a sale of the property or goods in the open market by a willing vendor, such sums as may be required to make good the deficiency, shall be applied towards discharging the sums secured by the security or payable under the hire-purchase agreement.

(7)

Where a condition imposed in pursuance of sub-paragraph (6) relates to two or more securities, that condition requires– (a) (b)

the net proceeds of the disposal, and where paragraph (b) of sub-paragraph (6) applies, the sums mentioned in that paragraph,

to be applied towards discharging the sums secured by those securities in the order of their priorities. (8) In this paragraph ‘floating charge’ means a floating charge created under section 5 of the Agricultural Credits Act 1928. Effect of approval of voluntary arrangement 37 (1)

This paragraph applies where a decision approving a voluntary arrangement has effect under paragraph 36.

(2)

The approved voluntary arrangement– (a) (b)

takes effect as if made by the members of the partnership at the [time the creditors decided to approve the voluntary arrangement]2, and binds every person who in accordance with the rules– (i) was entitled to vote [in the qualifying decision procedure by which the creditors’ decision to approve the voluntary arrangement was made]2, or (ii) would have been so entitled if he had had notice of [the procedure]2, as if he were a party to the voluntary arrangement.

(3) If– (a) (b)

when the arrangement ceases to have effect any amount payable under the arrangement to a person bound by virtue of sub-paragraph (2)(b)(ii) has not been paid, and the arrangement did not come to an end prematurely,

the insolvent partnership shall at that time become liable to pay to that person the amount payable under the arrangement.

869

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (4) Where a petition for the winding-up of the insolvent partnership as an unregistered company or a petition by virtue of article  11 of the Insolvent Partnerships Order 1994, other than an excepted petition within the meaning of paragraph 12, was presented before the beginning of the moratorium, the court shall dismiss the petition. (5)

The court shall not dismiss a petition under sub-paragraph (4)– (a)

at any time before the end of the period of 28 days beginning with the first day on which each of the reports […]3 required by paragraph 30(3) [and (4)]4 has been made to the court, or (b) at any time when an application under paragraph  38 or an appeal in respect of such an application is pending, or at any time in the period within which such an appeal may be brought. Challenge of actions of officers of insolvent partnership 40 (1) This paragraph applies in relation to acts or omissions of the officers of a partnership during a moratorium. (2)

A creditor or member of the insolvent partnership may apply to the court for an order under this paragraph on the ground– (a) that the partnership’s affairs and business and partnership property are being or have been managed by the officers of the partnership in a manner which is unfairly prejudicial to the interests of its creditors or members generally, or of some part of its creditors or members (including at least the petitioner), or (b) that any actual or proposed act or omission of the officers of the partnership is or would be so prejudicial.

(3) An application for an order under this paragraph may be made during or after the moratorium. (4)

On an application for an order under this paragraph the court may– (a) (b) (c)

(5)

make such order as it thinks fit for giving relief in respect of the matters complained of, adjourn the hearing conditionally or unconditionally, or make an interim order or any other order that it thinks fit.

An order under this paragraph may in particular– (a) regulate the management by the officers of the partnership of the partnership’s affairs and business and partnership property during the remainder of the moratorium, (b) require the officers of the partnership to refrain from doing or continuing an act complained of by the petitioner, or to do an act which the petitioner has complained they have omitted to do, (c) require the summoning of a meeting of […]3 members of the partnership for the purpose of considering such matters as the court may direct, [(ca) require a decision of the partnership’s creditors to be sought (using a qualifying decision procedure) on such matters as the court may direct,]4 (d) bring the moratorium to an end and make such consequential provision as the court thinks fit.

870

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (6) In making an order under this paragraph the court shall have regard to the need to safeguard the interests of persons who have dealt with the insolvent partnership in good faith and for value. [(7) Sub-paragraph (8) applies where– (a)

the appointment of an administrator has effect in relation to the insolvent partnership and the appointment took effect before the moratorium came into force, or (b) the insolvent partnership is being wound up as an unregistered company or an order by virtue of article 11 of the Insolvent Partnerships Order 1994 has been made, in pursuance of a petition presented before the moratorium came into force. (8) No application for an order under this paragraph may be made by a creditor or member of the insolvent partnership; but such an application may be made instead by the administrator (or as the case may be) the liquidator.]1 42 (1)

If, for the purpose of obtaining a moratorium, or an extension of a moratorium, for an insolvent partnership or any of its members (a moratorium meaning in the case of an individual the effect of an application for, or the making of, an interim order under Part VIII of the Act), a person who is an officer of an insolvent partnership or an officer (which for this purpose includes a shadow director) of a corporate member in relation to which a voluntary arrangement is proposed– (a) (b)

makes any false representation, or fraudulently does, or omits to do, anything,

he commits an offence. (2)

Sub-paragraph (1) applies even if no moratorium or extension is obtained.

(3) A person guilty of an offence under this paragraph is liable to imprisonment or a fine, or both.’.]5 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 6(1), (5)–(8) (1 July 2005). 2 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 5(1), (2)(a)–(c) (6 April 2017). 3 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 5(1), (2)(d)(i), (3)(a) (6 April 2017). 4 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 5(1), (2)(d)(ii), (3)(b) (6 April 2017). 5 Substituted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI 2002/2708, art 6, Sch 1 (1 January 2003).

871

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) [SCHEDULE 2 MODIFIED PROVISIONS OF PART II OF, AND SCHEDULE B1 TO, THE ACT (ADMINISTRATION) AS APPLIED BY ARTICLE 6 1 The following provisions of Schedule B1 and Schedule  1 to the Act are modified as follows.]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[2 Paragraph 2 is modified so as to read as follows– ‘2 A person may be appointed as administrator of a partnership– (a) by administration order of the court under paragraph 10, (b) by the holder of an agricultural floating charge under paragraph 14, or (c) by the members of the insolvent partnership in their capacity as such under paragraph 22.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[3 Paragraph 7 is modified so as to read as follows– ‘7 A person may not be appointed as administrator of a partnership which is in administration (subject to the provisions of paragraphs 90 to 93, 95 to 97, and 100 to 103 about replacement and additional administrators).’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[4 Paragraph 8 is modified so as to read as follows– ‘8 (1)

A person may not be appointed as administrator of a partnership after– (a) an order has been made in relation to it by virtue of Article  11 of the Insolvent Partnerships Order 1994; or (b) an order has been made for it to be wound up by the court as an unregistered company.

(2)

Sub-paragraph (1)(a) is subject to paragraph 38.

(3)

Sub-paragraph (1)(b) is subject to paragraphs 37 and 38.’]1

872

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[5 Paragraph 11 is modified so as to read as follows– ‘11 The court may make an administration order in relation to a partnership only if satisfied– (a) that the partnership is unable to pay its debts, and (b) that the administration order is reasonably likely to achieve the purpose of administration.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[6 Paragraph 12 is modified so as to read as follows– ‘12 (1)

An application to the court for an administration order in respect of a partnership (‘an administration application’) shall be by application in Form 1 in Schedule 9 to the Insolvent Partnerships Order 1994 and may be made only by– (a) (b) (c)

the members of the insolvent partnership in their capacity as such; one or more creditors of the partnership; or a combination of persons listed in paragraphs (a) and (b).

(2) As soon as is reasonably practicable after the making of an administration application the applicant shall notify– (a) (b) (c) (d) (3)

any person who has appointed an agricultural receiver of the partnership; any person who is or may be entitled to appoint an agricultural receiver of the partnership; any person who is or may be entitled to appoint an administrator of the partnership under paragraph 14; and such other persons as may be prescribed.

An administration application may not be withdrawn without the permission of the court.

(4) In sub-paragraph  (1) ‘creditor’ includes a contingent creditor and a prospective creditor. (5)

Sub-paragraph (1) is without prejudice to section 7(4)(b).’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[7 Paragraph 14 is modified so as to read as follows–

873

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) ‘14 (1) The holder of a qualifying agricultural floating charge in respect of partnership property may appoint an administrator of the partnership. (2)

For the purposes of sub-paragraph (1) an agricultural floating charge qualifies if created by an instrument which– (a) states that this paragraph applies to the agricultural floating charge, (b) purports to empower the holder of the agricultural floating charge to appoint an administrator of the partnership, [or]1 (c) purports to empower the holder of the agricultural floating charge to make an appointment which would be the appointment of an agricultural receiver.

(3) For the purposes of sub-paragraph  (1) a person is the holder of a qualifying agricultural floating charge in respect of partnership property if he holds one or more charges of the partnership secured– (a) (b) (c)

by a qualifying agricultural floating charge which relates to the whole or substantially the whole of the partnership property, by a number of qualifying agricultural floating charges which together relate to the whole or substantially the whole of the partnership property, or by charges and other forms of security which together relate to the whole or substantially the whole of the partnership property and at least one of which is a qualifying agricultural floating charge.’]2

1 Inserted by the Insolvent Partnerships (Amendment) Order 2006, SI 2006/622, art 5(1), (2)(a) (6 April 2006). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[8 Paragraph 15 is modified so as to read as follows–

‘15 (1)

A person may not appoint an administrator under paragraph 14 unless– (a)

he has given at least two business days’ written notice to the holder of any prior agricultural floating charge which satisfies paragraph 14(2); or (b) the holder of any prior agricultural floating charge which satisfies paragraph 14(2) has consented in writing to the making of the appointment. [(2) For the purposes of this paragraph, one agricultural floating charge is prior to another in accordance with the provisions of section  8(2) of the Agricultural Credits Act 1928.’]1]2 1 Inserted by the Insolvent Partnerships (Amendment) Order 2006, SI 2006/622, art 5(1), (2)(b) (6 April 2006). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[9 Paragraph 22 is modified so as to read as follows–

874

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F ‘22 The members of the insolvent partnership may appoint an administrator.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[10 Paragraph 23 is modified so as to read as follows– ‘23 (1)

This paragraph applies where an administrator of a partnership is appointed– (a) (b)

under paragraph 22, or on an administration application made by the members of the partnership.

(2) An administrator of the partnership may not be appointed under paragraph 22 during the period of 12 months beginning with the date on which the appointment referred to in sub-paragraph (1) ceases to have effect.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[11 Paragraph 26 is modified so as to read as follows– ‘26 (1)

A person who proposes to make an appointment under paragraph 22 shall give at least five business days’ written notice to– (a)

any person who is or may be entitled to appoint an agricultural receiver of the partnership, and (b) any person who is or may be entitled to appoint an administrator of the partnership under paragraph 14. (2)

A person who proposes to make an appointment under paragraph 22 shall also give such notice as may be prescribed to such other persons as may be prescribed.

(3)

A notice under this paragraph must– (a) (b)

identify the proposed administrator, and be in Form 1A in Schedule 9 to the Insolvent Partnerships Order 1994.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[12 Paragraph 27 is modified so as to read as follows– ‘27 (1)

A person who gives notice of intention to appoint under paragraph 26 shall file with the court as soon as is reasonably practicable a copy of– (a)

the notice, and

875

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (b)

any document accompanying it.

(2) The copy filed under sub-paragraph  (1) must be accompanied by a statutory declaration made by or on behalf of the person who proposes to make the appointment– (a) (b) (c) (d) (3)

A statutory declaration under sub-paragraph (2) must– (a) (b)

(4)

that the partnership is unable to pay its debts, that the partnership is not in liquidation, and that, so far as the person making the statement is able to ascertain, the appointment is not prevented by paragraphs 23 to 25, and to such additional effect, and giving such information, as may be prescribed. be in the prescribed form, and be made during the prescribed period.

A person commits an offence if in a statutory declaration under sub-paragraph (2) he makes a statement– (a) (b)

which is false, and which he does not reasonably believe to be true.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[13 Paragraph 29 is modified so as to read as follows– ‘29 (1) A person who appoints an administrator of a partnership under paragraph 22 shall file with the court– (a) (b) (2)

a notice of appointment, and such other documents as may be prescribed.

The notice of appointment must include a statutory declaration by or on behalf of the person who makes the appointment– (a) (b) (c)

that the person is entitled to make an appointment under paragraph 22, that the appointment is in accordance with this Schedule, and that, so far as the person making the statement is able to ascertain, the statements made, and information given in the statutory declaration filed with the notice of intention to appoint remain accurate.

(3) The notice of appointment must identify the administrator and must be accompanied by a statement by the administrator– (a) (b) (c)

that he consents to the appointment, that in his opinion the purpose of administration is reasonably likely to be achieved, and giving such other information and opinions as may be prescribed.

(4) For the purpose of a statement under sub-paragraph (3) an administrator may rely on information supplied by members of the partnership (unless he has reason to doubt its accuracy).

876

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (5) The notice of appointment must be in Form 1B in Schedule 9 to the Insolvent Partnerships Order 1994 and any document accompanying it must be in the prescribed form. (6) A statutory declaration under sub-paragraph  (2) must be made during the prescribed period. (7)

A person commits an offence if in a statutory declaration under sub-paragraph (2) he makes a statement– (a) (b)

which is false, and which he does not reasonably believe to be true.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[14 Paragraph 35 is modified so as to read as follows– ‘35 (1) This paragraph applies where an administration application in respect of a partnership– (a)

is made by the holder of a qualifying agricultural floating charge in respect of the partnership property, and (b) includes a statement that the application is made in reliance on this paragraph. (2)

The court may make an administration order– (a) whether or not satisfied that the partnership is unable to pay its debts; but (b) only if satisfied that the applicant could appoint an administrator under paragraph 14.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[15 Paragraph 39 is modified so as to read as follows– ‘39 (1)

Where there is an agricultural receiver of a partnership the court must dismiss an administration application in respect of the partnership unless– (a)

the person by or on behalf of whom the agricultural receiver was appointed consents to the making of the administration order, (b) the court thinks that the security by virtue of which the agricultural receiver was appointed would be liable to be released or discharged under sections  238 to 240 (transaction at undervalue and preference) if an administration order were made, or (c) the court thinks that the security by virtue of which the agricultural receiver was appointed would be avoided under section 245 (avoidance of floating charge) if an administration order were made.

877

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (2) Sub-paragraph (1) applies whether the agricultural receiver is appointed before or after the making of the administration application.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[16 Paragraph 41 is modified so as to read as follows– ‘41 (1) When an administration order takes effect in respect of a partnership any agricultural receiver of the partnership shall vacate office. (2)

Where a partnership is in administration, any receiver of part of the partnership property shall vacate office if the administrator requires him to.

(3)

Where an agricultural receiver vacates office under sub-paragraph (1) or (2), his remuneration shall be charged on and paid out of any partnership property which was in his custody or under his control immediately before he vacated office.

(4)

In the application of sub-paragraph (3)– (a)

‘remuneration’ includes expenses properly incurred and any indemnity to which the agricultural receiver is entitled out of the partnership property, (b) the charge imposed takes priority over security held by the person by whom or on whose behalf the agricultural receiver was appointed, and (c) the provision for payment is subject to paragraph 43.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[17 Paragraph 42 is modified so as to read as follows– ‘42 (1)

This paragraph applies to a partnership in administration.

(2)

No order may be made for the winding up of the partnership.

(3) No order may be made by virtue of Article  11 of the Insolvent Partnerships Order 1994 in respect of the partnership. (4)

No order may be made under section 35 of the Partnership Act 1890 in respect of the partnership.

(5)

Sub-paragraph (2) does not apply to an order made on a petition presented under– (a) (b)

(6)

section 124A(public interest); or section 367 of the Financial Services and Markets Act 2000 (c.8) [(windingup petitions)]1.

If a petition presented under a provision referred to in sub-paragraph (5) comes to the attention of the administrator, he shall apply to the court for directions under paragraph 63.’]2

878

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 1 Substituted by the Financial Services Act 2012 (Consequential Amendments and Transitional Provisions) Order 2013, SI 2013/472, art 3, Sch 2, para 11(b) (1 April 2013). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[18 Paragraph 43 is modified so as to read as follows– ‘43 (1)

This paragraph applies to a partnership in administration.

(2)

No step may be taken to enforce security over the partnership property except– (a) (b)

(3)

No step may be taken to repossess goods in the partnership’s possession under a hire-purchase agreement except– (a) (b)

(4)

with the consent of the administrator, or with the permission of the court.

with the consent of the administrator, or with the permission of the court.

A landlord may not exercise a right of forfeiture by peaceable re-entry in relation to premises forming part of the partnership property or let to one or more officers of the partnership in their capacity as such except– (a) (b)

with the consent of the administrator, or with the permission of the court.

(5) No legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against the partnership or partnership property except– (a) (b)

with the consent of the administrator, or with the permission of the court.

(6)

An agricultural receiver of the partnership may not be appointed.

(7)

Where the court gives permission for a transaction under this paragraph it may impose a condition on or a requirement in connection with the transaction.

(8)

In this paragraph ‘landlord’ includes a person to whom rent is payable.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[19 Paragraph 47 is modified so as to read as follows– ‘47 (1) As soon as is reasonably practicable after appointment the administrator of a partnership shall by notice in the prescribed form require one or more relevant persons to provide the administrator with a statement of the affairs of the partnership. (2)

The statement must–

879

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (a) (b) (c) (d) (e) (f) (g) (3)

be verified by a statement of truth in accordance with Civil Procedure Rules, be in the prescribed form, give particulars of the partnership property, debts and liabilities, give the names and addresses of the creditors of the partnership, specify the security held by each creditor, give the date on which each security was granted, and contain such other information as may be prescribed.

In sub-paragraph (1) ‘relevant person’ means– (a) a person who is or has been an officer of the partnership, (b) a person who took part in the formation of the partnership during the period of one year ending with the date on which the partnership enters administration, (c) a person employed by the partnership during that period, and (d) a person who is or has been during that period an officer or employee of a partnership which is or has been during that year an officer of the partnership.

(4)

For the purpose of sub-paragraph (3) a reference to employment is a reference to employment through a contract of employment or a contract for services.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[20 Paragraph 49 is modified so as to read as follows–

‘49 (1)

The administrator of a partnership shall make a statement setting out proposals for achieving the purpose of administration.

(2)

A statement under sub-paragraph (1) must, in particular– (a) deal with such matters as may be prescribed, and (b) where applicable, explain why the administrator thinks that the objective mentioned in paragraph 3(1)(a) or (b) cannot be achieved.

(3) Proposals under this paragraph may include a proposal for a voluntary arrangement under Part I of this Act (although this paragraph is without prejudice to section 4(3)). (4)

The administrator shall send a copy of the statement of his proposals– (a) (b) (c)

(5)

to the court, to every creditor of the partnership[, other than an opted-out creditor,]1 of whose claim and address he is aware, and to every member of the partnership of whose address he is aware.

The administrator shall comply with sub-paragraph (4)– (a) as soon as is reasonably practicable after the partnership enters administration, and (b) in any event, before the end of the period of eight weeks beginning with the day on which the partnership enters administration.

880

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (6) The administrator shall be taken to comply with sub-paragraph  (4)(c) if he publishes in the prescribed manner a notice undertaking to provide a copy of the statement of proposals free of charge to any member of the partnership who applies in writing to a specified address. (7) An administrator commits an offence if he fails without reasonable excuse to comply with sub-paragraph (5). (8) A period specified in this paragraph may be varied in accordance with paragraph 107.’]2 1 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 6(1), (2) (6 April 2017). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[21 Paragraph 52 is modified so as to read as follows– ‘52 (1)

Paragraph 51(1) shall not apply where the statement of proposals states that the administrator thinks– (a) (b) (c)

that the partnership has sufficient property to enable each creditor of the partnership to be paid in full, that the partnership has insufficient property to enable a distribution to be made to unsecured creditors, or that neither of the objectives specified in paragraph  3(1)(a) and (b) can be achieved.

(2) But the administrator shall [seek a decision from the partnership’s creditors as to whether they approve the proposals set out in the statement made under paragraph 49(1) if requested to do so]1– (a) (b) (c)

by creditors of the partnership whose debts amount to at least 10 per cent of the total debts of the partnership, in the prescribed manner, and in the prescribed period.

[(3) Where a decision is sought by virtue of sub-paragraph  (2) the initial decision date (as defined in paragraph 51(3)) must be within the prescribed period.]1 (4) The period prescribed under sub-paragraph  (3) may be varied in accordance with paragraph 107.’]2 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 6(1), (3) (6 April 2017). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[22 Paragraph 61 is modified so as to read as follows–

881

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) ‘61 The administrator of a partnership– (a) may prevent any person from taking part in the management of the partnership business, and (b) may appoint any person to be a manager of that business.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[23 Paragraph 65 is modified so as to read as follows– ‘65 (1) The administrator of a partnership may make a distribution to a creditor of the partnership. (2)

[Section 175(1), (1A), (1B), and (3) and section 176AZA]1 shall apply in relation to a distribution under this paragraph as it applies in relation to a winding up.

(3) A payment may not be made by way of distribution under this paragraph to a creditor of the partnership who is neither secured nor preferential unless the court gives permission.’]2 1 Substituted by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, art 19(1), (2) (19 December 2018). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[24 Paragraph 69 is modified so as to read as follows:– ‘69 (1) Subject to sub-paragraph  (2) below, in exercising his function under this Schedule the administrator of a partnership acts as the agent of the members of the partnership in their capacity as such. (2)

An officer of the partnership shall not, unless he otherwise consents, be personally liable for the debts and obligations of the partnership incurred during the period when the partnership is in administration.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[25 Paragraph 73 is modified so as to read as follows– ‘73 (1)

An administrator’s statement of proposals under paragraph 49 may not include any action which– (a)

affects the right of a secured creditor of the partnership to enforce his security,

882

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (b)

would result in a preferential debt of the partnership being paid otherwise than in priority to its non-preferential debts, […]1 [(bb) would result in an ordinary preferential debt of the partnership being paid otherwise than in priority to any secondary preferential debts that it may have,]2 (c) would result in one preferential creditor of the partnership being paid a smaller proportion of [an ordinary preferential debt]3 than another[, […]4]2 [(d) would result in one preferential creditor of the partnership being paid a smaller proportion of a secondary preferential debt than another,]2 [or (e) if the company is a relevant financial institution (see section 387A), any non-preferential debt is to be paid otherwise than in accordance with the rules in section 176AZA(2) or (3).]5 (2)

Sub-paragraph (1) does not apply to– (a) (b)

action to which the relevant creditor consents, or a proposal for a voluntary arrangement under Part I of this Act (although this sub-paragraph is without prejudice to section 4(3)).

(3) The reference to a statement of proposals in sub-paragraph  (1) includes a reference to a statement as revised or modified.’]6 1 Repealed by the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, SI  2014/3486, art  13(1), (2)(a) (1  January 2015: substitution has effect subject to transitional provisions specified in the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, art 3). 2 Inserted by the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, SI 2014/3486, art 13(1), (2)(b), (d) (1 January 2015: substitution has effect subject to transitional provisions specified in the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, art 3). 3 Substituted by the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, SI  2014/3486, art  13(1), (2)(c) (1  January 2015: substitution has effect subject to transitional provisions specified in the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, art 3). 4 Repealed by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, art 19(1), (3)(a) (19 December 2018). 5 Inserted by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, art 19(1), (3)(b) (19 December 2018). 6 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[26 Paragraph 74 is modified so as to read as follows– ‘74 (1)

A creditor or member of a partnership in administration may apply to the court claiming that– (a) (b)

the administrator is acting or has acted so as unfairly to harm the interests of the applicant (whether alone or in common with some or all other members or creditors), or the administrator proposes to act in a way which would unfairly harm the interests of the applicant (whether alone or in common with some or all other members or creditors).

883

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (2)

A creditor or member of a partnership in administration may apply to the court claiming that the administrator is not performing his functions as quickly or as efficiently as is reasonably practicable.

(3)

The court may– (a) grant relief; (b) dismiss the application; (c) adjourn the hearing conditionally or unconditionally; (d) make an interim order; (e) make any other order it thinks appropriate.

(4)

In particular, an order under this paragraph may– (a) (b) [(c) (d) (e)

regulate the administrator’s exercise of his functions; require the administrator to do or not do a specified thing; require a decision of the partnership’s creditors to be sought on a matter;]1 provide for the appointment of an administrator to cease to have effect; make consequential provision.

(5) An order may be made on a claim under sub-paragraph (1) whether or not the action complained of– (a) (b)

is within the administrator’s powers under that Schedule; was taken in reliance on an order under paragraph 71 or 72.

(6) An order may not be made under this paragraph if it would impede or prevent the implementation of– (a) a voluntary arrangement approved under Part I, or (b) proposals or a revision approved under paragraph  53 or 54 more than 28 days before the day on which the application for the order under this paragraph is made.’]2 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 6(1), (4) (6 April 2017). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[27 Omit paragraph 83.]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[28 Paragraph 84 is modified so as to read as follows– ‘84 (1)

If the administrator of a partnership thinks that the partnership has no property which might permit a distribution to its creditors, he shall file a notice to that effect with the court.

(2)

The court may on the application of the administrator of a partnership disapply sub-paragraph (1) in respect of the partnership.

884

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (3)

On the filing of a notice in respect of a partnership under sub-paragraph (1) the appointment of an administrator of the partnership shall cease to have effect.

(4) If an administrator files a notice under sub-paragraph (1) he shall as soon as is reasonably practicable send a copy of the notice to each creditor of whose claim and address he is aware. (5) At the end of the period of three months beginning with the date of filing of a notice in respect of a partnership under sub-paragraph  (1) the partnership is deemed to be dissolved. (6) On an application in respect of a partnership by the administrator or another interested person the court may– (a) (b) (c)

extend the period specified in sub-paragraph (5); suspend that period; or disapply sub-paragraph (5).

(7) An administrator commits an offence if he fails without reasonable excuse to comply with sub-paragraph (4).]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[29 Paragraph 87 is modified to read as follows– ‘87 (1)

An administrator may resign only in prescribed circumstances.

(2)

Where an administrator may resign he may do so only– (a) in the case of an administrator appointed by administration order, by notice in writing to the court, (b) in the case of an administrator appointed under paragraph 14, by notice in writing to the holder of the agricultural floating charge by virtue of which the appointment was made, or (c) in the case of an administrator appointed under paragraph 22, by notice in writing to the members of the insolvent partnership.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[30 Paragraph 89 is modified so as to read as follows– ‘89 (1)

The administrator of a partnership shall vacate office if he ceases to be qualified to act as an insolvency practitioner in relation to the partnership.

(2) Where an administrator vacates office by virtue of sub-paragraph  (1) he shall give notice in writing– (a) in the case of an administrator appointed by administration order, to the court,

885

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (b)

in the case of an administrator appointed under paragraph 14, to the holder of the agricultural floating charge by virtue of which the appointment was made, or (c) in the case of an administrator appointed under paragraph  22, to the members of the insolvent partnership. (3) An administrator who fails without reasonable excuse to comply with subparagraph (2) commits an offence.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[31 Paragraph 90 is modified so as to read as follows– ‘90 Paragraphs 91 to 93 and 95 apply where an administrator– (a) dies (b) resigns (c) is removed from office under paragraph 88, or (d) vacates office under paragraph 89.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[32 Paragraph 91 is modified so as to read as follows– ‘91 (1)

Where the administrator was appointed by administration order, the court may replace the administrator on an application under this sub-paragraph made by– (a) (b) (c) (d)

a creditors’ committee of the partnership, the members of the partnership, one or more creditors of the partnership, or where more than one person was appointed to act jointly or concurrently as the administrator, any of those persons who remains in office.

(2) But an application may be made in reliance on sub-paragraph  (1)(b) and (c) only where– (a) there is no creditors’ committee of the partnership, (b) the court is satisfied that the creditors’ committee or a remaining administrator is not taking reasonable steps to make a replacement, or (c) the court is satisfied that for another reason it is right for the application to be made.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[33 Paragraph 93 is modified so as to read as follows–

886

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F ‘93 (1)

Where the administrator was appointed under paragraph 22 by the members of the partnership they may replace the administrator.

(2)

A replacement under this paragraph may be made only– (a) with the consent of each person who is the holder of a qualifying agricultural floating charge in respect of the partnership property, or (b) where consent is withheld, with the permission of the court.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[34 Omit paragraph 94.]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[35 Paragraph 95 is modified so as to read as follows– ‘95 The court may replace an administrator on the application of a person listed in paragraph 91(1) if the court– (a)

is satisfied that a person who is entitled to replace the administrator under any of paragraphs 92 and 93 is not taking reasonable steps to make a replacement, or

(b)

that for another reason it is right for the court to make the replacement.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[36 Paragraph 96 is modified so as to read as follows– ‘96 (1) This paragraph applies where an administrator of a partnership is appointed under paragraph 14 by the holder of a qualifying agricultural floating charge in respect of the partnership property. (2) The holder of a prior qualifying agricultural floating charge in respect of the partnership property may apply to the court for the administrator to be replaced by an administrator nominated by the holder of the prior agricultural floating charge. (3) One agricultural floating charge is prior to another for the purposes of this paragraph if– (a)

it was created first, or

887

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (b) it is to be treated as having priority in accordance with an agreement to which the holder of each agricultural floating charge was party.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[37 Paragraph 97 is modified so as to read as follows– ‘97 (1)

This paragraph applies where– (a) an administrator of a partnership is appointed by the members of the partnership under paragraph 22, and (b) there is no holder of a qualifying agricultural floating charge in respect of the partnership property.

[(2) The administrator may be replaced by a decision of the creditors made by a qualifying decision procedure. (3)

The decision has effect only if, before the decision is made, the new administrator has consented to act in writing.]1]2

1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 6(1), (5) (6 April 2017). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[38 Paragraph 103 is modified so as to read as follows– ‘103 (1) Where a partnership is in administration, a person may be appointed to act as administrator jointly or concurrently with the person or persons acting as the administrator of the partnership. (2) Where a partnership entered administration by administration order, an appointment under sub-paragraph  (1) must be made by the court on the application of– (a) (b)

a person or group listed in paragraph 12(1)(a) to (c), or the person or persons acting as the administrator of the partnership.

(3) Where a partnership entered administration by virtue of an appointment under paragraph 14, an appointment under sub-paragraph (1) must be made by– (a) the holder of the agricultural floating charge by virtue of which the appointment was made, or (b) the court on the application of the person or persons acting as the administrator of the partnership. (4) Where a partnership entered administration by virtue of an appointment under paragraph  22, an appointment under sub-paragraph  (1) above must be made either by the court on the application of the person or persons acting as the administrator of the partnership or–

888

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (a) by the members of the partnership, and (b) with the consent of each person who is the holder of a qualifying agricultural floating charge in respect of the partnership property or, where consent is withheld, with the permission of the court. (5)

An appointment under sub-paragraph (1) may be made only with the consent of the person or persons acting as the administrator of the partnership.’]1

1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[39 Omit paragraph 105.]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[40 Paragraph 106 is modified so as to read as follows– ‘106 (1) A person who is guilty of an offence under this Schedule is liable to a fine (in accordance with section 430 and Schedule 10). (2) A person who is guilty of an offence under any of the following paragraphs of this Schedule is liable to a daily default fine (in accordance with section 430 and Schedule 10)– (a) paragraph 20, (b) paragraph 32, (c) paragraph 46, (d) paragraph 48, (e) paragraph 49, (f) paragraph 51, (g) paragraph 53, (h) paragraph 54, (i) paragraph 56, (j) paragraph 78, (k) paragraph 80, (l) paragraph 84, and (m) paragraph 89.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[41 Paragraph 111 is modified so as to read as follows– ‘111 (1)

In this Schedule–

889

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) ‘administrator’ has the meaning given by paragraph 1 and, where the context requires, includes a reference to a former administrator, ‘agricultural floating charge’ means a charge which is an agricultural floating charge on its creation, […]1 […]1 ‘enters administration’ has the meaning given by paragraph 1, ‘in administration’ has the meaning given by paragraph 1, ‘hire-purchase agreement’ includes a conditional sale agreement, a chattel leasing agreement and a retention of title agreement, ‘holder of a qualifying agricultural floating charge’ in respect of partnership property has the meaning given by paragraph 14, ‘market value’ means the amount which would be realised on a sale of property in the open market by a willing vendor, ‘the purpose of administration’ means an objective specified in paragraph 3, and ‘unable to pay its debts’ has the meaning given by sections 222, 223, and 224. (2) A reference in this Schedule to a thing in writing includes a reference to a thing in electronic form. (3)

In this Schedule a reference to action includes a reference to inaction.’]2

1 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 6(1), (6) (6 April 2017). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[42 Omit paragraphs 112 116.]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

[43 Schedule 1 is modified to read as follows:–

‘SCHEDULE 1 POWERS OF ADMINISTRATOR (Paragraph 60 of Schedule B1) 1 Power to take possession of, collect and get in the partnership property and, for that purpose, to take such proceedings as may seem to him expedient. 2 Power to sell or otherwise dispose of the partnership property by public auction or private auction or private contract or, in Scotland, to sell, feu, hire out or otherwise dispose of the partnership property by public roup or private bargain.

890

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 3 Power to raise or borrow money and grant security therefor over the partnership property. 4 Power to appoint a solicitor or accountant or other professionally qualified person to assist him in the performance of his functions. 5 Power to bring or defend any action or other legal proceedings in the name and on behalf of any member of the partnership in his capacity as such or of the partnership. 6 Power to refer to arbitration any question affecting the partnership. 7 Power to effect and maintain insurances in respect of the partnership business and property. 8 Power to do all acts and execute, in the name and on behalf of the partnership or of any member of the partnership in his capacity as such, any deed, receipt or other document. 9 Power to draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf of any member of the partnership in his capacity as such or of the partnership. 10 Power to appoint any agent to do any business which he is unable to do himself or which can more conveniently be done by an agent and power to employ and dismiss employees. 11 Power to do all such things (including the carrying out of works) as may be necessary for the realisation of the partnership property. 12 Power to make any payment which is necessary or incidental to the performance of his functions. 13 Power to carry on the business of the partnership. 14 Power to establish subsidiary undertakings of the partnership.

891

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 15 Power to transfer to subsidiary undertakings of the partnership the whole or any part of the business of the partnership or of the partnership property. 16 Power to grant or accept a surrender of a lease or tenancy of any of the partnership property, and to take a lease or tenancy of any property required or convenient for the business of the partnership. 17 Power to make any arrangement or compromise on behalf of the partnership or of its members in their capacity as such. 18 Power to rank and claim in the bankruptcy, insolvency, sequestration or liquidation of any person indebted to the partnership and to receive dividends, and to accede to trust deeds for the creditors of any such person. 19 Power to present or defend a petition for the winding up of the partnership under the Insolvent Partnerships Order 1994. 20 Power to do all other things incidental to the exercise of the foregoing powers.’]1 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  7, Sch 1 (1 July 2005).

SCHEDULE 3 PROVISIONS OF THE ACT WHICH APPLY WITH MODIFICATIONS FOR THE PURPOSES OF ARTICLE 7 TO WINDING UP OF INSOLVENT PARTNERSHIP ON PETITION OF CREDITOR ETC. WHERE NO CONCURRENT PETITION PRESENTED AGAINST ME Part I Modified provisions of Part V of the Act 1 Sections 220 to 223 of the Act are set out as modified in Part I of this Schedule, and sections 117, 131, 133, 234 and Schedule 4 are set out as modified in Part II. 2  Section 220: Meaning of ‘unregistered company’ Section 220 is modified so as to read as follows:– ‘220 For the purposes of this Part, the expression ‘unregistered company’ includes any insolvent partnership.’. 3  Section 221: Winding up of unregistered companies Section 221 is modified so as to read as follows:–

892

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F ‘221 (1) Subject to subsections (2) and (3) below and to the provisions of this Part, any insolvent partnership may be wound up under this Act if it has, or at any time had, in England and Wales either– (a) (b)

a principal place of business, or a place of business at which business is or has been carried on in the course of which the debt (or part of the debt) arose which forms the basis of the petition for winding up the partnership.

(2) Subject to subsection (3) below, an insolvent partnership shall not be wound up under this Act if the business of the partnership has not been carried on in England and Wales at any time in the period of 3 years ending with the day on which the winding-up petition is presented. (3)

If an insolvent partnership has a principal place of business situated in Scotland or in Northern Ireland, the court shall not have jurisdiction to wind up the partnership unless it had a principal place of business in England and Wales– (a) (b)

in the case of a partnership with a principal place of business in Scotland, at any time in the period of 1 year, or in the case of a partnership with a principal place of business in Northern Ireland, at any time in the period of 3 years,

ending with the day on which the winding-up petition is presented. [(3A) The preceding subsections are subject to Article  3 of the EC  Regulation (jurisdiction under the EC Regulation).]1 (4)

No insolvent partnership shall be wound up under this Act voluntarily.

(5) To the extent that they are applicable to the winding up of a company by the court in England and Wales on the petition of a creditor or of the Secretary of State, all the provisions of this Act and the Companies Act about winding up apply to the winding up of an insolvent partnership as an unregistered company– (a)

with the exceptions and additions mentioned in the following subsections of this section and in section 221A, and (b) with the modifications specified in Part II of Schedule 3 to the Insolvent Partnerships Order 1994. (6) Sections 73(1), 74(2)(a) to (d) and (3), 75 to 78, 83, 122, 123, [176A,]2 202, 203, 205 and 250 shall not apply. (7) The circumstances in which an insolvent partnership may be wound up as an unregistered company are as follows– (a) if the partnership is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs; (b) if the partnership is unable to pay its debts; (c) if the court is of the opinion that it is just and equitable that the partnership should be wound up; [(d) at the time at which a moratorium for the insolvent partnership under section 1A comes to an end, no voluntary arrangement approved under Part I of this Act has effect in relation to the insolvent partnership.]3 [(7A) A winding-up petition on the ground set out in section 221(7)(d) may only be presented by one or more creditors.]3

893

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (8) Every petition for the winding up of an insolvent partnership under Part V of this Act shall be verified by affidavit in Form 2 in Schedule 9 to the Insolvent Partnerships Order 1994.

221A  Petition by liquidator, administrator, trustee or supervisor to wind up insolvent partnership as unregistered company (1)

A petition in Form 3 in Schedule 9 to the Insolvent Partnership Order 1994 for winding up an insolvent partnership may be presented by– (a) the liquidator or administrator of a corporate member or of a former corporate member, or (b) the administrator of the partnership, or (c) the trustee of an individual member’s, or of a former individual member’s, estate, or (d) the supervisor of a voluntary arrangement approved under Part I of this Act in relation to a corporate member or the partnership, or under Part VIII of this Act in relation to an individual member, if the ground of the petition is one of the circumstances set out in section 221(7).

(2) In this section ‘petitioning insolvency practitioner’ means a person who has presented a petition under subsection (1). (3)

If the ground of the petition presented under subsection (1) is that the partnership is unable to pay its debts and the petitioning insolvency practitioner is able to satisfy the court that an insolvency order has been made against the member whose liquidator or trustee he is because of that member’s inability to pay a joint debt, that order shall, unless it is proved otherwise to the satisfaction of the court, be proof for the purposes of section 221(7) that the partnership is unable to pay its debts.

(4) Where a winding-up petition is presented under subsection (1), the court may appoint the petitioning insolvency practitioner as provisional liquidator of the partnership under section  135 (appointment and powers of provisional liquidator). (5) Where a winding-up order is made against an insolvent partnership after the presentation of a petition under subsection (1), the court may appoint the petitioning insolvency practitioner as liquidator of the partnership; and where the court makes an appointment under this subsection, section 140(3) (official receiver not to become liquidator) applies as if an appointment had been made under that section. (6) Where a winding-up petition is presented under subsection (1), in the event of the partnership property being insufficient to satisfy the costs of the petitioning insolvency practitioner the costs may be paid out of the assets of the corporate or individual member, as the case may be, as part of the expenses of the liquidation, administration, bankruptcy or voluntary arrangement of that member, in the same order of priority as expenses properly chargeable or incurred by the practitioner in getting in any of the assets of the member.’. 1 Inserted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art  5(1) (31 May 2002). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2006, SI 2006/622, art 6 (6 April 2006).

894

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 3 Inserted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI 2002/2708, art 8 (1 January 2003).

4  Section 222: Inability to pay debts: unpaid creditor for £750 or more Section 222 is modified so as to read as follows:– ‘222 (1) An insolvent partnership is deemed (for the purposes of section 221 unable to pay its debts if there is a creditor, by assignment or otherwise, to whom the partnership is indebted in a sum exceeding £750 then due and– (a) the creditor has served on the partnership, in the manner specified in subsection (2) below, a written demand in the prescribed form requiring the partnership to pay the sum so due, and (b) the partnership has for 3 weeks after the service of the demand neglected to pay the sum or to secure or compound for it to the creditor’s satisfaction. (2)

Service of the demand referred to in subsection (1)(a) shall be effected– (a) (b) (c) (d)

(3)

by leaving it at a principal place of business of the partnership in England and Wales, or by leaving it at a place of business of the partnership in England and Wales at which business is carried on in the course of which the debt (or part of the debt) referred to in subsection (1) arose, or by delivering it to an officer of the partnership, or by otherwise serving it in such manner as the court may approve or direct.

The money sum for the time being specified in subsection (1) is subject to increase or reduction by regulations under section 417 in Part XV; but no increase in the sum so specified affects any case in which the winding-up petition was presented before the coming into force of the increase.’.

5  Section 223: Inability to pay debts: debt remaining unsatisfied after action brought Section 223 is modified so as to read as follows:– ‘223 (1) An insolvent partnership is deemed (for the purposes of section 221 unable to pay its debts if an action or other proceeding has been instituted against any member for any debt or demand due, or claimed to be due, from the partnership, or from him in his character of member, and– (a)

notice in writing of the institution of the action or proceeding has been served on the partnership in the manner specified in subsection (2) below, and (b) the partnership has not within 3 weeks after service of the notice paid, secured or compounded for the debt or demand, or procured the action or proceeding to be stayed or sisted, or indemnified the defendant or defender to his reasonable satisfaction against the action or proceeding, and against all costs, damages and expenses to be incurred by him because of it. (2)

Service of the notice referred to in subsection (1)(a) shall be effected– (a)

by leaving it at a principal place of business of the partnership in England and Wales, or

895

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (b) (c) (d)

by leaving it at a place of business of the partnership in England and Wales at which business is carried on in the course of which the debt or demand (or part of the debt or demand) referred to in subsection (1) arose, or by delivering it to an officer of the partnership, or by otherwise serving it in such manner as the court may approve or direct.’.

Part II Other modified provisions of the Act about winding up by the court 6  Section 117: High Court and county court jurisdiction Section 117 is modified so as to read as follows:– ‘117 (1)

Subject to subsections (3) and (4) below, the High Court has jurisdiction to wind up any insolvent partnership as an unregistered company by virtue of article 7 of the Insolvent Partnerships Order 1994 if the partnership has, or at any time had, in England and Wales either– (a) (b)

a principal place of business, or a place of business at which business is or has been carried on in the course of which the debt (or part of the debt) arose which forms the basis of the petition for winding up the partnership.

(2) Subject to subsections (3) and (4) below, a petition for the winding up of an insolvent partnership by virtue of the said article 7 may be presented to a county court in England and Wales if the partnership has, or at any time had, within the insolvency district of that court either– (a) (b)

a principal place of business, or a place of business at which business is or has been carried on in the course of which the debt (or part of the debt) arose which forms the basis of the winding-up petition.

(3) Subject to subsection (4) below, the court only has jurisdiction to wind up an insolvent partnership if the business of the partnership has been carried on in England and Wales at any time in the period of 3 years ending with the day on which the petition for winding it up is presented. (4)

If an insolvent partnership has a principal place of business situated in Scotland or in Northern Ireland, the court shall not have jurisdiction to wind up the partnership unless it had a principal place of business in England and Wales– (a) (b)

in the case of a partnership with a principal place of business in Scotland, at any time in the period of 1 year, or in the case of a partnership with a principal place of business in Northern Ireland, at any time in the period of 3 years,

ending with the day on which the petition for winding it up is presented. (5) The Lord Chancellor [may, with the concurrence of the Lord Chief Justice, by order]1 in a statutory instrument exclude a county court from having windingup jurisdiction, and for the purposes of that jurisdiction may attach its district, or any part thereof, to any other county court, and may by statutory instrument revoke or vary any such order.

896

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F In exercising the powers of this section, the Lord Chancellor shall provide that a county court is not to have winding-up jurisdiction unless it has for the time being jurisdiction for the purposes of Parts VIII to XI of this Act (individual insolvency). (6) Every court in England and Wales having winding-up jurisdiction has for the purposes of that jurisdiction all the powers of the High Court; and every prescribed officer of the court shall perform any duties which an officer of the High Court may discharge by order of a judge of that court or otherwise in relation to winding up. […]2 [(7) This section is subject to Article 3 of the EC Regulation (jurisdiction under the EC Regulation).]2 [(8) The Lord Chief Justice may nominate a judicial office holder (as defined in section 109(4) of the Constitutional Reform Act 2005) to exercise his functions under this section.’.]3 1 Substituted by the Lord Chancellor (Transfer of Functions and Supplementary Provisions) Order 2006, SI 2006/680, art 3, Sch 2, paras 5, 6(1)(a), (2) (3 April 2006). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art  5(2) (31 May 2002). 3 Inserted by the Lord Chancellor (Transfer of Functions and Supplementary Provisions) Order 2006, SI 2006/680, art 3, Sch 2, paras 5, 6(1)(a), (3) (3 April 2006).

7  Section 131: Statement of affairs of insolvent partnership Section 131 is modified so as to read as follows:– ‘131 (1) Where the court has, by virtue of article 7 of the Insolvent Partnerships Order 1994, made a winding-up order or appointed a provisional liquidator in respect of an insolvent partnership, the official receiver may require some or all of the persons mentioned in subsection (3) below to make out and submit to him a statement in the prescribed form as to the affairs of the partnership. (2) The statement shall be verified by affidavit by the persons required to submit it and shall show– (a) particulars of the debts and liabilities of the partnership and of the partnership property; (b) the names and addresses of the partnership’s creditors; (c) the securities held by them respectively; (d) the dates when the securities were respectively given; and (e) such further or other information as may be prescribed or as the official receiver may require. (3)

The persons referred to in subsection (1) are– (a) (b) (c) (d)

those who are or have been officers of the partnership; those who have taken part in the formation of the partnership at any time within one year before the relevant date; those who are in the employment of the partnership, or have been in its employment within that year, and are in the official receiver’s opinion capable of giving the information required; those who are or have been within that year officers of, or in the employment of, a company which is, or within that year was, an officer of the partnership.

897

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (4)

Where any persons are required under this section to submit a statement of affairs to the official receiver, they shall do so (subject to the next subsection) before the end of the period of 21 days beginning with the day after that on which the prescribed notice of the requirement is given to them by the official receiver.

(5)

The official receiver, if he thinks fit, may– (a) at any time release a person from an obligation imposed on him under subsection (1) or (2) above; or (b) either when giving the notice mentioned in subsection (4) or subsequently, extend the period so mentioned; and where the official receiver has refused to exercise a power conferred by this subsection, the court, if it thinks fit, may exercise it.

(6)

In this section– ‘employment’ includes employment under a contract for services; and ‘the relevant date’ means– (a) in a case where a provisional liquidator is appointed, the date of his appointment; and (b) in a case where no such appointment is made, the date of the winding-up order.

(7)

If a person without reasonable excuse fails to comply with any obligation imposed under this section, he is liable to a fine and, for continued contravention, to a daily default fine.’.

8  Section 133: Public examination of officers of insolvent partnerships Section 133 is modified so as to read as follows:– ‘133 (1) Where an insolvent partnership is being wound up by virtue of article 7 of the Insolvent Partnerships Order 1994, the official receiver may at any time before the winding up is complete apply to the court for the public examination of any person who– (a) (b)

is or has been an officer of the partnership; or has acted as liquidator or administrator of the partnership or as receiver or manager or, in Scotland, receiver of its property; or (c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the formation of the partnership. (2)

Unless the court otherwise orders, the official receiver shall make an application under subsection (1) if he is requested in accordance with the rules to do so by one-half, in value, of the creditors of the partnership.

(3) On an application under subsection (1), the court shall direct that a public examination of the person to whom the application relates shall be held on a day appointed by the court; and that person shall attend on that day and be publicly examined as to the formation or management of the partnership or as to the conduct of its business and affairs, or his conduct or dealings in relation to the partnership. (4) The following may take part in the public examination of a person under this section and may question that person concerning the matters mentioned in subsection (3), namely–

898

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (a) (b) (c) (d)

the official receiver; the liquidator of the partnership; any person who has been appointed as special manager of the partnership’s property or business; any creditor of the partnership who has tendered a proof in the winding up.’.

[8A  Sections 165 and 167 (1)

Section 165(2) has effect as if for ‘(Parts 1 to 3)’ there were substituted ‘(Parts 1 and 2)’.

(2)

Section 167(1) has effect as if for ‘(Parts 1 to 3)’ there were substituted ‘(Parts 1 and 2)’.]1

1 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 7(1), (2) (6 April 2017).

9  Section 234: Getting in the partnership property Section 234 is modified so as to read as follows:– ‘234 (1) This section applies where, by virtue of article 7 of the Insolvent Partnerships Order 1994– (a) (b)

an insolvent partnership is being wound up, or a provisional liquidator of an insolvent partnership is appointed;

and ‘the office-holder’ means the liquidator or the provisional liquidator, as the case may be. (2) Any person who is or has been an officer of the partnership, or who is an executor or administrator of the estate of a deceased officer of the partnership, shall deliver up to the office-holder, for the purposes of the exercise of the officeholder’s functions under this Act and (where applicable) the Company Directors Disqualification Act 1986, possession of any partnership property which he holds for the purposes of the partnership. (3) Where any person has in his possession or control any property, books, papers or records to which the partnership appears to be entitled, the court may require that person forthwith (or within such period as the court may direct) to pay, deliver, convey, surrender or transfer the property, books, papers or records to the office-holder or as the court may direct. (4)

Where the office-holder– (a) (b)

seizes or disposes of any property which is not partnership property, and at the time of seizure or disposal believes, and has reasonable grounds for believing, that he is entitled (whether in pursuance of an order of the court or otherwise) to seize or dispose of that property,

the next subsection has effect. (5)

In that case the office-holder–

899

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (a) (b)

is not liable to any person in respect of any loss or damage resulting from the seizure or disposal except in so far as that loss or damage is caused by the office-holder’s own negligence, and has a lien on the property, or the proceeds of its sale, for such expenses as were incurred in connection with the seizure or disposal.’.

10 Schedule 4 is modified so as to read as follows:–

(Section 167)

‘SCHEDULE 4 POWER OF LIQUIDATOR IN A WINDING UP

[…]1 1 Power to pay any class of creditors in full. 2 Power to make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the partnership, or whereby the partnership may be rendered liable. 3 Power to compromise, on such terms as may be agreed– (a) all debts and liabilities capable of resulting in debts, and all claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the partnership and a contributory or alleged contributory or other debtor or person apprehending liability to the partnership, and (b)

all questions in any way relating to or affecting the partnership property or the winding up of the partnership,

and take any security for the discharge of any such debt, liability or claim and give a complete discharge in respect of it. [3A Power to bring legal proceedings under section 213, 214, 238, 239 or 423.]2 4 Power to bring or defend any action or other legal proceeding in the name and on behalf of any member of the partnership in his capacity as such or of the partnership. 5 Power to carry on the business of the partnership so far as may be necessary for its beneficial winding up.

900

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F […]1 6 Power to sell any of the partnership property by public auction or private contract, with power to transfer the whole of it to any person or to sell the same in parcels. 7 Power to do all acts and execute, in the name and on behalf of the partnership or of any member of the partnership in his capacity as such, all deeds, receipts and other documents. 8 Power to prove, rank and claim in the bankruptcy, insolvency or sequestration of any contributory for any balance against his estate, and to receive dividends in the bankruptcy, insolvency or sequestration in respect of that balance, as a separate debt due from the bankrupt or insolvent, and rateably with the other separate creditors. 9 Power to draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf of any member of the partnership in his capacity as such or of the partnership, with the same effect with respect to the liability of the partnership or of any member of the partnership in his capacity as such as if the bill or note had been drawn, accepted, made or endorsed in the course of the partnership’s business. 10 Power to raise on the security of the partnership property any money requisite. 11 Power to take out in his official name letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot conveniently be done in the name of the partnership. In all such cases the money due is deemed, for the purpose of enabling the liquidator to take out the letters of administration or recover the money, to be due to the liquidator himself. 12 Power to appoint an agent to do any business which the liquidator is unable to do himself. 13 Power to do all such other things as may be necessary for winding up the partnership’s affairs and distributing its property.’. 1 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 7(1), (3), (4) (6 April 2017). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 8 (1 July 2005).

901

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) SCHEDULE 4 PROVISIONS OF THE ACT WHICH APPLY WITH MODIFICATIONS FOR THE PURPOSES OF ARTICLE 8 TO WINDING UP OF INSOLVENT PARTNERSHIP ON CREDITOR’S PETITION WHERE CONCURRENT PETITIONS ARE PRESENT ONE OR MORE MEMBERS Part I Modified provisions of Part V of the Act 1 (1)

Sections 220 to 222 of the Act are set out as modified in Part I of this Schedule, and the provisions of the Act specified in sub-paragraph (2) below are set out as modified in Part II.

(2) The provisions referred to in sub-paragraph (1) are sections 117, 122 to 125, 131, 133, 136, 137, 139 to 141, 143, 146, 147, 168, 172, 174, 175, 189, 211, 230, 231, 234, 264, 265, 267, 268, 271, 283, [283A,]1 284, 288, 292 to 296, 298 to 303, 305, [313A,]1 314, 328, 331 and 356, and Schedule 4. 1 Inserted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 9(1), (2) (1 July 2005).

2  Section 220: Meaning of ‘unregistered company’ Section 220 is modified so as to read as follows:– ‘220 For the purposes of this Part, the expression ‘unregistered company’ includes any insolvent partnership.’. 3  Section 221: Winding up of unregistered company Section 221 is modified so as to read as follows:– ‘221 (1) Subject to subsections (2) and (3) below and to the provisions of this Part, any insolvent partnership may be wound up under this Act if it has, or at any time had, in England and Wales either– (a) (b)

a principal place of business, or a place of business at which business is or has been carried on in the course of which the debt (or part of the debt) arose which forms the basis of the petition for winding up the partnership.

(2) Subject to subsection (3) below, an insolvent partnership shall not be wound up under this Act if the business of the partnership has not been carried on in England and Wales at any time in the period of 3 years ending with the day on which the winding-up petition is presented. (3)

If an insolvent partnership has a principal place of business situated in Scotland or in Northern Ireland, the court shall not have jurisdiction to wind up the partnership unless it had a principal place of business in England and Wales– (a)

in the case of a partnership with a principal place of business in Scotland, at any time in the period of 1 year, or

902

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (b)

in the case of a partnership with a principal place of business in Northern Ireland, at any time in the period of 3 years,

ending with the day on which the winding-up petition is presented. [(3A) The preceding subsections are subject to Article  3 of the EC  Regulation (jurisdiction under the EC Regulation).]1 (4)

No insolvent partnership shall be wound up under this Act voluntarily.

(5) To the extent that they are applicable to the winding up of a company by the court in England and Wales on a creditor’s petition, all the provisions of this Act and the Companies Act about winding up apply to the winding up of an insolvent partnership as an unregistered company– (a)

with the exceptions and additions mentioned in the following subsections of this section, and (b) with the modifications specified in Part II of Schedule 4 to the Insolvent Partnerships Order 1994. (6)

Sections 73(1), 74(2)(a) to (d) and (3), 75 to 78, 83, 154, [176A,]2 202, 203, 205 and 250 shall not apply.

(7) Unless the contrary intention appears, a member of a partnership against whom an insolvency order has been made by virtue of article 8 of the Insolvent Partnerships Order 1994 shall not be treated as a contributory for the purposes of this Act. [(8) The circumstances in which an insolvent partnership may be wound up as an unregistered company are as follows– (a) the partnership is unable to pay its debts, (b) at the time at which a moratorium for the insolvent partnership under section 1A comes to an end, no voluntary arrangement approved under Part I of this Act has effect in relation to the insolvent partnership.]3 (9) Every petition for the winding up of an insolvent partnership under Part V of this Act shall be verified by affidavit in Form 2 in Schedule 9 to the Insolvent Partnerships Order 1994.’. 1 Inserted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art  5(1) (31 May 2002). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2006, SI 2006/622, art 7 (6 April 2006). 3 Substituted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI 2002/2708, art 9(1), (2) (1 January 2003).

4  Section 222: Inability to pay debts: unpaid creditor for £750 or more Section 222 is modified so as to read as follows:– ‘222 (1) An insolvent partnership is deemed (for the purposes of section 221 unable to pay its debts if there is a creditor, by assignment or otherwise, to whom the partnership is indebted in a sum exceeding £750 then due and– (a) the creditor has served on the partnership, in the manner specified in subsection (2) below a written demand in Form 4 in Schedule  9 to the

903

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) Insolvent Partnerships Order 1994 requiring the partnership to pay the sum so due, (b) the creditor has also served on any one or more members or former members of the partnership liable to pay the sum due (in the case of a corporate member by leaving it at its registered office and in the case of an individual member by serving it in accordance with the rules) a demand in Form 4 in Schedule  9 to that Order, requiring that member or those members to pay the sum so due, and (c) the partnership and its members have for 3 weeks after the service of the demands, or the service of the last of them if served at different times, neglected to pay the sum or to secure or compound for it to the creditor’s satisfaction. (2)

Service of the demand referred to in subsection (1)(a) shall be effected– (a) (b) (c) (d)

(3)

by leaving it at a principal place of business of the partnership in England and Wales, or by leaving it at a place of business of the partnership in England and Wales at which business is carried on in the course of which the debt (or part of the debt) referred to in subsection (1) arose, or by delivering it to an officer of the partnership, or by otherwise serving it in such manner as the court may approve or direct.

The money sum for the time being specified in subsection (1) is subject to increase or reduction by regulations under section 417 in Part XV; but no increase in the sum so specified affects any case in which the winding-up petition was presented before the coming into force of the increase.’.

Part II Other modified provisions of the Act about winding up by the court and bankruptcy of individuals 5  Sections 117 and 265: High Court and county and court jurisdiction Sections 117 and 265 are modified so as to read as follows:– ‘117 (1)

Subject to the provisions of this section, the High Court has jurisdiction to wind up any insolvent partnership as an unregistered company by virtue of article 8 of the Insolvent Partnerships Order 1994 if the partnership has, or at any time had, in England and Wales either– (a) (b)

a principal place of business, or a place of business at which business is or has been carried on in the course of which the debt (or part of the debt) arose which forms the basis of the petition for winding up the partnership.

(2) Subject to subsections (3) and (4) below, a petition for the winding up of an insolvent partnership by virtue of the said article 8 may be presented to a county court in England and Wales if the partnership has, or at any time had, within the insolvency district of that court either– (a) (b)

a principal place of business, or a place of business at which business is or has been carried on in the course of which the debt (or part of the debt) arose which forms the basis of the winding-up petition.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (3) Subject to subsection (4) below, the court only has jurisdiction to wind up an insolvent partnership if the business of the partnership has been carried on in England and Wales at any time in the period of 3 years ending with the day on which the petition for winding it up is presented. (4)

If an insolvent partnership has a principal place of business situated in Scotland or in Northern Ireland, the court shall not have jurisdiction to wind up the partnership unless it had a principal place of business in England and Wales– (a) (b)

in the case of a partnership with a principal place of business in Scotland, at any time in the period of 1 year, or in the case of a partnership with a principal place of business in Northern Ireland, at any time in the period of 3 years,

ending with the day on which the petition for winding it up is presented. (5)

Subject to subsection (6) below, the court has jurisdiction to wind up a corporate member or former corporate member, or make a bankruptcy order against an individual member or former individual member, of a partnership against which a petition has been presented by virtue of article 8 of the Insolvent Partnerships Order 1994 if it has jurisdiction in respect of the partnership.

(6) Petitions by virtue of the said article  8 for the winding up of an insolvent partnership and the bankruptcy of one or more members or former members of that partnership may not be presented to a district registry of the High Court. (7) The Lord Chancellor [may, with the concurrence of the Lord Chief Justice, by order]1 in a statutory instrument exclude a county court from having windingup jurisdiction, and for the purposes of that jurisdiction may attach its district, or any part thereof, to any other county court, and may by statutory instrument revoke or vary any such order. In exercising the powers of this section, the Lord Chancellor shall provide that a county court is not to have winding-up jurisdiction unless it has for the time being jurisdiction for the purposes of Parts VIII to XI of this Act (individual insolvency). (8) Every court in England and Wales having winding-up jurisdiction has for the purposes of that jurisdiction all the powers of the High Court; and every prescribed officer of the court shall perform any duties which an officer of the High Court may discharge by order of a judge of that court or otherwise in relation to winding up. [(9) This section is subject to Article 3 of the EC Regulation (jurisdiction under the EC Regulation).]2 [(10) The Lord Chief Justice may nominate a judicial office holder (as defined in section 109(4) of the Constitutional Reform Act 2005) to exercise his functions under this section.’.]3 1 Substituted by the Lord Chancellor (Transfer of Functions and Supplementary Provisions) Order 2006, SI 2006/680, art 3, Sch 2, paras 5, 7(1)(a), (2) (3 April 2006). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art  5(3) (31 May 2002). 3 Inserted by the Lord Chancellor (Transfer of Functions and Supplementary Provisions) Order 2006, SI 2006/680, art 3, Sch 2, paras 5, 7(1)(a), (3) (3 April 2006).

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 6  Circumstances in which members of insolvent partnerships may be wound up or made bankrupt by the court: Section 122 – corporate member Section 267 – individual member (a)

Section 122 is modified so as to read as follows:–

[‘122 A corporate member or former corporate member of an insolvent partnership may be wound up by the court if– (a)

it is unable to pay its debts,

(b) there is a creditor, by assignment or otherwise, to whom the insolvent partnership is indebted and the corporate member or former corporate member is liable in relation to that debt and at the time at which a moratorium for the insolvent partnership under section 1A comes to an end, no voluntary arrangement approved under Part I of this Act has effect in relation to the insolvent partnership.’.]1 (b)

Section 267 is modified so as to read as follows:–

‘267 (1) Where a petition for the winding up of an insolvent partnership has been presented to the court by virtue of article 8 of the Insolvent Partnerships Order 1994, a creditor’s petition against any individual member or former individual member of that partnership by virtue of that article must be in respect of one or more joint debts owed by the insolvent partnership, and the petitioning creditor or each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed. (2)

Subject to [subsection (2A) below and]2 section 268, a creditor’s petition may be presented to the court in respect of a joint debt or debts only if, at the time the petition is presented– (a)

the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds the bankruptcy level, (b) the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, immediately, and is unsecured, (c) the debt, or each of the debts, is a debt for which the individual member or former member is liable and which he appears to be unable to pay, and (d) there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt or any of the debts. [(2A) A creditor’s petition may be presented to the court in respect of a joint debt or debts if at the time at which a moratorium for the insolvent partnership under section 1A comes to an end, no voluntary arrangement approved under Part I of this Act has effect in relation to the insolvent partnership.]2 (3) ‘The bankruptcy level’ is [£5,000]3; but the Secretary of State may by order in a statutory instrument substitute any amount specified in the order for that amount or (as the case may be) for the amount which by virtue of such an order is for the time being the amount of the bankruptcy level.

906

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (4)

An order shall not be made under subsection (3) unless a draft of it has been laid before, and approved by a resolution of, each House of Parliament.’.

1 Substituted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI 2002/2708, art 9(1), (3) (1 January 2003). 2 Inserted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI  2002/2708, art 9(1), (4) (1 January 2003). 3 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg 2, Sch 2, paras 1, 5(1), (2) (8 December 2017: substitution has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10).

7  Definition of inability to pay debts: Section 123 – corporate member Section 268 – individual member (a)

Section 123 is modified so as to read as follows:–

‘123 (1)

A corporate member or former member is deemed unable to pay its debts if there is a creditor, by assignment or otherwise, to whom the partnership is indebted in a sum exceeding £750 then due for which the member or former member is liable and– (a)

the creditor has served on that member or former member and the partnership, in the manner specified in subsection (2) below, a written demand in Form 4 in Schedule  9 to the Insolvent Partnerships Order 1994 requiring that member or former member and the partnership to pay the sum so due, and (b) the corporate member or former member and the partnership have for 3 weeks after the service of the demands, or the service of the last of them if served at different times, neglected to pay the sum or to secure or compound for it to the creditor’s satisfaction. (2) Service of the demand referred to in subsection (1)(a) shall be effected, in the case of the corporate member or former corporate member, by leaving it at its registered office, and, in the case of the partnership– (a) (b) (c) (d) (3)

by leaving it at a principal place of business of the partnership in England and Wales, or by leaving it at a place of business of the partnership in England and Wales at which business is carried on in the course of which the debt (or part of the debt) referred to in subsection (1) arose, or by delivering it to an officer of the partnership, or by otherwise serving it in such manner as the court may approve or direct.

The money sum for the time being specified in subsection (1) is subject to increase or reduction by order under section 416 in Part XV.’. (b)

Section 268 is modified so as to read as follows:–

‘268 (1)

For the purposes of section 267(2)(c), an individual member or former individual member appears to be unable to pay a joint debt for which he is liable if the debt is payable immediately and the petitioning creditor to whom the insolvent partnership owes the joint debt has served–

907

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (a) on the individual member or former individual member in accordance with the rules a demand (known as ‘the statutory demand’), in Form 4 in Schedule 9 to the Insolvent Partnerships Order 1994, and (b) on the partnership in the manner specified in subsection (2) below a demand (known as ‘the written demand’) in the same form, requiring the member or former member and the partnership to pay the debt or to secure or compound for it to the creditor’s satisfaction, and at least 3 weeks have elapsed since the service of the demands, or the service of the last of them if served at different times, and neither demand has been complied with nor the demand against the member set aside in accordance with the rules. (2)

Service of the demand referred to in subsection (1)(b) shall be effected– (a) (b) (c) (d)

by leaving it at a principal place of business of the partnership in England and Wales, or by leaving it at a place of business of the partnership in England and Wales at which business is carried on in the course of which the debt (or part of the debt) referred to in subsection (1) arose, or by delivering it to an officer of the partnership, or by otherwise serving it in such manner as the court may approve or direct.’.

8  Sections 124 and 264: Applications to wind up insolvent partnership and to wind up or bankrupt insolvent member Sections 124 and 264 are modified so as to read as follows:– ‘124 (1) An application to the court by virtue of article 8 of the Insolvent Partnerships Order 1994 for the winding up of an insolvent partnership as an unregistered company and the winding up or bankruptcy (as the case may be) of at least one of its members or former members shall– (a)

in the case of the partnership, be by petition in Form 5 in Schedule 9 to that Order, (b) in the case of a corporate member or former corporate member, be by petition in Form 6 in that Schedule, and (c) in the case of an individual member or former individual member, be by petition in Form 7 in that Schedule. (2) Each of the petitions mentioned in subsection (1) may be presented by [a liquidator (within the meaning of Article 2(b) of the EC Regulation) appointed in proceedings by virtue of Article  3(1) of the EC  Regulation, a temporary administrator (within the meaning of Article 38 of the EC Regulation) or]1 any creditor or creditors to whom the partnership and the member or former member in question in indebted in respect of a liquidated sum payable immediately. (3)

The petitions mentioned in subsection (1)– (a)

shall all be presented to the same court and, except as the court otherwise permits or directs, on the same day, and (b) except in the case of the petition mentioned in subsection (1)(c), shall be advertised in Form 8 in the said Schedule 9. (4)

At any time after presentation of a petition under this section the petitioner may, with the leave of the court obtained on application and on such terms as it thinks just, add other members or former members of the partnership as parties to the proceedings in relation to the insolvent partnership.

908

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (5) Each petition presented under this section shall contain particulars of other petitions being presented in relation to the partnership, identifying the partnership and members concerned. (6)

The hearing of the petition against the partnership fixed by the court shall be in advance of the hearing of any petition against an insolvent member.

(7) On the day appointed for the hearing of the petition against the partnership, the petitioner shall, before the commencement of the hearing, hand to the court Form 9 in Schedule 9 to the Insolvent Partnerships Order 1994, duly completed. (8) Any member of the partnership or any person against whom a winding-up or bankruptcy petition has been presented in relation to the insolvent partnership is entitled to appear and to be heard on any petition for the winding up of the partnership. (9)

A petitioner under this section may at the hearing withdraw a petition if– (a) subject to subsection (10) below, he withdraws at the same time every other petition which he has presented under this section; and (b) he gives notice to the court at least 3 days before the date appointed for the hearing of the relevant petition of his intention to withdraw the petition.

(10) A petitioner need not comply with the provisions of subsection (9)(a) in the case of a petition against an insolvent member if the court is satisfied on application made to it by the petitioner that, because of difficulties in serving the petition or for any other reason, the continuance of that petition would be likely to prejudice or delay the proceedings on the petition which he has presented against the partnership or on any petition which he has presented against any other insolvent member. (11) Where notice is given under subsection (9)(b), the court may, on such terms as it thinks just, substitute as petitioner, both in respect of the partnership and in respect of each insolvent member against whom a petition has been presented, any creditor of the partnership who in its opinion would have a right to present the petitions, and if the court makes such a substitution the petitions in question will not be withdrawn. (12) Reference in subsection (11) to substitution of a petitioner includes reference to change of carriage of the petition in accordance with the rules.’. 1 Inserted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art  5(4) (31 May 2002).

9  Sections 125 and 271: Powers of court on hearing of petitions against insolvent partnership and members Sections 125 and 271 are modified so as to read as follows:– ‘125 (1)

Subject to the provisions of section 125A, on hearing a petition under section 124 against an insolvent partnership or any of its insolvent members, the court may dismiss it, or adjourn the hearing conditionally or unconditionally or make any other order that it thinks fit; but the court shall not refuse to make a winding-up order against the partnership or a corporate member on the ground only that the partnership property or (as the case may be) the member’s assets have been

909

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) mortgaged to an amount equal to or in excess of that property or those assets, or that the partnership has no property or the member no assets. (2)

An order under subsection (1) in respect of an insolvent partnership may contain directions as to the future conduct of any insolvency proceedings in existence against any insolvent member in respect of whom an insolvency order has been made.

125A  Hearing of petitions against members (1) On the hearing of a petition against an insolvent member the petitioner shall draw the court’s attention to the result of the hearing of the winding-up petition against the partnership and the following subsections of this section shall apply. (2) If the court has neither made a winding-up order, not dismissed the windingup petition, against the partnership the court may adjourn the hearing of the petition against the member until either event has occurred. (3) Subject to subsection (4) below, if a winding-up order has been made against the partnership, the court may make a winding-up order against the corporate member in respect of which, or (as the case may be) a bankruptcy order against the individual member in respect of whom, the insolvency petition was presented. (4) If no insolvency order is made under subsection (3) against any member within 28 days of the making of the winding-up order against the partnership, the proceedings against the partnership shall be conducted as if the winding-up petition against the partnership had been presented by virtue of article 7 of the Insolvent Partnerships Order 1994 and the proceedings against any member shall be conducted under this Act without the modifications made by that Order (other than the modifications made to sections 168 and 303 by article 14). (5) If the court has dismissed the winding-up petition against the partnership, the court may dismiss the winding-up petition against the corporate member or (as the case may be) the bankruptcy petition against the individual member. However, if an insolvency order is made against a member, the proceedings against that member shall be conducted under this Act without the modifications made by the Insolvent Partnerships Order 1994 (other than the modifications made to sections 168 and 303 of this Act by article 14 of that Order). (6) The court may dismiss a petition against an insolvent member if it considers it just to do so because of a change in circumstances since the making of the winding-up order against the partnership. (7) The court may dismiss a petition against an insolvent member who is a limited partner, if– (a)

the member lodges in court for the benefit of the creditors of the partnership sufficient money or security to the court’s satisfaction to meet his liability for the debts and obligations of the partnership; or (b) the member satisfies the court that he is no longer under any liability in respect of the debts and obligations of the partnership. (8) Nothing in sections  125 and 125A or in sections  267 and 268 prejudices the power of the court, in accordance with the rules, to authorise a creditor’s petition to be amended by the omission of any creditor or debt and to be proceeded with as if things done for the purposes of those sections had been done only by or in relation to the remaining creditors or debts.’.

910

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 10  Sections 131 and 288: Statements of affairs – Insolvent partnerships; corporate members; individual members Sections 131 and 288 are modified so as to read as follows:–

‘131 (1) This section applies where the court has, by virtue of article 8 of the Insolvent Partnerships Order 1994– (a)

made a winding-up order or appointed a provisional liquidator in respect of an insolvent partnership, or (b) made a winding-up order or appointed a provisional liquidator in respect of any corporate member of that partnership, or (c) made a bankruptcy order in respect of any individual member of that partnership. (2) The official receiver may require some or all of the persons mentioned in subsection (4) below to make out and submit to him a statement as to the affairs of the partnership or member in the prescribed form. (3) The statement shall be verified by affidavit by the persons required to submit it and shall show– (a)

particulars of the debts and liabilities of the partnership or of the member (as the case may be), and of the partnership property and member’s assets; (b) the names and addresses of the creditors of the partnership or of the member (as the case may be); (c) the securities held by them respectively; (d) the dates when the securities were respectively given; and (e) such further or other information as may be prescribed or as the official receiver may require. (4)

The persons referred to in subsection (2) are– (a) (b) (c)

those who are or have been officers of the partnership; those who are or have been officers of the corporate member; those who have taken part in the formation of the partnership or of the corporate member at any time within one year before the relevant date; (d) those who are in the employment of the partnership or of the corporate member, or have been in such employment within that year, and are in the official receiver’s opinion capable of giving the information required; (e) those who are or have been within that year officers of, or in the employment of, a company which is, or within that year was, an officer of the partnership or an officer of the corporate member. (5)

Where any persons are required under this section to submit a statement of affairs to the official receiver, they shall do so (subject to the next subsection) before the end of the period of 21 days beginning with the day after that on which the prescribed notice of the requirement is given to them by the official receiver.

(6)

The official receiver, if he thinks fit, may– (a) at any time release a person from an obligation imposed on him under subsection (2) or (3) above; or (b) either when giving the notice mentioned in subsection (5) or subsequently, extend the period so mentioned;

911

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) and where the official receiver has refused to exercise a power conferred by this subsection, the court, if it thinks fit, may exercise it. (7)

In this section– ‘employment’ includes employment under a contract for services; and ‘the relevant date’ means– (a) in a case where a provisional liquidator is appointed, the date of his appointment; and (b) in a case where no such appointment is made, the date of the winding-up order.

(8)

Any person who without reasonable excuse fails to comply with any obligation imposed under this section (other than, in the case of an individual member, an obligation in respect of his own statement of affairs), is liable to a fine and, for continued contravention, to a daily default fine.

(9)

An individual member who without reasonable excuse fails to comply with any obligation imposed under this section in respect of his own statement of affairs, is guilty of a contempt of court and liable to be punished accordingly (in addition to any other punishment to which he may be subject).’.

11  Section 133: Public examination of officers of insolvent partnerships Section 133 is modified so far as insolvent partnerships are concerned so as to read as follows:– ‘133 (1) Where an insolvent partnership is being wound up by virtue of article 8 of the Insolvent Partnerships Order 1994, the official receiver may at any time before the winding up is complete apply to the court for the public examination of any person who– (a) (b)

is or has been an officer of the partnership; or has acted as liquidator or administrator of the partnership or as receiver or manager or, in Scotland, receiver of its property; (c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the formation of the partnership. (2)

Unless the court otherwise orders, the official receiver shall make an application under subsection (1) if he is requested in accordance with the rules to do so by one-half, in value, of the creditors of the partnership.

(3) On an application under subsection (1), the court shall direct that a public examination of the person to whom the application relates shall be held on a day appointed by the court; and that person shall attend on that day and be publicly examined as to the formation or management of the partnership or as to the conduct of its business and affairs, or his conduct or dealings in relation to the partnership. (4) The following may take part in the public examination of a person under this section and may question that person concerning the matters mentioned in subsection (3), namely– (a) (b)

the official receiver; the liquidator of the partnership;

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (c) (d)

any person who has been appointed as special manager of the partnership’s property or business; any creditor of the partnership who has tendered a proof in the winding up.

(5) On an application under subsection (1), the court may direct that the public examination of any person under this section in relation to the affairs of an insolvent partnership be combined with the public examination of any person under this Act in relation to the affairs of a corporate member of that partnership against which, or an individual member of the partnership against whom, an insolvency order has been made.’.

12  Sections 136, 293 and 294: Functions of official receiver in relation to office of responsible insolvency practitioner Sections 136, 293 and 294 are modified so as to read as follows:– ‘136 (1)

The following provisions of this section […]1 have effect, subject to section 140 below, where insolvency orders are made in respect of an insolvent partnership and one or more of its insolvent members by virtue of article 8 of the Insolvent Partnerships Order 1994.

(2) The official receiver, by virtue of his office, becomes the responsible insolvency practitioner of the partnership and of any insolvent member and continues in office until another person becomes responsible insolvency practitioner under the provisions of this Part. (3) The official receiver is, by virtue of his office, the responsible insolvency practitioner of the partnership and of any insolvent member during any vacancy. (4) At any time when he is the responsible insolvency practitioner of the insolvent partnership and of any insolvent member, the official receiver may [in accordance with the rules seek nominations from]2 the creditors of the partnership and the creditors of such member, for the purpose of choosing a person to be responsible insolvency practitioner in place of the official receiver. [(5) It is the duty of the official receiver– (a) as soon as practicable in the period of 12 weeks beginning with the day on which the insolvency order was made, to decide whether to exercise his power under subsection (4), and (b) if in pursuance of paragraph (a) he decides not to exercise that power, to give notice of his decision, before the end of that period, to the court and to the creditors of the partnership and of the creditors of any insolvent member against whom an insolvency order has been made, and (c) (whether or not he has decided to exercise that power) to exercise his power under subsection (4) if he is at any time requested, in accordance with the rules, to do so by one-quarter, in value, of either– (i) the partnership’s creditors, or (ii) the creditors of any insolvent member against whom an insolvency order has been made, and accordingly, where the duty imposed by paragraph (c) arises before the official receiver has performed a duty imposed by paragraph (a) or (b), he is not required to perform the latter duty.

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (6) A notice given under subsection (5)(b) to the creditors must contain an explanation of the creditors’ power under subsection (5)(c) to require the official receiver to seek nominations from the creditors of the partnership and of any insolvent member.]3 […]1 1 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 8(1), (2)(a), (d) (6 April 2017). 2 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 8(1), (2)(b) (6 April 2017). 3 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 8(1), (2)(c) (6 April 2017).

13  Sections 137, 295, 296 and 300: Appointment of responsible insolvency practitioner by Secretary of State Sections 137, 295, 296 and 300 are modified so as to read as follows:– ‘137 (1) This section and the next apply where the court has made insolvency orders in respect of an insolvent partnership and one or more of its insolvent members by virtue of article 8 of the Insolvent Partnerships Order 1994. (2) The official receiver may, at any time when he is the responsible insolvency practitioner of the partnership and of any insolvent member, apply to the Secretary of State for the appointment of a person as responsible insolvency practitioner of both the partnership and of such member in his place. (3) If [a nomination is sought from the creditors of the partnership and of any insolvent member]1, but no person is chosen to be responsible insolvency practitioner [by the creditors]1, it is the duty of the official receiver to decide whether to refer the need for an appointment to the Secretary of State. 137A  Consequences of section 137 application (1) On an application under section  137(2), or a reference made in pursuance of a decision under section  137(3), the Secretary of State shall either make an appointment or decline to make one. (2) If on an application under section 137(2), or a reference made in pursuance of a decision under section  137(3) no appointment is made, the official receiver shall continue to be responsible insolvency practitioner of the partnership and its insolvent member or members, but without prejudice to his power to make a further application or reference. (3)

Where a responsible insolvency practitioner has been appointed by the Secretary of State under subsection (1) of this section, and an insolvency order is subsequently made against a further insolvent member by virtue of article 8 of the Insolvent Partnerships Order 1994, then the practitioner so appointed shall also be the responsible insolvency practitioner of the member against whom the subsequent order is made.

914

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (4) Where a responsible insolvency practitioner has been appointed by the Secretary of State under subsection (1), or has become responsible insolvency practitioner of a further insolvent member under subsection (3), that practitioner shall give notice of his appointment or further appointment (as the case may be) to the creditors of the insolvent partnership and the creditors of the insolvent member or members against whom insolvency orders have been made or, if the court so allows, shall advertise his appointment in accordance with the directions of the court. (5) Subject to subsection (6) below, in that notice or advertisement the responsible insolvency practitioner [must explain the procedure for establishing a liquidation committee under section 141.]1 [(6) In a case where subsection (3) applies, in the notice or advertisement the responsible insolvency practitioner must– (a)

if a liquidation committee has already been established under section 141, state whether he proposes to appoint additional members of the committee under section 141A(3); or (b) if such a committee has not been established, explain the procedure for establishing a liquidation committee under section 141.]1’. 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 8(1), (3) (6 April 2017).

14  Section 139: Rules applicable to [decision making]1 Section 139 is modified so as to read as follows:– ‘139 (1) This section applies where the court has made insolvency orders against an insolvent partnership and one or more of its insolvent members by virtue of article 8 of the Insolvent Partnerships Order 1994. [(2) Subject to subsection (4) below, the rules relating to decision making on the winding up of a company are to apply (with the necessary modifications) to decisions sought from creditors of the partnership, of any corporate members against which an insolvency order has been made or of any insolvent member, where the decision is one to be made with creditors of the partnership. (3) Subject to subsection (4) below, the rules relating to decision making on the bankruptcy of an individual are to apply (with the necessary modifications) to decisions sought from creditors of any individual member against whom an insolvency order has been made. (4)

Any decision to be made by the creditors of the partnership and of the insolvent member or members must be conducted as if there were a single set of creditors.]1’.

1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 8(1), (4) (6 April 2017).

15  Section 140: Appointment by the court following administration or voluntary arrangement Section 140 is modified so as to read as follows:–

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) ‘140 (1)

This section applies where insolvency orders are made in respect of an insolvent partnership and one or more of its insolvent members by virtue of article 8 of the Insolvent Partnerships Order 1994.

(2) Where the orders referred to in subsection (1) are made immediately upon the [appointment of an administrator in respect of the partnership ceasing to have effect]1, the court may appoint as responsible insolvency practitioner the person [whose appointment as administrator has ceased to have effect]1. (3) Where the orders referred to in subsection (1) are made at a time when there is a supervisor of a voluntary arrangement approved in relation to the partnership under Part I, the court may appoint as responsible insolvency practitioner the person who is the supervisor at the time when the winding-up order against the partnership is made. (4) Where the court makes an appointment under this section, the official receiver does not become the responsible insolvency practitioner as otherwise provided by section 136(2), and [section 136(5)(a) or (b) does not apply.]2’. 1 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 9(1), (3) (1 July 2005). 2 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 8(1), (5) (6 April 2017).

16  Sections 141, 301 and 302: Creditors’ Committee: Insolvent partnership and members Sections 141, 301 and 302 are modified so as to read as follows:– ‘[141 (1)

This section applies where insolvency orders are made in respect of an insolvent partnership and one or more of its insolvent members by virtue of article 8 of the Insolvent Partnerships Order 1994.

(2) If both the creditors of the partnership and the creditors of any insolvent members decide that a liquidation committee should be established, a liquidation committee is to be established in accordance with the rules. (3)

A ‘liquidation committee’ is a committee having such functions as are conferred on it by or under this Act.

(4) The responsible insolvency practitioner must seek a decision from the creditors of the partnership and of any insolvent members as to whether a liquidation committee should be established if requested, in accordance with the rules, to do so by one-tenth in value of the creditors.]1

141A  Functions and membership of creditors’ committee (1)

The committee established under section 141 shall act as liquidation committee for the partnership and for any corporate member against which an insolvency order has been made, and as creditors’ committee for any individual member against whom an insolvency order has been made, and shall as appropriate

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F exercise the functions conferred on liquidation and creditors’ committees in a winding up or bankruptcy by or under this Act. (2) The rules relating to liquidation committees are to apply (with the necessary modifications and with the exclusion of all references to contributories) to a committee established under section 141. (3)

Where the appointment of the responsible insolvency practitioner also takes effect in relation to a further insolvent member under section 136A(5) or 137A(3), the practitioner may appoint any creditor of that member (being qualified under the rules to be a member of the committee) to be an additional member of any creditors’ committee already established under section  141, provided that the creditor concerned consents to act.

(4) The court may at any time, on application by a creditor of the partnership or of any insolvent member against whom an insolvency order has been made, appoint additional members of the creditors’ committee. (5)

If additional members of the creditors’ committee are appointed under subsection (3) or (4), the limit on the maximum number of members of the committee specified in the rules shall be increased by the number of additional members so appointed.

(6) The creditors’ committee is not to be able or required to carry out its functions at any time when the official receiver is responsible insolvency practitioner of the partnership and of its insolvent member or members; but at any such time its functions are vested in the Secretary of State except to the extent that the rules otherwise provide. (7) Where there is for the time being no creditors’ committee, and the responsible insolvency practitioner is a person other than the official receiver, the functions of such a committee are vested in the Secretary of State except to the extent that the rules otherwise provide.’. 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 8(1), (6) (6 April 2017).

17  Sections 143, 168(4) and 305: General functions of responsible insolvency practitioner Sections 143, 168(4) and 305 are modified so as to read as follows:– ‘143 (1) The functions of the responsible insolvency practitioner of an insolvent partnership and of its insolvent member or members against whom insolvency orders have been made by virtue of article 8 of the Insolvent Partnerships Order 1994, are to secure that the partnership property and the assets of any such corporate member, and the estate of any such individual member, are got in, realised and distributed to their respective creditors and, if there is a surplus of such property or assets or in such estate, to the persons entitled to it. (2)

In the carrying out of those functions, and in the management of the partnership property and of the assets of any corporate member and of the estate of any individual member, the responsible insolvency practitioner is entitled, subject to the provisions of this Act, to use his own discretion.

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (3) It is the duty of the responsible insolvency practitioner, if he is not the official receiver– (a) to furnish the official receiver with such information, (b) to produce to the official receiver, and permit inspection by the official receiver of, such books, papers and other records, and (c) to give the official receiver such other assistance, as the official receiver may reasonably require for the purposes of carrying out his functions in relation to the winding up of the partnership and any corporate member or the bankruptcy of any individual member. (4) The official name of the responsible insolvency practitioner in his capacity as trustee of an individual member shall be ‘the trustee of the estate of …, a bankrupt’ (inserting the name of the individual member); but he may be referred to as ‘the trustee in bankruptcy’ of the particular member.’.

18  Sections 146 and 331: Duty to summon final meeting of creditors Sections 146 and 331 are modified so as to read as follows:–

‘[146 Final account (1) This section applies if it appears to the responsible insolvency practitioner of an insolvent partnership which is being wound up by virtue of article 8 of the Insolvent Partnerships Order 1994 and of its insolvent member or members that the winding up of the partnership or of any corporate member, or the administration of any individual member’s estate is for practical purposes complete and the practitioner is not the official receiver. (2)

The responsible insolvency practitioner must make up an account of the winding up or administration, showing how it has been conducted and the property disposed of.

(3)

The responsible insolvency practitioner must– (a)

send a copy of the account to the creditors of the partnership (other than opted-out creditors), and (b) give the partnership’s creditors (other than opted-out creditors) a notice explaining the effect of section 174(4)(d) and how they may object to the liquidator’s release. (4)

The liquidator must during the relevant period send to the court and, in the case of a corporate member, send to the registrar of companies– (a) a copy of the account, and (b) a statement of whether any of the partnership’s creditors objected to the liquidator’s release.

(5)

The relevant period is the period of 7 days beginning with the day after the last day of the period prescribed by the rules as the period within which the creditors may object to the responsible insolvency practitioner’s release.]1’.

1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 8(1), (7) (6 April 2017).

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 19  Section 147: Power of court to stay proceedings Section 147 is modified, so far as insolvent partnerships are concerned, so as to read as follows:– ‘147 (1)

The court may, at any time after an order has been made by virtue of article 8 of the Insolvent Partnerships Order 1994 for winding up an insolvent partnership, on the application either of the responsible insolvency practitioner or the official receiver or any creditor or contributory, and on proof to the satisfaction of the court that all proceedings in the winding up of the partnership ought to be stayed, make an order staying the proceedings, either altogether or for a limited time, on such terms and conditions as the court thinks fit.

(2) If, in the course of hearing an insolvency petition presented against a member of an insolvent partnership, the court is satisfied that an application has been or will be made under subsection (1) in respect of a winding-up order made against the partnership, the court may adjourn the petition against the insolvent member, either conditionally or unconditionally. (3)

Where the court makes an order under subsection (1) staying all proceedings on the order for winding up an insolvent partnership– (a) the court may, on hearing any insolvency petition presented against an insolvent member of the partnership, dismiss that petition; and (b) if any insolvency order has already been made by virtue of article 8 of the Insolvent Partnerships Order 1994 in relation to an insolvent member of the partnership, the court may make an order annulling or rescinding that insolvency order, or may make any other order that it thinks fit.

(4) The court may, before making any order under this section, require the official receiver to furnish to it a report with respect to any facts or matters which are in his opinion relevant to the application.’. [19A  Sections 165 and 167 (1)

Section 165(2) has effect as if for ‘(Parts 1 to 3)’ there were substituted ‘(Parts 1 and 2)’.

(2)

Section 167(1) has effect as if for ‘(Parts 1 to 3)’ there were substituted ‘(Parts 1 and 2)’.]1

1 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 8(1), (8) (6 April 2017).

20  Sections 168, 303 and 314(7): Supplementary powers of responsible insolvency practitioner Sections 168(1) to (3) and (5), 303 and 314(7) are modified so as to read as follows:– ‘168 (1) This section applies where the court has made insolvency orders in respect of an insolvent partnership and one or more of its insolvent members by virtue of article 8 of the Insolvent Partnerships Order 1994

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) [(2) The responsible insolvency practitioner may seek a decision on any matter from the creditors of the partnership or of any insolvent member; and must seek a decision on a matter if requested to do so by one-tenth in value of the creditors.]1 (3) […]2 (4)

The responsible insolvency practitioner may apply to the court (in the prescribed manner) for directions in relation to any particular matter arising in the winding up of the insolvent partnership or in the winding up or bankruptcy of an insolvent member.

(5) If any person is aggrieved by an act or decision of the responsible insolvency practitioner, that person may apply to the court; and the court may confirm, reverse or modify the act or decision complained of, and make such order in the case as it thinks just.’. 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 8(1), (9)(a) (6 April 2017). 2 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 8(1), (9)(b) (6 April 2017).

21  Sections 172 and 298: Removal etc. of responsible insolvency practitioner or of provisional liquidator Sections 172 and 298 are modified so as to read as follows:– ‘172 (1) This section applies with respect to the removal from office and vacation of office of– (a)

(b)

the responsible insolvency practitioner of an insolvent partnership which is being wound up by virtue of article 8 of the Insolvent Partnerships Order 1994 and of its insolvent member or members against whom insolvency orders have been made, or a provisional liquidator of an insolvent partnership, and of any corporate member of that partnership, against which a winding-up petition is presented by virtue of that article,

and, subject to subsections (6) and (7) below, any removal from or vacation of office under this section relates to all offices held in the proceedings relating to the partnership. (2) Subject as follows, the responsible insolvency practitioner or provisional liquidator may be removed from office only by an order of the court. (3) If appointed by the Secretary of State, the responsible insolvency practitioner may be removed from office by a direction of the Secretary of State. (4) A responsible insolvency practitioner or provisional liquidator, not being the official receiver, shall vacate office if he ceases to be a person who is qualified to act as an insolvency practitioner in relation to the insolvent partnership or any insolvent member of it against whom an insolvency order has been made. (5) The responsible insolvency practitioner may, with the leave of the court (or, if appointed by the Secretary of State, with the leave of the court or the Secretary of State), resign his office by giving notice of his resignation to the court.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F [(6) A responsible insolvency practitioner who has produced an account of the winding up or administration under section 146 must vacate office immediately upon complying with the requirements of section 146(3).]1 (7) The responsible insolvency practitioner shall vacate office as trustee of the estate of an individual member if the insolvency order against that member is annulled.’. 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 8(1), (10) (6 April 2017).

22  Sections 174 and 299: Release of responsible insolvency practitioner or of provisional liquidator Sections 174 and 299 are modified so as to read as follows:– ‘174 (1)

This section applies with respect to the release of– (a)

(b)

(2)

the responsible insolvency practitioner of an insolvent partnership which is being wound up by virtue of article 8 of the Insolvent Partnerships Order 1994 and of its insolvent member or members against whom insolvency orders have been made, or a provisional liquidator of an insolvent partnership, and of any corporate member of that partnership, against which a winding-up petition is presented by virtue of that article.

Where the official receiver has ceased to be the responsible insolvency practitioner and a person is appointed in his stead, the official receiver has his release with effect from the following time, that is to say– (a) in a case where that person was nominated by [the]1 creditors of the partnership and of any insolvent member or members, or was appointed by the Secretary of State, the time at which the official receiver gives notice to the court that he has been replaced; (b) in a case where that person is appointed by the court, such time as the court may determine.

(3) If the official receiver while he is a responsible insolvency practitioner gives notice to the Secretary of State that the winding up of the partnership or of any corporate member or the administration of the estate of any individual member is for practical purposes complete, he has his release as liquidator or trustee (as the case may be) with effect from such time as the Secretary of State may determine. (4) A person other than the official receiver who has ceased to be a responsible insolvency practitioner has his release with effect from the following time, that is to say– (a)

in the case of a person who has died, the time at which notice is given to the court in accordance with the rules that person has ceased to hold office; (b) in the case of a person who has been removed from office by the court or by the Secretary of State, or who has vacated office under section 172(4), such time as the Secretary of State may, on an application by that person, determine;

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (c)

in the case of a person who has resigned, such time as may be directed by the court (or, if he was appointed by the Secretary of State, such time as may be directed by the court or as the Secretary of State may, on an application by that person, determine); [(d) in the case of a person who has vacated office under section 172(6)– (i) if any of the creditors of the partnership or of any insolvent member objected to the person’s release before the end of the period for so objecting prescribed by the rules, such time as the Secretary of State may, on an application by that person, determine, and (ii) otherwise, the time at which the person vacated office.]1 (5)

A person who has ceased to hold office as a provisional liquidator has his release with effect from such time as the court may, on an application by him, determine.

(6) Where a bankruptcy order in respect of an individual member is annulled, the responsible insolvency practitioner at the time of the annulment has his release with effect from such time as the court may determine. (7) Where the responsible insolvency practitioner or provisional liquidator (including in both cases the official receiver when so acting) has his release under this section, he is, with effect from the time specified in the preceding provisions of this section, discharged from all liability both in respect of acts or omissions of his in the winding up of the insolvent partnership or any corporate member or the administration of the estate of any individual member (as the case may be) and otherwise in relation to his conduct as responsible insolvency practitioner or provisional liquidator. But nothing in this section prevents the exercise, in relation to a person who has had his release under this section, of the court’s powers under section 212 (summary remedy against delinquent directors, liquidators, etc.) or section 304 (liability of trustee).’. 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 8(1), (11) (6 April 2017).

23  Sections 175[, 176AZA]1 and 328: Priority of expenses and debts Sections 175 and 328(1) to (3) and (6) are modified so as to read as follows:– ‘175 Priority of expenses (1)

The provisions of this section shall apply in a case where article 8 of the Insolvent Partnerships Order 1994 applies, as regards priority of expenses incurred by a responsible insolvency practitioner of an insolvent partnership, and of any insolvent member of that partnership against whom an insolvency order has been made.

(2) The joint estate of the partnership shall be applicable in the first instance in payment of the joint expenses and the separate estate of each insolvent member shall be applicable in the first instance in payment of the separate expenses relating to that member. (3)

Where the joint estate is insufficient for the payment in full of the joint expenses, the unpaid balance shall be apportioned equally between the separate estates of the insolvent members against whom insolvency orders have been made and shall form part of the expenses to be paid out of those estates.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (4)

Where any separate estate of an insolvent member is insufficient for the payment in full of the separate expenses to be paid out of that estate, the unpaid balance shall form part of the expenses to be paid out of the joint estate.

(5) Where after the transfer of any unpaid balance in accordance with subsection (3) or (4) any estate is insufficient for the payment in full of the expenses to be paid out of that estate, the balance then remaining unpaid shall be apportioned equally between the other estates. (6) Where after an apportionment under subsection (5) one or more estates are insufficient for the payment in full of the expenses to be paid out of those estates, the total of the unpaid balances of the expenses to be paid out of those estates shall continue to be apportioned equally between the other estates until provision is made for the payment in full of the expenses or there is no estate available for the payment of the balance finally remaining unpaid, in which case it abates in equal proportions between all the estates. (7) Without prejudice to subsections (3) to (6) above, the responsible insolvency practitioner may, with the sanction of any creditors’ committee established under section 141 or with the leave of the court obtained on application– (a)

pay out of the joint estate as part of the expenses to be paid out of that estate any expenses incurred for any separate estate of an insolvent member; or (b) pay out of any separate estate of an insolvent member any part of the expenses incurred for the joint estate which affects that separate estate. 175A  Priority of debts in joint estate (1) The provisions of this section and the next (which are subject to the provisions of section  9 of the Partnership Act 1890 as respects the liability of the estate of a deceased member) shall apply as regards priority of debts in a case where article 8 of the Insolvent Partnerships Order 1994 applies. (2)

After payment of expenses in accordance with section 175 and subject to section 175C(2), the joint debts of the partnership shall be paid out of its joint estate in the following order of priority– [(a) (aa) [(b) (ba) (bb) (c) (d) (e)

(3)

the ordinary preferential debts; the secondary preferential debts;]2 the ordinary non-preferential debts; the secondary non-preferential debts; the tertiary non-preferential debts;]3 interest under section 189 on the joint debts (other than postponed debts); the postponed debts; interest under section 189 on the postponed debts.

The responsible insolvency practitioner shall adjust the rights among themselves of the members of the partnership as contributories and shall distribute any surplus to the members or, where applicable, to the separate estates of the members, according to their respective rights and interests in it.

(4) The debts referred to in each of [paragraphs (a) to (ba)]3 of subsection (2) rank equally between themselves, and in each case if the joint estate is insufficient for meeting them, they abate in equal proportions between themselves. (5) Where the joint estate is not sufficient for the payment of the joint debts in accordance with [paragraphs (a), (aa) and (b)]2 of subsection (2), the responsible

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank equally with the debts of the member referred to in section 175B(1)(b) below. [(5A) Where the joint estate is not sufficient for the payment of the secondary nonpreferential debts in accordance with paragraph (ba) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank equally with the debts of the member referred to in section 175B(1)(ba) below. (5B) Where the joint estate is not sufficient for the payment of the tertiary nonpreferential debts in accordance with paragraph (bb) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank as a debt of the member in accordance with section 175B(1) (bc) below.]1 (6)

Where the joint estate is sufficient for the payment of the joint debts in accordance with [paragraphs (a) to (bb)]1 of subsection (2) but not for the payment of interest under paragraph (c) of that subsection, the responsible insolvency practitioner shall aggregate the value of that interest to the extent that it has not been satisfied or is not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank equally with the interest on the separate debts referred to in section 175B(1)(c) below. (7) Where the joint estate is not sufficient for the payment of the postponed joint debts in accordance with paragraph (d) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank equally with the postponed debts of the member referred to in section 175B(1)(d) below.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (8)

Where the joint estate is sufficient for the payment of the postponed joint debts in accordance with paragraph (d) of subsection (2) but not for the payment of interest under paragraph (e) of that subsection, the responsible insolvency practitioner shall aggregate the value of that interest to the extent that it has not been satisfied or is not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank equally with the interest on the postponed debts referred to in section 175B(1)(e) below. (9)

Where the responsible insolvency practitioner receives any distribution from the separate estate of a member in respect of a debt referred to in paragraph (a) of subsection (5), [(5A), (5B),]3 (6), (7) or (8) above, that distribution shall become part of the joint estate and shall be distributed in accordance with the order of priority set out in subsection (2) above.

175B  Priority of debts in separate estate (1) The separate estate of each member of the partnership against whom an insolvency order has been made shall be applicable, after payment of expenses in accordance with section 175 and subject to section 175C(2) below, in payment of the separate debts of that member in the following order of priority– [(a) the ordinary preferential debts; (aa) the secondary preferential debts;]2 [(b) the ordinary non-preferential debts (including any debt referred to in section 175A(5)(a)); (ba) the secondary non-preferential debts (including any debt referred to in section 175A(5A)(a)); (bb) the tertiary non-preferential debts; (bc) the debt referred to in section 175A(5B)(a);]3 (c) interest under section 189 on the separate debts and under section 175A(6); (d) the postponed debts of the member (including any debt referred to in section 175A(7)(a)); (e) interest under section  189 on the postponed debts of the member and under section 175A(8). (2) The debts referred to in each of [paragraphs (a) to (ba)]3 of subsection (1) rank equally between themselves, and in each case if the separate estate is insufficient for meeting them, they abate in equal proportions between themselves. (3)

Where the responsible insolvency practitioner receives any distribution from the joint estate or from the separate estate of another member of the partnership against whom an insolvency order has been made, that distribution shall become part of the separate estate and shall be distributed in accordance with the order of priority set out in subsection (1) of this section.

175C  Provisions generally applicable in distribution of joint and separate estates (1) Distinct accounts shall be kept of the joint estate of the partnership and of the separate estate of each member of that partnership against whom an insolvency order is made.

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (2) No member of the partnership shall prove for a joint or separate debt in competition with the joint creditors, unless the debt has arisen– (a) as a result of fraud, or (b) in the ordinary course of a business carried on separately from the partnership business. (3) For the purpose of establishing the value of any debt referred to in section 175A(5)(a)[, (5A)(a), (5B)(a)]1 or (7)(a), that value may be estimated by the responsible insolvency practitioner in accordance with section  322 or (as the case may be) in accordance with the rules. (4) Interest under section 189 on preferential debts ranks equally with interest on [ordinary non-preferential debts, secondary non-preferential debts and tertiary non-preferential debts]3. (5)

Sections 175A and 175B are without prejudice to any provision of this Act or of any other enactment concerning the ranking between themselves of postponed debts and interest thereon, but in the absence of any such provision postponed debts and interest thereon rank equally between themselves.

(6) If any two or more members of an insolvent partnership constitute a separate partnership, the creditors of such separate partnership shall be deemed to be a separate set of creditors and subject to the same statutory provisions as the separate creditors of any member of the insolvent partnership. (7) Where any surplus remains after the administration of the estate of a separate partnership, the surplus shall be distributed to the members or, where applicable, to the separate estates of the members of that partnership according to their respective rights and interests in it. (8) Neither the official receiver, the Secretary of State nor a responsible insolvency practitioner shall be entitled to remuneration or fees under the [Insolvency (England and Wales) Rules 2016]4, the Insolvency Regulations 1986 or the Insolvency Fees Order 1986 for his services in connection with– (a) the transfer of a surplus from the joint estate to a separate estate under section 175A(3), (b) a distribution from a separate estate to the joint estate in respect of a claim referred to in section 175A(5), [(5A), (5B),]1 (6), (7) or (8), or (c) a distribution from the estate of a separate partnership to the separate estates of the members of that partnership under subsection (7) above.’. 1 Inserted by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, arts 15, 20(1), (2), (5), (7), (10), (12) (19 December 2018). 2 Substituted by the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, SI 2014/3486, art 14 (1 January 2015: substitution has effect subject to transitional provisions specified in the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, art 3). 3 Substituted by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, arts 15, 20(1), (3), (4), (6), (8), (9), (11) (19 December 2018). 4 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg 2, Sch 2, paras 1, 5(1), (3) (8 December 2017: substitution has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10).

24  Sections 189 and 328: Interest on debts Sections 189 and 328(4) and (5) are modified so as to read as follows:–

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F ‘189 (1) In the winding up of an insolvent partnership or the winding up or bankruptcy (as the case may be) of any of its insolvent members interest is payable in accordance with this section, in the order of priority laid down by sections 175A and 175B, on any debt proved in the winding up or bankruptcy, including so much of any such debt as represents interest on the remainder. (2) Interest under this section is payable on the debts in question in respect of the periods during which they have been outstanding since the winding-up order was made against the partnership or any corporate member (as the case may be) or the bankruptcy order was made against any individual member. (3)

The rate of interest payable under this section in respect of any debt (‘the official rate’ for the purposes of any provision of this Act in which that expression is used) is whichever is the greater of– (a) (b)

the rate specified in section 17 of the Judgments Act 1838 on the day on which the winding-up or bankruptcy order (as the case may be) was made, and the rate applicable to that debt apart from the winding up or bankruptcy.’.

25  Sections 211 and 356: False representations to creditors Sections 211 and 356(2)(d) are modified so as to read as follows:– ‘211 (1) This section applies where insolvency orders are made against an insolvent partnership and any insolvent member or members of it by virtue of article 8 of the Insolvent Partnerships Order 1994. (2)

Any person, being a past or present officer of the partnership or a past or present officer (which for these purposes includes a shadow director) of a corporate member against which an insolvency order has been made– (a)

commits an offence if he makes any false representation or commits any other fraud for the purpose of obtaining the consent of the creditors of the partnership (or any of them) or of the creditors of any of its members (or any of such creditors) to an agreement with reference to the affairs of the partnership or of any of its members or to the winding up of the partnership or of a corporate member, or the bankruptcy of an individual member, and (b) is deemed to have committed that offence if, prior to the winding up or bankruptcy (as the case may be), he has made any false representation, or committed any other fraud, for that purpose. (3) A person guilty of an offence under this section is liable to imprisonment or a fine, or both.’. 26  Sections 230, 231 and 292: Appointment to office of responsible insolvency practitioner or provisional liquidator Sections 230, 231 and 292 are modified so as to read as follows:– ‘230 (1)

This section applies with respect to the appointment of–

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (a)

the responsible insolvency practitioner of an insolvent partnership which is being wound up by virtue of article 8 of the Insolvent Partnerships Order 1994 and of one or more of its insolvent members, or (b) a provisional liquidator of an insolvent partnership, or of any of its corporate members, against which a winding-up petition is presented by virtue of that article, but is without prejudice to any enactment under which the official receiver is to be, or may be, responsible insolvency practitioner or provisional liquidator. (2)

No person may be appointed as responsible insolvency practitioner unless he is, at the time of the appointment, qualified to act as an insolvency practitioner both in relation to the insolvent partnership and to the insolvent member or members.

(3)

No person may be appointed as provisional liquidator unless he is, at the time of the appointment, qualified to act as an insolvency practitioner both in relation to the insolvent partnership and to any corporate member in respect of which he is appointed.

(4) If the appointment or nomination of any person to the office of responsible insolvency practitioner or provisional liquidator relates to more than one person, or has the effect that the office is to be held by more than one person, then subsection (5) below applies. (5) The appointment or nomination shall declare whether any act required or authorised under any enactment to be done by the responsible insolvency practitioner or by the provisional liquidator is to be done by all or any one or more of the persons for the time being holding the office in question. (6)

The appointment of any person as responsible insolvency practitioner takes effect only if that person accepts the appointment in accordance with the rules. Subject to this, the appointment of any person as responsible insolvency practitioner takes effect at the time specified in his certificate of appointment.

230A  Conflicts of interest (1) If the responsible insolvency practitioner of an insolvent partnership being wound up by virtue of article 8 of the Insolvent Partnerships Order 1994 and of one or more of its insolvent members is of the opinion at any time that there is a conflict of interest between his functions as liquidator of the partnership and his functions as responsible insolvency practitioner of any insolvent member, or between his functions as responsible insolvency practitioner of two or more insolvent members, he may apply to the court for directions. (2) On an application under subsection (1), the court may, without prejudice to the generality of its power to give directions, appoint one or more insolvency practitioners either in place of the applicant to act as responsible insolvency practitioner of both the partnership and its insolvent member or members or to act as joint responsible insolvency practitioner with the applicant.’. 27  Section 234: Getting in the partnership property Section 234 is modified, so far as insolvent partnerships are concerned, so as to read as follows:– ‘234 (1)

This section applies where–

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (a) insolvency orders are made by virtue of article  8 of the Insolvent Partnerships Order 1994 in respect of an insolvent partnership and its insolvent member or members, or (b) a provisional liquidator of an insolvent partnership and any of its corporate members is appointed by virtue of that article; and ‘the office-holder’ means the liquidator or the provisional liquidator, as the case may be. (2) Any person who is or has been an officer of the partnership, or who is an executor or administrator of the estate of a deceased officer of the partnership, shall deliver up to the office-holder, for the purposes of the exercise of the officeholder’s functions under this Act and (where applicable) the Company Directors Disqualification Act 1986, possession of any partnership property which he holds for the purposes of the partnership. (3) Where any person has in his possession or control any property, books, papers or records to which the partnership appears to be entitled, the court may require that person forthwith (or within such period as the court may direct) to pay, deliver, convey, surrender or transfer the property, books, papers or records to the office-holder or as the court may direct. (4)

Where the office-holder– (a) (b)

seizes or disposes of any property which is not partnership property, and at the time of seizure or disposal believes, and has reasonable grounds for believing, that he is entitled (whether in pursuance of an order of the court or otherwise) to seize or dispose of that property,

the next subsection has effect. (5)

In that case the office-holder– (a) (b)

is not liable to any person in respect of any loss or damage resulting from the seizure or disposal except in so far as that loss or damage is caused by the office-holder’s own negligence, and has a lien on the property, or the proceeds of its sale, for such expenses as were incurred in connection with the seizure or disposal.’.

28  Section 283: Definition of individual member’s estate Section 283 is modified so as to read as follows:– ‘283 (1) Subject as follows, the estate of an individual member for the purposes of this Act comprises– (a) all property belonging to or vested in the individual member at the commencement of the bankruptcy, and (b) any property which by virtue of any of the provisions of this Act is comprised in that estate or is treated as falling within the preceding paragraph. (2)

Subsection (1) does not apply to– (a) such tools, books, vehicles and other items of equipment as are not partnership property and as are necessary to the individual member for use personally by him in his employment, business or vocation;

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (b)

such clothing, bedding, furniture, household equipment and provisions as are not partnership property and as are necessary for satisfying the basic domestic needs of the individual member and his family.

This subsection is subject to section 308 in Chapter IV (certain excluded property reclaimable by trustee). (3)

Subsection (1) does not apply to– (a) (b)

property held by the individual member on trust for any other person, or the right of nomination to a vacant ecclesiastical benefice.

(4) References in any provision of this Act to property, in relation to an individual member, include references to any power exercisable by him over or in respect of property except in so far as the power is exercisable over or in respect of property not for the time being comprised in the estate of the individual member and– (a) (b)

is so exercisable at a time after either the official receiver has had his release in respect of that estate under section 174(3) or [the trustee of that estate has vacated office under section 298(6)]1, or cannot be so exercised for the benefit of the individual member;

and a power exercisable over or in respect of property is deemed for the purposes of any provision of this Act to vest in the person entitled to exercise it at the time of the transaction or event by virtue of which it is exercisable by that person (whether or not it becomes so exercisable at that time). (5) For the purposes of any such provision of this Act, property comprised in an individual member’s estate is so comprised subject to the rights of any person other than the individual member (whether as a secured creditor of the individual member or otherwise) in relation thereto, but disregarding any rights which have been given up in accordance with the rules. (6)

This section has effect subject to the provisions of any enactment not contained in this Act under which any property is to be excluded from a bankrupt’s estate.’.

1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 8(1), (12) (6 April 2017).

[28A  Section 283A: Individual member’s home ceasing to form part of estate Section 283A is modified so as to read as follows:– ‘283A (1) This section applies where property comprised in the estate of an individual member consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of– (a) (b) (c) (2)

the individual member; the individual member’s spouse [or civil partner]1, or a former spouse [or former civil partner]1 of the individual member.

At the end of the period of three years beginning with the date of the bankruptcy the interest mentioned in subsection (1) shall– (a) (b)

cease to be comprised in the individual member’s estate, and vest in the individual member (without conveyance, assignment or transfer).

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (3)

Subsection (2) shall not apply if during the period mentioned in that subsection– (a) the trustee realises the interest mentioned in subsection (1), (b) the trustee applies for an order for sale in respect of the dwelling-house, (c) the trustee applies for an order for possession of the dwelling-house, (d) the trustee applies for an order under section 313 in Chapter IV in respect of that interest, or (e) the trustee and the individual member agree that the individual member shall incur a specified liability to his estate (with or without the addition of interest from the date of the agreement) in consideration of which the interest mentioned in subsection (1) shall cease to form part of the estate.

(4) Where an application of a kind described in subsection (3)(b) to (d) is made during the period mentioned in subsection (2) and is dismissed, unless the court orders otherwise the interest to which the application relates shall on the dismissal of the application– (a) cease to be comprised in the individual member’s estate, and (b) vest in the individual member (without conveyance, assignment or transfer). (5)

If the individual member does not inform the trustee or the official receiver of his interest in a property before the end of the period of three months beginning with the date of the bankruptcy, the period of three years mentioned in subsection (2)– (a) shall not begin with the date of the bankruptcy, but (b) shall begin with the date on which the trustee or official receiver becomes aware of the individual member’s interest.

(6) The court may substitute for the period of three years mentioned in subsection (2) a longer period– (a) in prescribed circumstances, and (b) in such other circumstances as the court thinks appropriate. (7)

The rules may make provision for this section to have effect with the substitution of a shorter period for the period of three years mentioned in subsection (2) in specified circumstances (which may be described by reference to action to be taken by a trustee in bankruptcy).

(8)

The rules may also, in particular, make provision– (a) requiring or enabling the trustee of an individual member’s estate to give notice that this section applies or does not apply; (b) about the effect of a notice under paragraph (a); (c) requiring the trustee of an individual member’s estate to make an application to the Chief Land Registrar.

(9)

Rules under subsection (8)(b) may, in particular– (a) disapply this section; (b) enable a court to disapply this section; (c) make provision in consequence of a disapplication of this section; (d) enable a court to make provision in consequence of a disapplication of this section; (e) make provision (which may include provision conferring jurisdiction on a court or tribunal) about compensation.’]2

1 Inserted by the Civil Partnership Act 2004 (Amendments to Subordinate Legislation) Order 2005, SI 2005/2114, art 2(18), Sch 18, para 2(1), (2) (5 December 2005). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 9(1), (4) (1 July 2005).

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 29  Section 284: Individual member: Restrictions on dispositions of property Section 284 is modified so as to read as follows:– ‘284 (1) Where an individual member is adjudged bankrupt by virtue of article 8 of the Insolvent Partnerships Order 1994, any disposition of property made by that member in the period to which this section applies is void except to the extent that it is or was made with the consent of the court, or is or was subsequently ratified by the court. (2)

Subsection (1) applies to a payment (whether in cash or otherwise) as it applies to a disposition of property and, accordingly, where any payment is void by virtue of that subsection, the person paid shall hold the sum paid for the individual member as part of his estate.

(3) This section applies to the period beginning with the day of the presentation of the petition for the bankruptcy order and ending with the vesting, under Chapter IV of this Part, of the individual member’s estate in a trustee. (4)

The preceding provisions of this section do not give a remedy against any person– (a) in respect of any property or payment which he received before the commencement of the bankruptcy in good faith, for value and without notice that the petition had been presented, or (b) in respect of any interest in property which derives from an interest in respect of which there is, by virtue of this subsection, no remedy.

(5) Where after the commencement of his bankruptcy the individual member has incurred a debt to a banker or other person by reason of the making of a payment which is void under this section, that debt is deemed for the purposes of any provision of this Act to have been incurred before the commencement of the bankruptcy unless– (a) that banker or person had notice of the bankruptcy before the debt was incurred, or (b) it is not reasonably practicable for the amount of the payment to be recovered from the person to whom it was made. (6) A disposition of property is void under this section notwithstanding that the property is not or, as the case may be, would not be comprised in the individual member’s estate; but nothing in this section affects any disposition made by a person of property held by him on trust for any other person other than a disposition made by an individual member of property held by him on trust for the partnership.’. [29A  Section 313A: Low value home: application for sale, possession or charge Section 313A is modified so as to read as follows:– ‘313A (1)

This section applies where– (a)

property comprised in the individual member’s estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of–

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

(b)

(i) the individual member, (ii) the individual member’s spouse [or civil partner]1, or (iii) a former spouse [or former civil partner]1 of the individual member, and the trustee applies for an order for the sale of the property, for an order for possession of the property or for an order under section 313 in respect of the property.

(2) The court shall dismiss the application if the value of the interest is below the amount prescribed for the purposes of this subsection. (3)

In determining the value of an interest for the purposes of this section the court shall disregard any matter which it is required to disregard by the order which prescribes the amount for the purposes of subsection (2).’]2

1 Inserted by the Civil Partnership Act 2004 (Amendments to Subordinate Legislation) Order 2005, SI 2005/2114, art 2(18), Sch 18, para 2(1), (3) (5 December 2005). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 9(1), (5) (1 July 2005).

30  Section 284: Individual member: Restrictions on dispositions of property Schedule 4 is modified so as to read as follows:–

(Section 167)

‘SCHEDULE 4 POWERS OF LIQUIDATOR IN A WINDING UP

[…]1 1 Power to pay any class of creditors in full. 2 Power to make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the partnership, or whereby the partnership may be rendered liable. 3 Power to compromise, on such terms as may be agreed– (a) all debts and liabilities capable of resulting in debts, and all claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the partnership and a contributory or alleged contributory or other debtor or person apprehending liability to the partnership, and (b)

all questions in any way relating to or affecting the partnership property or the winding up of the partnership,

and take any security for the discharge of any such debt, liability or claim and give a complete discharge in respect of it.

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) [3A Power to bring legal proceedings under section 213, 214, 238, 239 or 423.]2 4 Power to bring or defend any action or other legal proceeding in the name and on behalf of any member of the partnership in his capacity as such or of the partnership. 5 Power to carry on the business of the partnership so far as may be necessary for its beneficial winding up. […]1 6 Power to sell any of the partnership property by public auction or private contract, with power to transfer the whole of it to any person or to sell the same in parcels. 7 Power to do all acts and execute, in the name and on behalf of the partnership or of any member of the partnership in his capacity as such, all deeds, receipts and other documents. 8 Power to prove, rank and claim in the bankruptcy, insolvency or sequestration of any contributory for any balance against his estate, and to receive dividends in the bankruptcy, insolvency or sequestration in respect of that balance, as a separate debt due from the bankrupt or insolvent, and rateably with the other separate creditors. 9 Power to draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf of any member of the partnership in his capacity as such or of the partnership, with the same effect with respect to the liability of the partnership or of any member of the partnership in his capacity as such as if the bill or note had been drawn, accepted, made or endorsed in the course of the partnership’s business. 10 Power to raise on the security of the partnership property any money requisite. 11 Power to take out in his official name letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot conveniently be done in the name of the partnership. In all such cases the money due is deemed, for the purpose of enabling the liquidator to take out the letters of administration or recover the money, to be due to the liquidator himself. 12 Power to appoint an agent to do any business which the liquidator is unable to do himself.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 13 Power to do all such other things as may be necessary for winding up the partnership’s affairs and distributing its property.’. 1 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 8(1), (13), (14) (6 April 2017). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 9(1), (6) (1 July 2005).

SCHEDULE 5 PROVISIONS OF THE ACT WHICH APPLY WITH MODIFICATIONS FOR THE PURPOSES OF ARTICLE 9 TO WINDING UP OF INSOLVENT PARTNERSHIP ON MEMBER’S PETITION WHERE NO CONCURRENT PETITION PRESENTED AGAINST MEMBER 1  Section 117: High Court and county court jurisdiction Section 117 is modified so as to read as follows:– ‘117 (1)

Subject to subsections (3) and (4) below, the High Court has jurisdiction to wind up any insolvent partnership as an unregistered company by virtue of article 9 of the Insolvent Partnerships Order 1994 if the partnership has, or at any time had, a principal place of business in England and Wales.

(2) Subject to subsections (3) and (4) below, a petition for the winding up of an insolvent partnership by virtue of the said article 9 may be presented to a county court in England and Wales if the partnership has, or at any time had, a principal place of business within the insolvency district of that court. (3) Subject to subsection (4) below, the court only has jurisdiction to wind up an insolvent partnership if the business of the partnership has been carried on in England and Wales at any time in the period of 3 years ending with the day on which the petition for winding it up is presented. (4)

If an insolvent partnership has a principal place of business situated in Scotland or in Northern Ireland, the court shall not have jurisdiction to wind up the partnership unless it had a principal place of business in England and Wales– (a) (b)

in the case of a partnership with a principal place of business in Scotland, at any time in the period of 1 year, or in the case of a partnership with a principal place of business in Northern Ireland, at any time in the period of 3 years,

ending with the day on which the petition for winding it up is presented. (5) The Lord Chancellor [may, with the concurrence of the Lord Chief Justice, by order]1 in a statutory instrument exclude a county court from having windingup jurisdiction, and for the purposes of that jurisdiction may attach its district, or any part thereof, to any other county court, and may by statutory instrument revoke or vary any such order. In exercising the powers of this section, the Lord Chancellor shall provide that a county court is not to have winding-up jurisdiction unless it has for the time being jurisdiction for the purposes of Parts VIII to XI of this Act (individual insolvency).

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (6) Every court in England and Wales having winding-up jurisdiction has for the purposes of that jurisdiction all the powers of the High Court; and every prescribed officer of the court shall perform any duties which an officer of the High Court may discharge by order of a judge of that court or otherwise in relation to winding up. [(7) This section is subject to Article 3 of the EC Regulation (jurisdiction under the EC Regulation).]2 [(8) The Lord Chief Justice may nominate a judicial office holder (as defined in section 109(4) of the Constitutional Reform Act 2005) to exercise his functions under this section.’.]3 1 Substituted by the Lord Chancellor (Transfer of Functions and Supplementary Provisions) Order 2006, SI 2006/680, art 3, Sch 2, paras 5, 6(1)(b), (2) (3 April 2006). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art  5(2) (31 May 2002). 3 Inserted by the Lord Chancellor (Transfer of Functions and Supplementary Provisions) Order 2006, SI 2006/680, art 3, Sch 2, paras 5, 6(1)(b), (3) (3 April 2006).

2  Section 221: Winding up of unregistered companies Section 221 is modified so as to read as follows:– ‘221 (1) Subject to subsections (2) and (3) below and to the provisions of this Part, any insolvent partnership which has, or at any time had, a principal place of business in England and Wales may be wound up under this Act. (2) Subject to subsection (3) below an insolvent partnership shall not be wound up under this Act if the business of the partnership has not been carried on in England and Wales at any time in the period of 3 years ending with the day on which the winding-up petition is presented. (3)

If an insolvent partnership has a principal place of business situated in Scotland or in Northern Ireland, the court shall not have jurisdiction to wind up the partnership unless it had a principal place of business in England and Wales– (a) (b)

in the case of a partnership with a principal place of business situated in Scotland, at any time in the period of 1 year, or in the case of a partnership with a principal place of business in Northern Ireland, at any time in the period of 3 years,

ending with the day on which the winding-up petition is presented. [(3A) The preceding subsections are subject to Article  3 of the EC  Regulation (jurisdiction under the EC Regulation).]1 (4)

No insolvent partnership shall be wound up under this Act voluntarily.

(5) To the extent that they are applicable to the winding up of a company by the court in England and Wales on a member’s petition or on a petition by the company, all the provisions of this Act and the Companies Act about winding up apply to the winding up of an insolvent partnership as an unregistered company– (a)

with the exceptions and additions mentioned in the following subsections of this section and in section 221A, and

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (b) with the modifications specified in Part II of Schedule 3 to the Insolvent Partnerships Order 1994. (6) Sections 73(1), 74(2)(a) to (d) and (3), 75 to 78, 83, 122, 123, 124(2) and (3), [176A,]2 202, 203, 205 and 250 shall not apply. (7) The circumstances in which an insolvent partnership may be wound up as an unregistered company are as follows– (a) if the partnership is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs; (b) if the partnership is unable to pay its debts; (c) if the court is of the opinion that it is just and equitable that the partnership should be wound up. (8) Every petition for the winding up of an insolvent partnership under Part V of this Act shall be verified by affidavit in Form 2 in Schedule 9 to the Insolvent Partnerships Order 1994.

221A  Who may present petition (1) A petition for winding up an insolvent partnership may be presented by any member of the partnership if the partnership consists of not less than 8 members. (2)

A petition for winding up an insolvent partnership may also be presented by any member of it with the leave of the court (obtained on his application) if the court is satisfied that– (a)

(b) (c)

the member has served on the partnership, by leaving at a principal place of business of the partnership in England and Wales, or by delivering to an officer of the partnership, or by otherwise serving in such manner as the court may approve or direct, a written demand in Form 10 in Schedule 9 to the Insolvent Partnerships Order 1994 in respect of a joint debt or debts exceeding £750 then due from the partnership but paid by the member, other than out of partnership property; the partnership has for 3 weeks after the service of the demand neglected to pay the sum or to secure or compound for it to the member’s satisfaction; and the member has obtained a judgment, decree or order of any court against the partnership for reimbursement to him of the amount of the joint debt or debts so paid and all reasonable steps (other than insolvency proceedings) have been taken by the member to enforce that judgment, decree or order.

(3) Subsection (2)(a) above is deemed included in the list of provisions specified in subsection (1) of section 416 of this Act for the purposes of the Secretary of State’s order-making power under that section.’. 1 Inserted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art  5(1) (31 May 2002). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2006, SI 2006/622, art 8 (6 April 2006).

937

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) SCHEDULE 6 PROVISIONS OF THE ACT WHICH APPLY WITH MODIFICATIONS FOR THE PURPOSES OF ARTICLE 10 TO WINDING UP OF INSOLVENT PARTNERSHIP ON MEMBER’S PETITION WHERE CONCURRENT PETITIONS ARE PRESENTED AGAINST ALL THE MEMBERS 1  Sections 117 and 265: High Court and county court jurisdiction Sections 117 and 265 are modified so as to read as follows:– ‘117 (1)

Subject to the provisions of this section, the High Court has jurisdiction to wind up any insolvent partnership as an unregistered company by virtue of article 10 of the Insolvent Partnerships Order 1994 if the partnership has, or at any time had, a principal place of business in England and Wales.

(2) Subject to the provisions of this section, a petition for the winding up of an insolvent partnership by virtue of the said article  10 may be presented to a county court in England and Wales if the partnership has, or at any time had, a principal place of business within the insolvency district of that court. (3) Subject to subsection (4) below, the court only has jurisdiction to wind up an insolvent partnership if the business of the partnership has been carried on in England and Wales at any time in the period of 3 years ending with the day on which the petition for winding it up is presented. (4)

If an insolvent partnership has a principal place of business situated in Scotland or in Northern Ireland, the court shall not have jurisdiction to wind up the partnership unless it had a principal place of business in England and Wales– (a) (b)

in the case of a partnership with a principal place of business in Scotland, at any time in the period of 1 year, or in the case of a partnership with a principal place of business in Northern Ireland, at any time in the period of 3 years,

ending with the day on which the petition for winding it up is presented. (5)

Subject to subsection (6) below, the court has jurisdiction to wind up a corporate member, or make a bankruptcy order against an individual member, of a partnership against which a petition has been presented by virtue of article 10 of the Insolvent Partnerships Order 1994 if it has jurisdiction in respect of the partnership.

(6) Petitions by virtue of the said article  10 for the winding up of an insolvent partnership and the bankruptcy of one or more members of that partnership may not be presented to a district registry of the High Court. (7) The Lord Chancellor [may, with the concurrence of the Lord Chief Justice, by order]1 in a statutory instrument exclude a county court from having windingup jurisdiction, and for the purposes of that jurisdiction may attach its district, or any part thereof, to any other county court, and may by statutory instrument revoke or vary any such order. In exercising the powers of this section, the Lord Chancellor shall provide that a county court is not to have winding-up jurisdiction unless it has for the time being jurisdiction for the purposes of Parts VIII to XI of this Act (individual insolvency).

938

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (8) Every court in England and Wales having winding-up jurisdiction has for the purposes of that jurisdiction all the powers of the High Court; and every prescribed officer of the court shall perform any duties which an officer of the High Court may discharge by order of a judge of that court or otherwise in relation to winding up. [(9) This section is subject to Article 3 of the EC Regulation (jurisdiction under the EC Regulation).]2 [(10) The Lord Chief Justice may nominate a judicial office holder (as defined in section 109(4) of the Constitutional Reform Act 2005) to exercise his functions under this section.’.]3 1 Substituted by the Lord Chancellor (Transfer of Functions and Supplementary Provisions) Order 2006, SI 2006/680, art 3, Sch 2, paras 5, 7(1)(b), (2) (3 April 2006). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art  5(3) (31 May 2002). 3 Inserted by the Lord Chancellor (Transfer of Functions and Supplementary Provisions) Order 2006, SI 2006/680, art 3, Sch 2, paras 5, 7(1)(b), (3) (3 April 2006).

2  Sections [124 and 264]1: Applications to wind up insolvent partnership and to wind up or bankrupt insolvent members Sections [124 and 264]1 are modified so as to read as follows:–

‘124 (1) An application to the court by a member of an insolvent partnership by virtue of article 10 of the Insolvent Partnerships Order 1994 for the winding up of the partnership as an unregistered company and the winding up or bankruptcy (as the case may be) of all its members shall– (a)

in the case of the partnership, be by petition in Form 11 in Schedule 9 to that Order, (b) in the case of a corporate member, be by petition in Form 12 in that Schedule, and (c) in the case of an individual member, be by petition in Form 13 in that Schedule. (2) Subject to subsection (3) below, a petition under subsection (1)(a) may only be presented by a member of the partnership on the grounds that the partnership is unable to pay its debts and if– (a) petitions are at the same time presented by that member for insolvency orders against every member of the partnership (including himself or itself); and (b) each member is willing for an insolvency order to be made against him or it and the petition against him or it contains a statement to this effect. (3)

If the court is satisfied, on application by any member of an insolvent partnership, that presentation of petitions under subsection (1) against the partnership and every member of it would be impracticable, the court may direct that petitions be presented against the partnership and such member or members of it as are specified by the court.

(4)

The petitions mentioned in subsection (1)–

939

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (a)

shall all be presented to the same court and, except as the court otherwise permits or directs, on the same day, and (b) except in the case of the petition mentioned in subsection (1)(c) shall be advertised in Form 8 in the said Schedule 9. (5) Each petition presented under this section shall contain particulars of the other petitions being presented in relation to the partnership, identifying the partnership and members concerned. (6)

The hearing of the petition against the partnership fixed by the court shall be in advance of the hearing of the petitions against the insolvent members.

(7) On the day appointed for the hearing of the petition against the partnership, the petitioner shall, before the commencement of the hearing, hand to the court Form 9 in Schedule 9 to the Insolvent Partnerships Order 1994, duly completed. (8) Any person against whom a winding-up or bankruptcy petition has been presented in relation to the insolvent partnership is entitled to appear and to be heard on any petition for the winding up of the partnership. (9)

A petitioner under this section may at the hearing withdraw the petition if– (a) subject to subsection (10) below, he withdraws at the same time every other petition which he has presented under this section; and (b) he gives notice to the court at least 3 days before the date appointed for the hearing of the relevant petition of his intention to withdraw the petition.

(10) A petitioner need not comply with the provisions of subsection (9)(a) in the case of a petition against a member, if the court is satisfied on application made to it by the petitioner that, because of difficulties in serving the petition or for any other reason, the continuance of that petition would be likely to prejudice or delay the proceedings on the petition which he has presented against the partnership or on any petition which he has presented against any other insolvent member.’. 1 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg  2, Sch  2, paras 1, 6 (8  December 2017: substitution has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10).

3  Sections 125 and 271: Powers of court on hearing of petitions against insolvent partnership and members Sections 125 and 271 are modified so as to read as follows:– ‘125 (1)

Subject to the provisions of section 125A, on hearing a petition under section 124 against an insolvent partnership or any of its insolvent members, the court may dismiss it, or adjourn the hearing conditionally or unconditionally or make any other order that it thinks fit; but the court shall not refuse to make a winding-up order against the partnership or a corporate member on the ground only that the partnership property or (as the case may be) the member’s assets have been mortgaged to an amount equal to or in excess of that property or those assets, or that the partnership has no property or the member no assets.

(2) An order under subsection (1) in respect of an insolvent partnership may contain directions as to the future conduct of any insolvency proceedings in existence against any insolvent member in respect of whom an insolvency order has been made.

940

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 125A  Hearing of petitions against members (1) On the hearing of a petition against an insolvent member the petitioner shall draw the court’s attention to the result of the hearing of the winding-up petition against the partnership and the following subsections of this section shall apply. (2) If the court has neither made a winding-up order, nor dismissed the windingup petition, against the partnership the court may adjourn the hearing of the petition against the member until either event has occurred. (3) Subject to subsection (4) below, if a winding-up order has been made against the partnership, the court may make a winding-up order against the corporate member in respect of which, or (as the case may be) a bankruptcy order against the individual member in respect of whom, the insolvency petition was presented. (4) If no insolvency order is made under subsection (3) against any member within 28 days of the making of the winding-up order against the partnership, the proceedings against the partnership shall be conducted as if the winding-up petition against the partnership had been presented by virtue of article 7 of the Insolvent Partnerships Order 1994, and the proceedings against any member shall be conducted under this Act without the modifications made by that Order (other than the modifications made to sections 168 and 303 by article 14). (5) If the court has dismissed the winding-up petition against the partnership, the court may dismiss the winding-up petition against the corporate member or (as the case may be) the bankruptcy petition against the individual member. However, if an insolvency order is made against a member, the proceedings against that member shall be conducted under this Act without the modifications made by the Insolvent Partnerships Order 1994 (other than the modifications made to sections 168 and 303 of this Act by article 14 of that Order). (6) The court may dismiss a petition against an insolvent member if it considers it just to do so because of a change in circumstances since the making of the winding-up order against the partnership. (7) The court may dismiss a petition against an insolvent member who is a limited partner, if– (a)

the member lodges in court for the benefit of the creditors of the partnership sufficient money or security to the court’s satisfaction to meet his liability for the debts and obligations of the partnership; or (b) the member satisfies the court that he is no longer under any liability in respect of the debts and obligations of the partnership.’. 4  Section 221: Winding up of unregistered companies Section 221 is modified so as to read as follows:– ‘221 (1) Subject to subsections (2) and (3) below and to the provisions of this Part, any insolvent partnership which has, or at any time had, a principal place of business in England and Wales may be wound up under this Act. (2) Subject to subsection (3) below, an insolvent partnership shall not be wound up under this Act if the business of the partnership has not been carried on in England and Wales at any time in the period of 3 years ending with the day on which the winding-up petition is presented.

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (3)

If an insolvent partnership has a principal place of business situated in Scotland or in Northern Ireland, the court shall not have jurisdiction to wind up the partnership unless it had a principal place of business in England and Wales– (a) (b)

in the case of a partnership with a principal place of business in Scotland, at any time in the period of 1 year, or in the case of a partnership with a principal place of business in Northern Ireland, at any time in the period of 3 years,

ending with the day on which the winding-up petition is presented. [(3A) The preceding subsections are subject to Article  3 of the EC  Regulation (jurisdiction under the EC Regulation).]1 (4)

No insolvent partnership shall be wound up under this Act voluntarily.

(5) To the extent that they are applicable to the winding up of a company by the court in England and Wales on a member’s petition, all the provisions of this Act and the Companies Act about winding up apply to the winding up of an insolvent partnership as an unregistered company– (a)

with the exceptions and additions mentioned in the following subsections of this section, and (b) with the modifications specified in Part II of Schedule 4 to the Insolvent Partnerships Order 1994. (6)

Sections 73(1), 74(2)(a) to (d) and (3), 75 to 78, 83, 124(2) and (3), 154, [176A,]2 202, 203, 205 and 250 shall not apply.

(7) Unless the contrary intention appears, the members of the partnership against whom insolvency orders are made by virtue of article  10 of the Insolvent Partnerships Order 1994 shall not be treated as contributories for the purposes of this Act. (8) The circumstances in which an insolvent partnership may be wound up as an unregistered company are that the partnership is unable to pay its debts. (9) Every petition for the winding up of an insolvent partnership under Part V of this Act shall be verified by affidavit in Form 2 in Schedule 9 to the Insolvent Partnerships Order 1994.’. 1 Inserted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art  5(1) (31 May 2002). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2006, SI 2006/622, art 9 (6 April 2006).

SCHEDULE 7 PROVISIONS OF THE ACT WHICH APPLY WITH MODIFICATIONS FOR THE PURPOSES OF ARTICLE 11 WHERE JOINT BANKRUPTCY PETITION PRESENTED BY INDIVIDUAL MEMBERS WITHOUT WINDING UP PARTNERSHIP AS UNREGISTERED COMPANY 1 (1) The provisions of the Act specified in sub-paragraph (2) below, are set out as modified in this Schedule. (2) The provisions referred to in sub-paragraph (1) above are sections 264 to 266, […]1 […]2 283, 284, 290, 292 to 301, 305, 312, 328, 331, and 387.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 1 Repealed by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg  2, Sch  2, paras 1, 7(1), (2) (8  December 2017: repeal has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10). 2 Repealed by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 10(1), (2) (1 July 2005).

2  Section 264: Presentation of joint bankruptcy petition Section 264 is modified so as to read as follows:– ‘264 (1)

Subject to section 266(1) below, a joint bankruptcy petition may be presented to the court by virtue of article 11 of the Insolvent Partnerships Order 1994 by all the members of an insolvent partnership in their capacity as such provided that all the members are individuals and none of them is a limited partner.

(2) A petition may not be presented under paragraph  (1) by the members of an insolvent partnership [if the partnership– (a) has permission under [Part 4A of the Financial Services and Markets Act 2000]1 to accept deposits, other than such a permission only for the purpose of carrying on another regulated activity in accordance with that permission, or (b) continues to have a liability in respect of a deposit which was held by it in accordance with the Banking Act 1979 or the Banking Act 1987.]2 [(2A) Subsection (2)(a) must be read with– (a) (b) (c)

section 22 of the Financial Services and Markets Act 2000; any relevant order under that section; and Schedule 2 to that Act.]3

(3) The petition– (a) shall be in Form 14 in Schedule  9 to the Insolvent Partnerships Order 1994; and (b) shall contain a request that the trustee shall wind up the partnership business and administer the partnership property without the partnership being wound up as an unregistered company under Part V of this Act. (4)

The petition shall either– (a)

be accompanied by an affidavit in Form 15 in Schedule 9 to the Insolvent Partnerships Order 1994 made by the member who signs the petition, showing that all the members are individual members (and that none of them is a limited partner) and concur in the presentation of the petition, or (b) contain a statement that all the members are individual members and be signed by all the members. (5) On presentation of a petition under this section, the court may make orders in Form 16 in Schedule  9 to the Insolvent Partnerships Order 1994 for the bankruptcy of the members and the winding up of the partnership business and administration of its property.’. 1 Substituted by the Financial Services Act 2012 (Consequential Amendments and Transitional Provisions) Order 2013, SI 2013/472, art 4 (1 April 2013).

943

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 2 Substituted by the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001, SI 2001/3649, art 469(1) (1 December 2001). 3 Inserted by the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001, SI 2001/3649, art 469(2) (1 December 2001).

3  Section 265: Conditions to be satisfied in respect of members Section 265 is modified so as to read as follows:– ‘265 (1)

Subject to the provisions of this section, a joint bankruptcy petition by virtue of article 11 of the Insolvent Partnerships Order 1994 may be presented– (a) to the High Court (other than to a district registry of that Court) if the partnership has, or at any time had, a principal place of business in England and Wales, or (b) to a county court in England and Wales if the partnership has, or at any time had, a principal place of business within the insolvency district of that court.

(2) A joint bankruptcy petition shall not be presented to the court by virtue of article 11 unless the business of the partnership has been carried on in England and Wales at any time in the period of 3 years ending with the day on which the joint bankruptcy petition is presented. [(3) A joint bankruptcy petition may be presented to the court by the members of a partnership only on the grounds that the partnership is unable to pay its debts. (4)

A petition under subsection (3) must be accompanied by– (a) a statement of each member’s affairs in Form 17 in Schedule  9 to the Insolvent Partnerships Order 1994, and (b) a statement of the affairs of the partnership in Form 18 in that Schedule, sworn by one or more members of the partnership.

(5)

The statements of affairs required by subsection (4) must contain– (a) (b)

particulars of the member’s or (as the case may be) partnership’s creditors, debts and other liabilities and of their assets, and such other information as is required by the relevant form.]1’.

1 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 9(1), (2) (6 April 2017).

4  Section 266: Other preliminary conditions Section 266 is modified so as to read as follows:– ‘266 (1)

If the court is satisfied, on application by any member of an insolvent partnership, that the presentation of the petition under section 264(1) by all the members of the partnership would be impracticable, the court may direct that the petition be presented by such member or members as are specified by the court.

(2) A joint bankruptcy petition shall not be withdrawn without the leave of the court.

944

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (3) The court has a general power, if it appears to it appropriate to do so on the grounds that there has been a contravention of the rules or for any other reason, to dismiss a joint bankruptcy petition or to stay proceedings on such a petition; and, where it stays proceedings on a petition, it may do so on such terms and conditions as it thinks fit.’. 5 […]1 […]1 1 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 9(1), (3) (6 April 2017).

6 […]1 […]1 1 Repealed by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 10(1), (3) (1 July 2005).

7  Section 283: Definition of member’s estate Section 283 is modified so as to read as follows:– ‘283 (1)

Subject as follows, a member’s estate for the purposes of this Act comprises– (a) (b)

(2)

all property belonging to or vested in the member at the commencement of the bankruptcy, and any property which by virtue of any of the provisions of this Act is comprised in that estate or is treated as falling within the preceding paragraph.

Subsection (1) does not apply to– (a) such tools, books, vehicles and other items of equipment as are not partnership property and as are necessary to the member for use personally by him in his employment, business or vocation; (b) such clothing, bedding, furniture, household equipment and provisions as are not partnership property and as are necessary for satisfying the basic domestic needs of the member and his family. This subsection is subject to section 308 in Chapter IV (certain excluded property reclaimable by trustee).

(3)

Subsection (1) does not apply to– (a) (b)

property held by the member on trust for any other person, or the right of nomination to a vacant ecclesiastical benefice.

(4) References in any provision of this Act to property, in relation to a member, include references to any power exercisable by him over or in respect of property except insofar as the power is exercisable over or in respect of property not for the time being comprised in the member’s estate and– (a)

is so exercisable at a time after either the official receiver has had his release in respect of that estate under section 299(2) in Chapter III or [the trustee of that estate has vacated office under section 298(6)]1, or

945

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (b)

cannot be so exercised for the benefit of the member;

and a power exercisable over or in respect of property is deemed for the purposes of any provision of this Act to vest in the person entitled to exercise it at the time of the transaction or event by virtue of which it is exercisable by that person (whether or not it becomes so exercisable at that time). (5) For the purposes of any such provision of this Act, property comprised in a member’s estate is so comprised subject to the rights of any person other than the member (whether as a secured creditor of the member or otherwise) in relation thereto, but disregarding any rights which have been given up in accordance with the rules. (6)

This section has effect subject to the provisions of any enactment not contained in this Act under which any property is to be excluded from a bankrupt’s estate.’.

1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 9(1), (4) (6 April 2017).

[7A  Section 283A: Bankrupt’s home ceasing to form part of estate Section 283A is modified so as to read as follows:– ‘283A (1) This section applies where property comprised in the estate of an individual member consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of– (a) (b) (c) (2)

At the end of the period of three years beginning with the date of the bankruptcy the interest mentioned in subsection (1) shall– (a) (b)

(3)

the individual member; the individual member’s spouse [or civil partner]1, or a former spouse [or former civil partner]1 of the individual member.

cease to be comprised in the individual member’s estate, and vest in the individual member (without conveyance, assignment or transfer).

Subsection (2) shall not apply if during the period mentioned in that subsection– (a) (b) (c) (d) (e)

the trustee realises the interest mentioned in subsection (1), the trustee applies for an order for sale in respect of the dwelling-house, the trustee applies for an order for possession of the dwelling-house, the trustee applies for an order under section 313 in Chapter IV in respect of that interest, or the trustee and the individual member agree that the individual member shall incur a specified liability to his estate (with or without the addition of interest from the date of the agreement) in consideration of which the interest mentioned in subsection (1) shall cease to form part of the estate.

(4) Where an application of a kind described in subsection (3)(b) to (d) is made during the period mentioned in subsection (2) and is dismissed, unless the court orders otherwise the interest to which the application relates shall on the dismissal of the application– (a) (b)

cease to be comprised in the individual member’s estate, and vest in the individual member (without conveyance, assignment or transfer).

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (5)

If the individual member does not inform the trustee or the official receiver of his interest in a property before the end of the period of three months beginning with the date of the bankruptcy, the period of three years mentioned in subsection (2)– (a) shall not begin with the date of the bankruptcy, but (b) shall begin with the date on which the trustee or official receiver becomes aware of the individual member’s interest.

(6) The court may substitute for the period of three years mentioned in subsection (2) a longer period– (a) (b)

in prescribed circumstances, and in such other circumstances as the court thinks appropriate.

(7)

The rules may make provision for this section to have effect with the substitution of a shorter period for the period of three years mentioned in subsection (2) in specified circumstances (which may be described by reference to action to be taken by a trustee in bankruptcy).

(8)

The rules may also, in particular, make provision– (a)

requiring or enabling the trustee of an individual member’s estate to give notice that this section applies or does not apply; (b) about the effect of a notice under paragraph (a); (c) requiring the trustee of an individual member’s estate to make an application to the Chief Land Registrar. (9)

Rules under subsection (8)(b) may, in particular– (a) (b) (c) (d) (e)

disapply this section; enable a court to disapply this section; make provision in consequence of a disapplication of this section; enable a court to make provision in consequence of a disapplication of this section; make provision (which may include provision conferring jurisdiction on a court or tribunal) about compensation.’.]2

1 Inserted by the Civil Partnership Act 2004 (Amendments to Subordinate Legislation) Order 2005, SI 2005/2114, art 2(18), Sch 18, para 2(1), (4) (5 December 2005). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 10(1), (4) (1 July 2005).

8  Section 284: Restrictions on dispositions of property Section 284 is modified so as to read as follows:– ‘284 (1) Where a member is adjudged bankrupt on a joint bankruptcy petition, any disposition of property made by that member in the period to which this section applies is void except to the extent that it is or was made with the consent of the court, or is or was subsequently ratified by the court. (2) Subsection (1) applies to a payment (whether in cash or otherwise) as it applies to a disposition of property and, accordingly, where any payment is void by virtue of that subsection, the person paid shall hold the sum paid for the member as part of his estate.

947

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (3) This section applies to the period beginning with the day of the presentation of the joint bankruptcy petition and ending with the vesting, under Chapter IV of this Part, of the member’s estate in a trustee. (4)

The preceding provisions of this section do not give a remedy against any person– (a) in respect of any property or payment which he received before the commencement of the bankruptcy in good faith, for value, and without notice that the petition had been presented, or (b) in respect of any interest in property which derives from an interest in respect of which there is, by virtue of this subsection, no remedy.

(5)

Where after the commencement of his bankruptcy the member has incurred a debt to a banker or other person by reason of the making of a payment which is void under this section, that debt is deemed for the purposes of any provision of this Act to have been incurred before the commencement of the bankruptcy unless– (a) that banker or person had notice of the bankruptcy before the debt was incurred, or (b) it is not reasonably practicable for the amount of the payment to be recovered from the person to whom it was made.

(6) A disposition of property is void under this section notwithstanding that the property is not or, as the case may be, would not be comprised in the member’s estate; but nothing in this section affects any disposition made by a person of property held by him on trust for any other person other than a disposition made by a member of property held by him on trust for the partnership.’. 9  Section 290: Public examination of member Section 290 is modified so as to read as follows:– ‘290 (1) Where orders have been made against the members of an insolvent partnership on a joint bankruptcy petition, the official receiver may at any time before the discharge of any such member apply to the court for the public examination of that member. (2)

Unless the court otherwise orders, the official receiver shall make an application under subsection (1) if notice requiring him to do so is given to him, in accordance with the rules, by one of the creditors of the member concerned with the concurrence of not less than one-half, in value, of those creditors (including the creditor giving notice).

(3) On an application under subsection (1), the court shall direct that a public examination of the member shall be held on a day appointed by the court; and the member shall attend on that day and be publicly examined as to his affairs, dealings and property and as to those of the partnership. (4)

The following may take part in the public examination of the member and may question him concerning the matters mentioned in subsection (3), namely– (a) (b) (c) (d)

the official receiver, the trustee of the member’s estate, if his appointment has taken effect, any person who has been appointed as special manager of the member’s estate or business or of the partnership property or business, any creditor of the member who has tendered a proof in the bankruptcy.

948

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (5) On an application under subsection (1), the court may direct that the public examination of a member under this section be combined with the public examination of any other person. (6) If a member without reasonable excuse fails at any time to attend his public examination under this section he is guilty of a contempt of court and liable to be punished accordingly (in addition to any other punishment to which he may be subject).’. 10  Section 292: Power to appoint trustee Section 292 is modified so as to read as follows:– ‘[292 (1) This section applies to any appointment of a person (other than the official receiver) as trustee of a bankrupt’s estate.]1 (2)

No person may be appointed as trustee of the members’ estates and as trustee of the partnership unless he is, at the time of the appointment, qualified to act as an insolvency practitioner both in relation to the insolvent partnership and to each of the members.

(3) Any power to appoint a person as trustee of the members’ estates and of the partnership includes power to appoint two or more persons as joint trustees; but such an appointment must make provision as to the circumstances in which the trustees must act together and the circumstances in which one or more of them may act for the others. (4) The appointment of any person as trustee of the members’ estates and of the partnership takes effect only if that person accepts the appointment in accordance with the rules. Subject to this, the appointment of any person as trustee takes effect at the time specified in his certificate of appointment. (5) […]2 292A  Conflicts of interest (1)

If the trustee of the members’ estates and of the partnership is of the opinion at any time that there is a conflict of interest between his functions as trustee of the members’ estates and his functions as trustee of the partnership, or between his functions as trustee of the estates of two or more members, he may apply to the court for directions.

(2) On an application under subsection (1), the court may, without prejudice to the generality of its power to give directions, appoint one or more insolvency practitioners either in place of the applicant to act both as trustee of the members’ estates and as trustee of the partnership, or to act as joint trustee with the applicant.’. 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 9(1), (5)(a) (6 April 2017). 2 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 9(1), (5)(b) (6 April 2017).

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 11 […]1 […]1 1 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 9(1), (6) (6 April 2017).

12 […]1 […]1 1 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 9(1), (6) (6 April 2017).

13  Section 296: Appointment of trustee by Secretary of State Section 296 is modified so as to read as follows:– ‘296 (1) At any time when the official receiver is the trustee of the members’ estates and of the partnership by virtue of any provision of this Chapter he may apply to the Secretary of State for the appointment of a person as trustee instead of the official receiver. (2) On an application under subsection (1) the Secretary of State shall either make an appointment or decline to make one. (3) Such an application may be made notwithstanding that the Secretary of State has declined to make an appointment either on a previous application under subsection (1) or on a reference under section 295 or under section 300(2) below. (4) Where a trustee has been appointed by the Secretary of State under subsection (2) of this section, and an insolvency order is subsequently made against a further insolvent member by virtue of article  11 of the Insolvent Partnerships Order 1994, then the trustee so appointed shall also be the trustee of the member against whom the subsequent order is made. (5) Where the trustee of the members’ estates and of the partnership has been appointed by the Secretary of State (whether under this section or otherwise) or has become trustee of a further insolvent member under subsection (4), the trustee shall give notice of his appointment or further appointment (as the case may be) to the creditors of the members and the creditors of the partnership or, if the court so allows, shall advertise his appointment in accordance with the court’s directions. [(6) In that notice or advertisement the trustee must explain the procedure for establishing a creditors’ committee under section  301, except in a case where such a committee has already been formed, in which case the trustee must state whether he proposes to appoint additional members of the committee under section 301A(3).]1’. 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 9(1), (7) (6 April 2017).

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 14 […]1 […]1 1 Repealed by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 9(1), (8) (6 April 2017).

15  Section 298: Removal of trustee; vacation of office Section 298 is modified so as to read as follows:– ‘[298 (1)

Subject as follows, the trustee of the estates of the members and of the partnership may be removed from office only by an order of the court or by a decision of the creditors of the members and the partnership made by a creditors’ decision procedure instigated specially for that purpose in accordance with the rules.

(1A) Where the official receiver is trustee or a trustee is appointed by the Secretary of State or by the court, a creditors’ decision procedure may be instigated for the purpose of removing the trustee only if– (a) (b) (c)

the trustee thinks fit; the court so directs; or one of the creditors of the members or the partnership so requests, with the concurrence of not less than one-quarter, in value, of the creditors (including the creditor making the request).

(1B) Where the creditors of the members and the partnership decide to remove a trustee, they may in accordance with the rules appoint another person as trustee in his place. (1C) Where the decision to remove a trustee is made under subsection (1A), the decision does not take effect until the creditors of the members and the partnership appoint another person as trustee in his place. (2) If the trustee was appointed by the Secretary of State, he may be removed by a direction of the Secretary of State. (3)

The trustee (not being the official receiver) shall vacate office if he ceases to be a person who is for the time being qualified to act as an insolvency practitioner in relation to any member or to the partnership.

(4)

The trustee may, with the leave of the court (or, if appointed by the Secretary of State, with the leave of the court or the Secretary of State), resign his office by giving notice of his resignation to the court.

(5)

Subject to [subsections (6) and (7)]1, any removal from or vacation of office under this section relates to all offices held in the proceedings by virtue of article 11 of the Insolvent Partnerships Order 1994.

(6)

A trustee who has produced an account of the winding up or administration under section 331 vacates office immediately upon complying with the requirements of [section 331(2)]1.

(7)

The trustee must vacate office as trustee of a member if the order made by virtue of article 11 of the Insolvent Partnerships Order 1994 in relation to that member is annulled.]2’.

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 1 Substituted by the Small Business, Enterprise and Employment Act 2015 (Consequential Amendments, Savings and Transitional Provisions) Regulations 2019, SI  2019/1058, reg  3 (23 July 2019). 2 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg 2, Sch 2, paras 1, 7(1), (3) (8 December 2017: substitution has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10).

16  Section 299: Release of trustee Section 299 is modified so as to read as follows:– ‘299 (1) Where the official receiver has ceased to be the trustee of the members’ estates and of the partnership and a person is appointed in his stead, the official receiver shall have his release with effect from the following time, that is to say– (a)

where that person is appointed by [the]1 creditors of the members and of the partnership or by the Secretary of State, the time at which the official receiver gives notice [under this paragraph to the prescribed person]1 that he has been replaced, and (b) where that person is appointed by the court, such time as the court may determine. (2)

If the official receiver while he is the trustee gives notice to the Secretary of State that the administration of the estate of any member, or the winding up of the partnership business and administration of its affairs, is for practical purposes complete, he shall have his release as trustee of any member or as trustee of the partnership (as the case may be) with effect from such time as the Secretary of State may determine.

(3) A person other than the official receiver who has ceased to be the trustee of the estate of any member or of the partnership shall have his release with effect from the following time, that is to say– (a) in the case of a person who has died, the time at which notice is given to the court in accordance with the rules that that person has ceased to hold office; (b) in the case of a person who has been removed from office by the court or by the Secretary of State, or who has vacated office under section 298(3), such time as the Secretary of State may, on an application by that person, determine; (c) in the case of a person who has resigned, such time as may be directed by the court (or, if he was appointed by the Secretary of State, such time as may be directed by the court or as the Secretary of State may, on an application by that person, determine); [(d) in the case of a person who has vacated office under section 298(6)– (i) if any of the creditors of the members and of the partnership objected to the person’s release before the end of the period for so objecting prescribed by the rules, such time as the Secretary of State may, on an application by that person, determine, and (ii) otherwise, the time at which the person vacated office.]1 (4)

Where an order by virtue of article 11 of the Insolvent Partnerships Order 1994 is annulled in so far as it relates to any member, the trustee at the time of the annulment has his release in respect of that member with effect from such time as the court may determine.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (5) Where the trustee (including the official receiver when so acting) has his release under this section, he shall, with effect from the time specified in the preceding provisions of this section, be discharged from all liability both in respect of acts or omissions of his in the administration of the estates of the members and in the winding up of the partnership business and administration of its affairs and otherwise in relation to his conduct as trustee. But nothing in this section prevents the exercise, in relation to a person who has had his release under this section, of the court’s powers under section 304 (liability of trustee).’. 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 9(1), (10) (6 April 2017).

17  Section 300: Vacancy in office of trustee Section 300 is modified so as to read as follows:– ‘300 (1) This section applies where the appointment of any person as trustee of the members’ estates and of the partnership fails to take effect or, such an appointment having taken effect, there is otherwise a vacancy in the office of trustee. (2) The official receiver may refer the need for an appointment to the Secretary of State and shall be trustee until the vacancy is filled. (3) On a reference to the Secretary of State under subsection (2) the Secretary of State shall either make an appointment or decline to make one. (4) If on a reference under subsection (2) no appointment is made, the official receiver shall continue to be trustee, but without prejudice to his power to make a further reference. (5) References in this section to a vacancy include a case where it is necessary, in relation to any property which is or may be comprised in a member’s estate, to revive the trusteeship of that estate after the [vacation of office by the trustee under section 298(6)]1 or the giving by the official receiver of notice under section 299(2).’. 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 9(1), (11) (6 April 2017).

18  Section 301: Creditors’ committee Section 301 is modified so as to read as follows:– ‘301 (1) Subject as follows, [the creditors of the members and of the partnership]1 may establish a committee (known as ‘the creditors’ committee’) to exercise the functions conferred on it by or under this Act. (2) [The]1 creditors of the members and of the partnership shall not establish such a committee, or confer any functions on such a committee, at any time when the official receiver is the trustee, except in connection with [the appointment]1 of a person to be trustee instead of the official receiver.

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 301A  Functions and membership of creditors’ committee (1) The committee established under section 301 shall act as creditors’ committee for each member and as liquidation committee for the partnership, and shall as appropriate exercise the functions conferred on creditors’ and liquidation committees in a bankruptcy or winding up by or under this Act. (2) The rules relating to liquidation committees are to apply (with the necessary modifications and with the exclusion of all references to contributories) to a committee established under section 301. (3) Where the appointment of the trustee also takes effect in relation to a further insolvent member under section 293(8) or 296(4), the trustee may appoint any creditor of that member (being qualified under the rules to be a member of the committee) to be an additional member of any creditors’ committee already established under section  301, provided that the creditor concerned consents to act. (4)

The court may at any time, on application by a creditor of any member or of the partnership, appoint additional members of the creditors’ committee.

(5)

If additional members of the creditors’ committee are appointed under subsection (3) or (4), the limit on the maximum number of members of the committee specified in the rules shall be increased by the number of additional members so appointed.’.

1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 9(1), (12) (6 April 2017).

19  Section 305: General functions and powers of trustee Section 305 is modified so as to read as follows:– ‘305 (1)

The function of the trustee of the estates of the members and of the partnership is to get in, realise and distribute the estates of the members and the partnership property in accordance with the following provisions of this Chapter.

(2)

The trustee shall have all the functions and powers in relation to the partnership and the partnership property that he has in relation to the members and their estates.

(3) In the carrying out of his functions and in the management of the members’ estates and the partnership property the trustee is entitled, subject to the following provisions of this Chapter, to use his own discretion. (4)

It is the duty of the trustee, if he is not the official receiver– (a) to furnish the official receiver with such information, (b) to produce to the official receiver, and permit inspection by the official receiver of, such books, papers and other records, and (c) to give the official receiver such other assistance, as the official receiver may reasonably require for the purpose of enabling him to carry out his functions in relation to the bankruptcy of the members and the winding up of the partnership business and administration of its property.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (5) The official name of the trustee in his capacity as trustee of a member shall be ‘the trustee of the estate of …, a bankrupt’ (inserting the name of the member concerned); but he may be referred to as ‘the trustee in bankruptcy’ of the particular member. (6) The official name of the trustee in his capacity as trustee of the partnership shall be ‘the trustee of …, a partnership’ (inserting the name of the partnership concerned).’.

20  section 312: Obligation to surrender control to trustee Section 312 is modified so as to read as follows:– ‘312 (1)

This section applies where orders are made by virtue of article 11 of the Insolvent Partnerships Order 1994 and a trustee is appointed.

(2)

Any person who is or has been an officer of the partnership in question, or who is an executor or administrator of the estate of a deceased officer of the partnership, shall deliver up to the trustee of the partnership, for the purposes of the exercise of the trustee’s functions under this Act, possession of any partnership property which he holds for the purposes of the partnership.

(3) Each member shall deliver up to the trustee possession of any property, books, papers or other records of which he has possession or control and of which the trustee is required to take possession. This is without prejudice to the general duties of the members as bankrupts under section 333 in this Chapter. (4) If any of the following is in possession of any property, books, papers or other records of which the trustee is required to take possession, namely– (a) (b) (c) (d)

the official receiver, a person who has ceased to be trustee of a member’s estate, a person who has been the administrator of the partnership or supervisor of a voluntary arrangement approved in relation to the partnership under Part I, a person who has been the supervisor of a voluntary arrangement approved in relation to a member under Part VIII,

the official receiver or, as the case may be, that person shall deliver up possession of the property, books, papers or records to the trustee. (5)

Any banker or agent of a member or of the partnership, or any other person who holds any property to the account of, or for, a member or the partnership shall pay or deliver to the trustee all property in his possession or under his control which forms part of the member’s estate or which is partnership property and which he is not by law entitled to retain as against the member, the partnership or the trustee.

(6) If any person without reasonable excuse fails to comply with any obligation imposed by this section, he is guilty of a contempt of court and liable to be punished accordingly (in addition to any other punishment to which he may be subject).’.

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) [20A  Section 313A: Low value home: application for sale, possession or charge Section 313A is modified so as to read as follows:– ‘313A (1)

This section applies where– (a)

(b)

property comprised in the individual member’s estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of– (i) the individual member, (ii) the individual member’s spouse [or civil partner]1, or (iii) a former spouse [or former civil partner]1 of the individual member, and the trustee applies for an order for the sale of the property, for an order for possession of the property or for an order under section 313 in respect of the property.

(2) The court shall dismiss the application if the value of the interest is below the amount prescribed for the purposes of this subsection. (3)

In determining the value of an interest for the purposes of this section the court shall disregard any matter which it is required to disregard by the order which prescribes the amount for the purposes of subsection (2).’]2

1 Inserted by the Civil Partnership Act 2004 (Amendments to Subordinate Legislation) Order 2005, SI 2005/2114, art 2(18), Sch 18, para 2(1), (5) (5 December 2005). 2 Inserted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 10(1), (5) (1 July 2005).

21  Section 328: Priority of expenses and debts Section 328 is modified so as to read as follows:– 328  ‘Priority of expenses (1)

The provisions of this section shall apply in a case where article 11 of the Insolvent Partnerships Order 1994 applies, as regards priority of expenses incurred by a person acting as trustee of the estates of the members of an insolvent partnership and as trustee of that partnership.

(2) The joint estate of the partnership shall be applicable in the first instance in payment of the joint expenses and the separate estate of each insolvent member shall be applicable in the first instance in payment of the separate expenses relating to that member. (3)

Where the joint estate is insufficient for the payment in full of the joint expenses, the unpaid balance shall be apportioned equally between the separate estates of the insolvent members against whom insolvency orders have been made and shall form part of the expenses to be paid out of those estates.

(4)

Where any separate estate of an insolvent member is insufficient for the payment in full of the separate expenses to be paid out of that estate, the unpaid balance shall form part of the expenses to be paid out of the joint estate.

(5) Where after the transfer of any unpaid balance in accordance with subsection (3) or (4) any estate is insufficient for the payment in full of the expenses to be

956

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F paid out of that estate, the balance then remaining unpaid shall be apportioned equally between the other estates. (6) Where after an apportionment under subsection (5) one or more estates are insufficient for the payment in full of the expenses to be paid out of those estates, the total of the unpaid balances of the expenses to be paid out of those estates shall continue to be apportioned equally between the other estates until provision is made for the payment in full of the expenses or there is no estate available for the payment of the balance finally remaining unpaid, in which case it abates in equal proportions between all the estates. (7) Without prejudice to subsections (3) to (6) above, the trustee may, with the sanction of any creditors’ committee established under section 301 or with the leave of the court obtained on application– (a)

pay out of the joint estate as part of the expenses to be paid out of that estate any expenses incurred for any separate estate of an insolvent member; or (b) pay out of any separate estate of an insolvent member any part of the expenses incurred for the joint estate which affects that separate estate.

328A  Priority of debts in joint estate (1) The provisions of this section and the next (which are subject to the provisions of section  9 of the Partnership Act 1890 as respects the liability of the estate of a deceased member) shall apply as regards priority of debts in a case where article 11 of the Insolvent Partnerships Order 1994 applies. (2)

After payment of expenses in accordance with section 328 and subject to section 328C(2), the joint debts of the partnership shall be paid out of its joint estate in the following order of priority– [(a) (aa) [(b) (ba) (bb) (c) (d) (e)

(3)

the ordinary preferential debts; the secondary preferential debts;]1 the ordinary non-preferential debts; the secondary non-preferential debts; the tertiary non-preferential debts;]2 interest under section 328D on the joint debts (other than postponed debts); the postponed debts; interest under section 328D on the postponed debts.

The responsible insolvency practitioner shall adjust the rights among themselves of the members of the partnership as contributories and shall distribute any surplus to the members or, where applicable, to the separate estates of the members, according to their respective rights and interests in it.

(4) The debts referred to in each of [paragraphs (a) to (ba)]2 of subsection (2) rank equally between themselves, and in each case if the joint estate is insufficient for meeting them, they abate in equal proportions between themselves. (5) Where the joint estate is not sufficient for the payment of the joint debts in accordance with [paragraphs (a), (aa) and (b)]1 of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which–

957

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank equally with the debts of the member referred to in section 328B(1)(b) below. [(5A) Where the joint estate is not sufficient for the payment of the secondary nonpreferential debts in accordance with paragraph (ba) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank equally with the debts of the member referred to in section 328B(1)(ba) below. (5B) Where the joint estate is not sufficient for the payment of the tertiary nonpreferential debts in accordance with paragraph (bb) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank as a debt of the member in accordance with section 328B(1) (bc) below.]3 (6)

Where the joint estate is sufficient for the payment of the joint debts in accordance with [paragraphs (a) to (bb)]2 of subsection (2) but not for the payment of interest under paragraph (c) of that subsection, the responsible insolvency practitioner shall aggregate the value of that interest to the extent that it has not been satisfied or is not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank equally with the interest on the separate debts referred to in section 328B(1)(c) below. (7) Where the joint estate is not sufficient for the payment of the postponed joint debts in accordance with paragraph (d) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank equally with the postponed debts of the member referred to in section 328B(1)(d) below. (8)

Where the joint estate is sufficient for the payment of the postponed joint debts in accordance with paragraph (d) of subsection (2) but not for the payment of interest under paragraph (e) of that subsection, the responsible insolvency

958

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F practitioner shall aggregate the value of that interest to the extent that it has not been satisfied or is not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which– (a)

shall be a debt provable by the responsible insolvency practitioner in each such estate, and (b) shall rank equally with the interest on the postponed debts referred to in section 328B(1)(e) below. (9)

Where the responsible insolvency practitioner receives any distribution from the separate estate of a member in respect of a debt referred to in paragraph (a) of subsection (5), [(5A), (5B),]3 (6), (7) or (8) above, that distribution shall become part of the joint estate and shall be distributed in accordance with the order of priority set out in subsection (2) above.

328B  Priority of debts in separate estate (1) The separate estate of each member of the partnership against whom an insolvency order has been made shall be applicable, after payment of expenses in accordance with section 328 and subject to section 328C(2) below, in payment of the separate debts of that member in the following order of priority– [(a) the ordinary preferential debts; (aa) the secondary preferential debts;]1 [(b) the ordinary non-preferential debts (including any debt referred to in section 328A(5)(a)); (ba) the secondary non-preferential debts (including any debt referred to in section 328A(5A)(a)); (bb) the tertiary non-preferential debts; (bc) the debt referred to in section 175A(5B)(a);]2 (c) interest under section 328D on the separate debts and under section 328A(6); (d) the postponed debts of the member (including any debt referred to in section 328A(7)(a)); (e) interest under section 328D on the postponed debts of the member and under section 328A(8). (2) The debts referred to in each of [paragraphs (a) to (ba)]2 of subsection (1) rank equally between themselves, and in each case if the separate estate is insufficient for meeting them, they abate in equal proportions between themselves. (3)

Where the responsible insolvency practitioner receives any distribution from the joint estate or from the separate estate of another member of the partnership against whom an insolvency order has been made, that distribution shall become part of the separate estate and shall be distributed in accordance with the order of priority set out in subsection (1) of this section.

328C  Provisions generally applicable in distribution of joint and separate estates (1) Distinct accounts shall be kept of the joint estate of the partnership and of the separate estate of each member of that partnership against whom an insolvency order is made.

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (2) No member of the partnership shall prove for a joint or separate debt in competition with the joint creditors, unless the debt has arisen– (a) as a result of fraud, or (b) in the ordinary course of a business carried on separately from the partnership business. (3) For the purpose of establishing the value of any debt referred to in section 328A(5)(a)[, (5A)(a), (5B)(a)]3 or (7)(a), that value may be estimated by the responsible insolvency practitioner in accordance with section 322. (4)

Interest under section 328D on preferential debts ranks equally with interest on [ordinary non-preferential debts, secondary non-preferential debts and tertiary non-preferential debts]2.

(5)

Sections 328A and 328B are without prejudice to any provision of this Act or of any other enactment concerning the ranking between themselves of postponed debts and interest thereon, but in the absence of any such provision postponed debts and interest thereon rank equally between themselves.

(6) If any two or more members of an insolvent partnership constitute a separate partnership, the creditors of such separate partnership shall be deemed to be a separate set of creditors and subject to the same statutory provisions as the separate creditors of any member of the insolvent partnership. (7) Where any surplus remains after the administration of the estate of a separate partnership, the surplus shall be distributed to the members or, where applicable, to the separate estates of the members of that partnership according to their respective rights and interests in it. (8) Neither the official receiver, the Secretary of State nor a responsible insolvency practitioner shall be entitled to remuneration or fees under the [Insolvency (England and Wales) Rules 2016]4, the Insolvency Regulations 1986 or the Insolvency Fees Order 1986 for his services in connection with– (a) the transfer of a surplus from the joint estate to a separate estate under section 328A(3), (b) a distribution from a separate estate to the joint estate in respect of a claim referred to in section 328A(5), [(5A), (5B),]3 (6), (7) or (8), or (c) a distribution from the estate of a separate partnership to the separate estates of the members of that partnership under subsection (7) above.’.

328D  Interest on debts (1) In the bankruptcy of each of the members of an insolvent partnership and in the winding up of that partnership’s business and administration of its property, interest is payable in accordance with this section, in the order of priority laid down by sections 328A and 328B, on any debt proved in the bankruptcy including so much of any such debt as represents interest on the remainder. (2) Interest under this section is payable on the debts in question in respect of the periods during which they have been outstanding since the relevant order was made by virtue of article 11 of the Insolvent Partnerships Order 1994. (3)

The rate of interest payable under this section in respect of any debt (‘the official rate’ for the purposes of any provision of this Act in which that expression is used) is whichever is the greater of–

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (a) (b)

the rate specified in section 17 of the Judgments Act 1838 on the day on which the relevant order was made, and the rate applicable to that debt apart from the bankruptcy or winding up.’.

1 Substituted by the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, SI 2014/3486, art 15 (1 January 2015: substitution has effect subject to transitional provisions specified in the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, art 3). 2 Substituted by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, arts 15, 21(1)–(3), (5), (7), (8), (10) (19 December 2018). 3 Inserted by the Banks and Building Societies (Priorities on Insolvency) Order 2018, SI 2018/1244, arts 15, 21(1), (4), (6), (9), (11) (19 December 2018). 4 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg 2, Sch 2, paras 1, 7(1), (4) (8 December 2017: substitution has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10).

[22  Section 331: Final Account Section 331 is modified to read as follows–

‘331 (1)

Subject as follows in this section and the next, this section applies where– (a)

(b) (2)

it appears to the trustee of the estates of the members and of the partnership that the administration of any member’s estate or the winding up of the partnership business and administration of the partnership property is for practical purposes complete, and the trustee is not the official receiver.

The trustee must– (a) give the creditors of the members and of the partnership (other than opted-out creditors) notice that it appears to the trustee that the administration of the member’s estate or the winding up of the partnership business and administration of the partnership property is for practical purposes complete, (b) make up an account of the administration or winding up, showing how it has been conducted and the property disposed of. (c) send a copy of the account to the creditors of the members and of the partnership (other than opted-out creditors), and (d) give the creditors of the members and of the partnership (other than optedout creditors) a notice explaining the effect of section 299(3)(d) and how they may object to the trustee’s release.

(3)

The trustee must during the relevant period send to the court and, in the case of a corporate member, send to the registrar of companies– (a) a copy of the account, and (b) a statement of whether any of the creditors of the members and of the partnership objected to the trustee’s release.

(4)

The relevant period is the period of 7 days beginning with the day after the last day of the period prescribed by the rules as the period within which the creditors may object to the trustee’s release.’.]1

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Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 1 Substituted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI  2017/540, reg  3, Sch 2, paras 2, 9(1), (13) (6 April 2017).

23  Section 387: The ‘relevant date’ Section 387 is modified so as to read as follows:– ‘387 Where an order has been made in respect of an insolvent partnership by virtue of article 11 of the Insolvent Partnerships Order 1994, references in Schedule 6to this Act to the relevant date (being the date which determines the existence and amount of a preferential debt) are to the date on which the said order was made.’. [SCHEDULE 7A DECISIONS OF CREDITORS OF THE PARTNERSHIP AND OF THE MEMBERS OF THE PARTNERSHIP 1 Sections 246ZE, 246ZF, 379ZA and 379ZB of the Act are set out as modified in this Schedule.]1 1 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 10 (6 April 2017).

[2 Sections 246ZE and 246ZF are modified so as to read as follows– ‘246ZE Creditors’ decisions: general (1) This section applies where, for the purposes of this Group of Parts, a person (“P”) seeks a decision about any matter from the creditors of the partnership and the creditors of any insolvent members. (2) The decision may be made by any qualifying decision procedure P thinks fit, except that it may not be made by a meeting of the creditors of the partnership and the creditors of any insolvent members unless subsection (3) applies. (3) This subsection applies if at least the minimum number of creditors make a request to P in writing that the decision be made by a meeting. (4) If subsection (3) applies P must summon a meeting of the creditors of the partnership and the creditors of any insolvent members. (5) Subsection (2) is subject to any provision of this Act, the rules or any other legislation, or any order of the court– (a) (b) (6)

requiring a decision to be made, or prohibiting a decision from being made, by a particular qualifying decision procedure (other than a meeting); permitting or requiring a decision to be made by a meeting.

Section 246ZF provides that in certain cases the deemed consent procedure may be used instead of a qualifying decision procedure.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (7) For the purposes of subsection (3) the ‘minimum number’ of creditors is any of the following– (a) 10% in value of the creditors; (b) 10% in number of the creditors; (c) 10 creditors. (8) The references in subsection (7) to creditors are to creditors of any class, even where a decision is sought only from creditors of a particular class. (9) In this section references to a meeting are to a meeting where the creditors are invited to be present together at the same place (whether or not it is possible to attend the meeting without being present at that place). (10) Except as provided by subsection (8), references in this section to creditors include creditors of a particular class. (11) In this Group of Parts ‘qualifying decision procedure’ means a procedure prescribed or authorised under paragraph 8A of Schedule 8. 246ZF Deemed consent procedure (1) The deemed consent procedure may be used instead of a qualifying decision procedure where the creditors of the partnership and the creditors of any insolvent members are to make a decision about any matter, unless– (a)

a decision about the matter is required by virtue of this Act, the rules, or any other legislation to be made by a qualifying decision procedure, or (b) the court orders that a decision about the matter is to be made by a qualifying decision procedure. (2) If the rules provide for the creditors of the partnership and the creditors of any insolvent members to make a decision about the remuneration of any person, they must provide that the decision is to be made by a qualifying decision procedure. (3) The deemed consent procedure is that the relevant creditors (other than optedout creditors) are given notice of– (a) (b) (c) (d) (4)

the matter about which they are to make a decision, the decision that the person giving the notice proposes should be made (the ‘proposed decision’), the effect of subsections (4) and (5), and the procedure for objecting to the proposed decision.

If less than the appropriate number of relevant creditors object to the proposed decision in accordance with the procedure set out in the notice, the creditors are to be treated as having made the proposed decision.

(5) Otherwise– (a) the creditors are to be treated as not having made a decision about the matter in question, and (b) if a decision about that matter is again sought from the creditors it must be sought using a qualifying decision procedure. (6)

For the purposes of subsection (4) the ‘appropriate number’ of relevant creditors or is 10% in value of those creditors.

(7)

‘Relevant creditors’ means the creditors who, if the decision were to be made by a qualifying decision procedure, would be entitled to vote in the procedure.

963

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (8)

In this section references to creditors include creditors of a particular class.’]1

1 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 10 (6 April 2017).

[3 Sections 379ZA and 379ZB are modified so as to read as follows– ‘379ZA Creditors’ decisions: general (1) This section applies where, for the purposes of this Group of Parts, a person (“P”) seeks a decision from the creditors of the partnership and the creditors of any insolvent members about any matter. (2) The decision may be made by any creditors’ decision procedure P thinks fit, except that it may not be made by a meeting of the creditors of the partnership and the creditors of any insolvent members unless subsection (3) applies. (3) This subsection applies if at least the minimum number of creditors request in writing that the decision be made by a creditors’ meeting. (4) If subsection (3) applies, P must summon a meeting of the creditors of the partnership and the creditors of any insolvent member. (5) Subsection (2) is subject to any provision of this Act, the rules or any other legislation, or any order of the court– (a) requiring a decision to be made, or prohibiting a decision from being made, by a particular creditors’ decision procedure (other than a meeting); (b) permitting or requiring a decision to be made by a meeting. (6)

Section 379ZB provides that in certain cases the deemed consent procedure may be used instead of a creditors’ decision procedure.

(7) For the purposes of subsection (3) the ‘minimum number’ of creditors is any of the following– (a) 10% in value of the creditors; (b) 10% in number of the creditors; (c) 10 creditors. (8) The references in subsection (7) to creditors are to creditors of any class, even where a decision is sought only from creditors of a particular class. (9) In this section references to a meeting are to a meeting where the creditors are invited to be present together at the same place (whether or not it is possible to attend the meeting without being present at that place). (10) Except as provided by subsection (8), references in this section to creditors include creditors of a particular class. (11) In this Group of Parts ‘creditors’ decision procedure’ means a procedure prescribed or authorised under paragraph 11A of Schedule 9. 379ZB Deemed consent procedure (1) The deemed consent procedure may be used instead of a creditors’ decision procedure where the creditors of the partnership and the creditors of any insolvent members are to make a decision about any matter, unless–

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (a)

a decision about the matter is required by virtue of this Act, the rules or any other legislation to be made by a creditors’ decision procedure, or (b) the court orders that a decision about the matter is to be made by a creditors’ decision procedure. (2) If the rules provide for the creditors of the partnership and the creditors of any insolvent members to make a decision about the remuneration of any person, they must provide that the decision is to be made by a creditors’ decision procedure. (3) The deemed consent procedure is that the relevant creditors (other than optedout creditors) are given notice of– (a) the matter about which the creditors are to make a decision, (b) the decision the person giving the notice proposes should be made (the “proposed decision”), (c) the effect of subsections (4) and (5), and (d) the procedure for objecting to the proposed decision. (4)

If less than the appropriate number of relevant creditors object to the proposed decision in accordance with the procedure set out in the notice, the creditors are to be treated as having made the proposed decision.

(5) Otherwise– (a) the creditors are to be treated as not having made a decision about the matter in question, and (b) if a decision about that matter is again sought from the creditors, it must be sought using a creditors’ decision procedure. (6)

For the purposes of subsection (4) the ‘appropriate number’ of relevant creditors is 10% in value of those creditors.

(7)

‘Relevant creditors’ means the creditors who, if the decision were to be made by a creditors’ decision procedure, would be entitled to vote in the procedure.

(8)

In this section references to creditors include creditors of a particular class.

(9)

The rules may make further provision about the deemed consent procedure.’]1

1 Inserted by the Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017, SI 2017/540, reg 3, Sch 2, paras 2, 10 (6 April 2017).

SCHEDULE 8 MODIFIED PROVISIONS OF COMPANY DIRECTORS DISQUALIFICATION ACT 1986 FOR THE PURPOSES OF ARTICLE 16 The following provisions of the Company Directors Disqualification Act 1986 are modified so as to read as follows:– [5A  Section 5A: Disqualification for certain convictions abroad (1)

If it appears to the Secretary of State that it is expedient in the public interest that a disqualification order under this section should be made against a person, the Secretary of State may apply to the court for such an order.

(2) The court may, on an application under subsection (1), make a disqualification order against a person who has been convicted of a relevant foreign offence.

965

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (3) A ‘relevant foreign offence’ is an offence committed outside Great Britain in connection with the promotion, formation, management or liquidation of a partnership (or any similar procedure) which corresponds to an indictable offence under the law of England and Wales. (4) Where it appears to the Secretary of State that, in the case of a person who has offered to give a disqualification undertaking– (a) (b)

the person has been convicted of a relevant foreign offence; and it is expedient in the public interest that the Secretary of State should accept the undertaking (instead of applying, or proceeding with an application, for a disqualification order),

the Secretary of State may accept the undertaking. (5)

In this section– ‘partnership’ includes an overseas partnership; ‘the court’ means the High Court.

(6) The maximum period of disqualification under an order under this section is 15 years.]1 [6  Section 6: Duty of court to disqualify unfit officers of certain partnerships (1)

The court shall make a disqualification order against a person in any case where, on an application under this section, it is satisfied– (a) that he is or has been an officer of a partnership which has at any time become insolvent (whether while he was an officer or subsequently); and (b) that his conduct as an officer of that partnership (either taken alone or taken together with his conduct as an officer of one or more other partnerships or overseas partnerships, or as a director of one or more companies or overseas companies) makes him unfit to be concerned in the management of a company.

(1A) In this section references to a person’s conduct as an officer of any partnership or overseas partnership, or as a director of any company or overseas company include, where that partnership or overseas partnership, or company or overseas company, has become insolvent, references to that person’s conduct in relation to any matter connected with or arising out of the insolvency. (2)

For the purposes of this section– (a)

(b)

a partnership becomes insolvent if– (i) the court makes an order for it to be wound up as an unregistered company at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up; or (ii) the partnership enters administration; and a company becomes insolvent if– (i) the company goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up; (ii) the company enters administration; or (iii) an administrative receiver of the company is appointed.

(2A) For the purposes of this section, an overseas company or partnership becomes insolvent if the company or partnership enters into insolvency proceedings of any description (including interim proceedings) in any jurisdiction.

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (3)

In this section and section 7(2), ‘the court’ means– (a) where the partnership in question is being or has been wound up as an unregistered company by the court, that court; (b) where paragraph (a) does not apply but an administrator has at any time been appointed in relation to the partnership in question, any court which has jurisdiction to wind it up.

(3A) Section  117 of the Insolvency Act 1986 (High Court and county court jurisdiction), as modified and set out in Schedule  5 to the 1994 Order, shall apply for the purposes of subsection (3) as if in a case within paragraph (b) of that subsection the references to the presentation of the petition for winding up in sections 117(3) and 117(4) of the Insolvency Act 1986, as modified and set out in that Schedule, were references to the making of the administration order. (3B) Nothing in subsection (3) invalidates any proceedings by reason of their being taken in the wrong court; and proceedings– (a) (b)

for or in connection with a disqualification order under this section; or in connection with a disqualification undertaking accepted under section 7,

may be retained in the court in which the proceedings were commenced, although it may not be the court in which they ought to have been commenced. (3C) In this section and section 7, ‘director’ includes a shadow director. (4) Under this section the minimum period of disqualification is 2 years, and the maximum period is 15 years.

7  Section 7: Disqualification order or undertaking; applications and acceptance of undertakings (1)

If it appears to the Secretary of State that it is expedient in the public interest that a disqualification order under section 6 should be made against any person, an application for the making of such an order against that person may be made– (a) by the Secretary of State; or (b) if the Secretary of State so directs in the case of a person who is or has been an officer of a partnership which is being or has been wound up by the court as an unregistered company, by the official receiver.

(2) Except with the leave of the court, an application for the making under that section of a disqualification order against any person shall not be made after the end of the period of 3 years beginning with the day on which the partnership of which that person is or has been an officer became insolvent. (2A) If it appears to the Secretary of State that the conditions mentioned in section 6(1) are satisfied as respects any person who has offered to give him a disqualification undertaking, he may accept the undertaking if it appears to him that it is expedient in the public interest that he should do so (instead of applying, or proceeding with an application, for a disqualification order). (4)

The Secretary of State or the official receiver may require any person– (a) to furnish him with such information with respect to that person’s or another person’s conduct as an officer of a partnership, or as a director of a company which has at any time become insolvent (whether while the person was an officer or director or subsequently); and

967

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (b)

to produce and permit inspection of such books, papers and other records as are considered by the Secretary of State or (as the case may be) the official receiver to be relevant to that person’s or another person’s conduct as such an officer or director,

as the Secretary of State or the official receiver may reasonably require for the purpose of determining whether to exercise, or of exercising, any function of his under this section. (5) Subsections (1A) and (2) of section 6 apply for the purposes of this section as they apply for the purposes of that section.]2 [7A  Section 7A: Office-holder’s report on conduct of officers of the partnership (1) The office-holder in respect of a partnership which is insolvent must prepare a report (a ‘conduct report’) about the conduct of each person who was an officer of the partnership– (a) (b) (2)

on the insolvency date; or at any time during the period of 3 years ending with that date.

For the purposes of this section a partnership is insolvent if– (a) (b)

the partnership is in liquidation and at the time it went into liquidation its assets were insufficient for the payment of its debts and other liabilities and the expenses of the winding up; or the partnership enters administration,

and subsection (1A) of section  6 applies for the purposes of this section as it applies for the purpose of that section. (3) A conduct report must, in relation to each person, describe any conduct of the person which may assist the Secretary of State in deciding whether to exercise the power under section 7(1) or (2A) in relation to the person. (4) The office-holder must send the conduct report to the Secretary of State before the end of– (a) (b) (5)

the period of 3 months beginning with the insolvency date; or such other longer period as the Secretary of State considers appropriate in the particular circumstances.

If new information comes to the attention of an office-holder, the office-holder must send that information to the Secretary of State as soon as reasonably practicable.

(6) ‘New information’ is information which an office-holder considers should have been included in a conduct report prepared in relation to the partnership, or would have been so included had it been available before the report was sent. (7)

If there is more than one office-holder in respect of a partnership at any particular time, subsection (1) applies only to the first of the office-holders to be appointed.

(9)

The ‘office-holder’ in respect of a partnership which is insolvent is– (a) (b) (c)

in the case of a partnership being wound up by the court in England and Wales, the official receiver; in the case of a partnership being wound up otherwise, the liquidator; in the case of a partnership in administration, the administrator.

(10) The ‘insolvency date’–

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Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (a)

in the case of a partnership being wound up by the court, means the date on which the court makes the winding-up order (see section  125 of the Insolvency Act 1986); (b) in the case of a partnership being wound up by way of a members’ voluntary winding up, means the date on which the liquidator forms the opinion that the partnership will be unable to pay its debts in full (together with interest at the official rate) within the period stated in the declaration of solvency under section 89 of the Insolvency Act 1986; (c) in the case of a partnership being wound up by way of a creditors’ voluntary winding up where no such declaration under section 89 of that Act has been made, means the date of the passing of the resolution for voluntary winding up; (d) in the case of a company which has entered administration, means the date the company did so. (12) In this section ‘court’ has the same meaning as in section 6.]2 [8  Section 8: Disqualification of officer on finding of unfitness (1)

If it appears to the Secretary of State that it is expedient in the public interest that a disqualification order should be made against a person who is or has been an officer of an insolvent partnership, he may apply to the court for such an order.

(2) The court may make a disqualification order against a person where, on an application under this section, it is satisfied that his conduct in relation to the partnership (either taken alone or taken together with his conduct as an officer of one or more other partnerships or overseas partnerships, or as a director of one or more companies or overseas companies) makes him unfit to be concerned in the management of a company. (2A) Where it appears to the Secretary of State that, in the case of a person who has offered to give him a disqualification undertaking– (a) the conduct of the person in relation to an insolvent partnership of which the person is or has been an officer (either taken alone or taken together with his conduct as an officer of one or more other partnerships or overseas partnerships, or as a director of one or more companies or overseas companies) makes him unfit to be concerned in the management of a company; and (b) it is expedient in the public interest that he should accept the undertaking (instead of applying, or proceeding with an application, for a disqualification order), he may accept the undertaking. (2B) Subsection (1A) of section 6 applies for the purposes of this section as it applies for the purposes of that section. (3)

In this section ‘the court’ means the High Court.

(4)

The maximum period of disqualification under this section is 15 years.]1

[8ZA  Section 8ZA: Persons instructing unfit officers (1) The court may make a disqualification order against a person (‘P’) if, on an application under section 8ZB, it is satisfied–

969

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (a) either– (i) that a disqualification order under section 6 has been made against a person who is or has been an officer of a partnership; or (ii) that the Secretary of State has accepted a disqualification undertaking from such a person under section 7(2A); and (b) that P exercised the requisite amount of influence over the person. That person is referred to in this section as ‘the main transgressor’. (2) For the purposes of this section, P exercised the requisite amount of influence over the main transgressor if any of the conduct– (a) for which the main transgressor is subject to the order made under section 6; or (b) in relation to which the undertaking was accepted from the main transgressor under section 7(2A), was the result of the main transgressor acting in accordance with P’s directions or instructions. (3) But P does not exercise the requisite amount of influence over the main transgressor by reason only that the main transgressor acts on advice given by P in a professional capacity. (4) Under this section the minimum period of disqualification is 2 years and the maximum period is 15 years. (5)

In this section and section 8ZB ‘the court’ has the same meaning as in section 6; and subsection (3B) of section  6 applies in relation to proceedings mentioned in subsection (6) below as it applies in relation to proceedings mentioned in section 6(3B)(a) and (b).

(6)

The proceedings are proceedings– (a) for or in connection with a disqualification order under this section; or (b) in connection with a disqualification undertaking accepted under section 8ZC.

8ZB  Section 8ZB: Application for order under section 8ZA (1)

If it appears to the Secretary of State that it is expedient in the public interest that a disqualification order should be made against a person under section 8ZA, the Secretary of State may– (a) make an application to the court for such an order; or (b) in a case where an application for an order under section  6 against the main transgressor has been made by the official receiver, direct the official receiver to make such an application.

(2) Except with the leave of the court, an application for a disqualification order under section 8ZA must not be made after the end of the period of 3 years beginning with the day on which the partnership in question became insolvent (within the meaning given by section 6(2)). (3) Subsection (4) of section 7 applies for the purposes of this section as it applies for the purposes of that section.

970

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 8ZC  Section 8ZC: Disqualification undertaking instead of an order under section 8ZA (1)

If it appears to the Secretary of State that it is expedient in the public interest to do so, the Secretary of State may accept a disqualification undertaking from a person (‘P’) if– (a)

(b)

any of the following is the case– (i) a disqualification order under section  6 has been made against a person who is or has been an officer of a partnership; (ii) the Secretary of State has accepted a disqualification undertaking from such a person under section 7(2A); or (iii) it appears to the Secretary of State that such an undertaking could be accepted from such a person (if one were offered); and it appears to the Secretary of State that P exercised the requisite amount of influence over the person.

That person is referred to in this section as ‘the main transgressor’. (2) For the purposes of this section, P exercised the requisite amount of influence over the main transgressor if any of the conduct– (a) for which the main transgressor is subject to the disqualification order made under section 6; (b) in relation to which the disqualification undertaking was accepted from the main transgressor under section 7(2A); or (c) which led the Secretary of State to the conclusion set out in subsection (1)(a) (iii), was the result of the main transgressor acting in accordance with P’s directions or instructions. (3) But P does not exercise the requisite amount of influence over the main transgressor by reason only that the main transgressor acts on advice given by P in a professional capacity. (4) Subsection (4) of section 7 applies for the purposes of this section as it applies for the purposes of that section.

8ZD  Section 8ZD: Order disqualifying person instructing unfit director; other cases (1) The court may make a disqualification order against a person (‘P’) if, on an application under this section, it is satisfied– (a) either– (i) that a disqualification order under section 8 has been made against a person who is or has been an officer of a partnership; or (ii) that the Secretary of State has accepted a disqualification undertaking from such a person under section 8(2A); and (b) that P exercised the requisite amount of influence over the person. That person is referred to in this section as ‘the main transgressor’. (2)

The Secretary of State may make an application to the court for a disqualification order against P under this section if it appears to the Secretary of State that it is expedient in the public interest for such an order to be made.

(3) For the purposes of this section, P exercised the requisite amount of influence over the main transgressor if any of the conduct–

971

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) (a) for which the main transgressor is subject to the order made under section 8; or (b) in relation to which the undertaking was accepted from the main transgressor under section 8(2A), was the result of the main transgressor acting in accordance with P’s directions or instructions. (4) But P does not exercise the requisite amount of influence over the main transgressor by reason only that the main transgressor acts on advice given by P in a professional capacity. (5)

Under this section the maximum period of disqualification is 15 years.

(6)

In this section ‘the court’ means the High Court.

8ZE  Section 8ZE: Disqualification undertaking instead of an order under section 8ZD (1)

If it appears to the Secretary of State that it is expedient in the public interest to do so, the Secretary of State may accept a disqualification undertaking from a person (‘P’) if– (a)

(b)

any of the following is the case– (i) a disqualification order under section  8 has been made against a person who is or has been an officer of a partnership; (ii) the Secretary of State has accepted a disqualification undertaking from such a person under section 8(2A); or (iii) it appears to the Secretary of State that such an undertaking could be accepted from such a person (if one were offered); and it appears to the Secretary of State that P exercised the requisite amount of influence over the person.

That person is referred to in this section as ‘the main transgressor’. (2) For the purposes of this section, P exercised the requisite amount of influence over the main transgressor if any of the conduct– (a) for which the main transgressor is subject to the disqualification order made under section 8; (b) in relation to which the disqualification undertaking was accepted from the main transgressor under section 8(2A); or (c) which led the Secretary of State to the conclusion set out in subsection (1)(a) (iii), was the result of the main transgressor acting in accordance with P’s directions or instructions. (3) But P does not exercise the requisite amount of influence over the main transgressor by reason only that the main transgressor acts on advice given by P in a professional capacity.]2 9 […]3 […]3 [12C  Section 12C: Determining unfitness etc.: matters to be taken into account (1)

This section applies where a court must determine–

972

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (a) whether a person’s conduct as an officer of a partnership (either taken alone or taken together with his conduct as an officer of one or more other partnerships or overseas partnerships, or as a director of one or more companies or overseas companies) makes the person unfit to be concerned in the management of a company; (b) whether to exercise any discretion it has to make a disqualification order under any of sections 5A or 8; (c) where the court has decided to make a disqualification order under any of those sections or is required to make an order under section 6, what the period of disqualification should be. (3)

This section also applies where the Secretary of State must determine– (a) whether a person’s conduct as an officer of a partnership (either taken alone or taken together with his conduct as an officer of one or more other partnerships or overseas partnerships, or as a director of one or more companies or overseas companies) makes the person unfit to be concerned in the management of a company; (b) whether to exercise any discretion the Secretary of State has to accept a disqualification undertaking under section 5A, 7 or 8.

(4) In making any such determination in relation to a person, the court or the Secretary of State must– (a) (b)

(6)

in every case, have regard in particular to the matters set out in paragraphs 1 to 4 of Schedule 1; in a case where the person concerned is or has been an officer of a partnership or overseas partnership, or director of a company or overseas company, also have regard in particular to the matters set out in paragraphs 5 to 7 of that Schedule.

Subsection (1A) of section 6 applies for the purposes of this section as it applies for the purposes of that section.]2

[13  Section 13: Criminal penalties If a person acts in contravention of a disqualification order or disqualification undertaking he is liable– (a) on conviction on indictment, to imprisonment for not more than 2 years or a fine or both; and (b) on summary conviction, to imprisonment for not more than 6 months or a fine not exceeding the statutory maximum, or both. 14  Section 14: Offences by body corporate (1) Where a body corporate is guilty of an offence of acting in contravention of a disqualification order or disqualification undertaking and it is proved that the offence occurred with the consent or connivance of, or was attributable to any neglect on the part of any director, manager, secretary or other similar officer of the body corporate, or any person who was purporting to act in any such capacity he, as well as the body corporate, is guilty of the offence and liable to be proceeded against and punished accordingly. (2) Where the affairs of a body corporate are managed by its members, subsection (1) applies in relation to the acts and defaults of a member in connection with his functions of management as if he were a director of the body corporate.

973

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) 15  Section 15: Personal liability for company’s debts where person acts while disqualified (1) A person is personally responsible for all the relevant debts of a company if at any time– (a) (b)

in contravention of a disqualification order or disqualification undertaking he is involved in the management of the company, or as a person who is involved in the management of the company, he acts or is willing to act on instructions given without the leave of the court by a person whom he knows at that time to be the subject of a disqualification order or disqualification undertaking or a disqualification order under Part II of the Companies (Northern Ireland) Order 1989 or to be an undischarged bankrupt.

(2)

Where a person is personally responsible under this section for the relevant debts of a company, he is jointly and severally liable in respect of those debts with the company and any other person who, whether under this section or otherwise, is so liable.

(3)

For the purposes of this section the relevant debts of a company are– (a)

in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company, and (b) in relation to a person who is personally responsible under paragraph (b) of that subsection, such debts and other liabilities of the company as are incurred at a time when that person was acting or was willing to act on instructions given as mentioned in that paragraph. (4) For the purposes of this section, a person is involved in the management of a company if he is a director of the company or if he is concerned, whether directly or indirectly, or takes part, in the management of the company. (5) For the purposes of this section a person who, as a person involved in the management of a company, has at any time acted on instructions given without the leave of the court by a person whom he knew at that time to be the subject of a disqualification order or disqualification undertaking or a disqualification order under Part II of the Companies (Northern Ireland) Order 1989 or to be an undischarged bankrupt is presumed, unless the contrary is shown, to have been willing at any time thereafter to act on any instructions given by that person. [15A  Section 15A: Compensation orders and undertakings (1)

The court may make a compensation order against a person on the application of the Secretary of State if it is satisfied that the conditions mentioned in subsection (3) are met.

(2)

If it appears to the Secretary of State that the conditions mentioned in subsection (3) are met in respect of a person who has offered to give the Secretary of State a compensation undertaking, the Secretary of State may accept the undertaking instead of applying, or proceeding with an application, for a compensation order.

(3)

The conditions are that– (a) the person is subject to a disqualification order or disqualification undertaking under this Act; and

974

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F (b) conduct for which the person is subject to the order or undertaking has caused loss to one or more creditors of an insolvent partnership of which the person has at any time been an officer. (4) An ‘insolvent partnership’ is a partnership that is or has been insolvent and a partnership becomes insolvent if the partnership goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up. (5) The Secretary of State may apply for a compensation order at any time before the end of the period of two years beginning with the date on which the disqualification order referred to in paragraph (a) of subsection (3) was made, or the disqualification undertaking referred to in that paragraph was accepted. (6) In the case of a person subject to a disqualification order under section 8ZA or 8ZD, or a disqualification undertaking under section 8ZC or 8ZE, the reference in subsection (3)(b) to conduct is a reference to the conduct of the main transgressor in relation to which the person has exercised the requisite amount of influence. (7)

In this section and sections 15B and 15C ‘the court’ means– (a) (b)

in a case where a disqualification order has been made, the court that made the order; in any other case, the High Court.

15B  Section 15B: Amounts payable under compensation orders and undertakings (1)

A compensation order is an order requiring the person against whom it is made to pay an amount specified in the order– (a) (b)

to the Secretary of State for the benefit of– (i) a creditor or creditors specified in the order; (ii) a class or classes of creditor so specified; as a contribution to the assets of a partnership so specified.

(2) A compensation undertaking is an undertaking to pay an amount specified in the undertaking– (a) (b) (3)

When specifying an amount the court (in the case of an order) and the Secretary of State (in the case of an undertaking) must in particular have regard to– (a) (b) (c)

(4)

to the Secretary of State for the benefit of– (i) a creditor or creditors specified in the undertaking; (ii) a class or classes of creditor so specified; as a contribution to the assets of a partnership so specified.

the amount of the loss caused; the nature of the conduct mentioned in section 15A(3)(b); whether the person has made any other financial contribution in recompense for the conduct (whether under a statutory provision or otherwise).

An amount payable by virtue of subsection (2) under a compensation undertaking is recoverable as if payable under a court order.

(5) An amount payable under a compensation order or compensation undertaking is provable as a bankruptcy debt.]2

975

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) [17  Section 17: Application for leave under an order or undertaking (1) Where a person is subject to a disqualification order made by a court having jurisdiction to wind up partnerships, any application for leave for the purposes of section 1(1)(a) shall be made to that court. (3)

Where a person is subject to a disqualification undertaking accepted at any time under section 5A, 7 or 8, any application for leave for the purposes of section 1A(1)(a) shall be made to any court to which, if the Secretary of State had applied for a disqualification order under the section in question at that time, his application could have been made.

(3ZA) Where a person is subject to a disqualification undertaking accepted at any time under section 8ZC, any application for leave for the purposes of section 1A(1)(a) must be made to any court to which, if the Secretary of State had applied for a disqualification order under section 8ZA at that time, that application could have been made. (3ZB) Where a person is subject to a disqualification undertaking accepted at any time under section 8ZE, any application for leave for the purposes of section 1A(1)(a) must be made to the High Court. (3A) Where a person is subject to a disqualification undertaking accepted at any time under section 9B any application for leave for the purposes of section 9B(4) must be made to the High Court. (4) But where a person is subject to two or more disqualification orders or undertakings (or to one or more disqualification orders and to one or more disqualification undertakings), any application for leave for the purposes of sections  1(1)(a) or 1A(1)(a) shall be made to any court to which any such application relating to the latest order to be made, or undertaking to be accepted, could be made. (5)

On the hearing of an application for leave for the purposes of section 1(1)(a) or 1A(1)(a), the Secretary of State shall appear and call the attention of the court to any matters which seem to him to be relevant, and may himself give evidence or call witnesses.]1]4

[SCHEDULE 1 DETERMINING UNFITNESS ETC.: MATTERS TO BE TAKEN INTO ACCOUNT (Section 12C) Matters to be taken into account in all cases 1 The extent to which the person was responsible for the causes of any material contravention by a partnership or overseas partnership, or a company or overseas company, of any applicable legislative or other requirement. 2 Where applicable, the extent to which the person was responsible for the causes of a partnership or overseas partnership, or company or overseas company, becoming insolvent.

976

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F 3 The frequency of conduct of the person which falls within paragraph 1 or 2. 4 The nature and extent of any loss or harm caused, or any potential loss or harm which could have been caused, by the person’s conduct as an officer of any partnership or overseas partnership or as a director of any company or overseas company. Additional matters to be taken into account where person is or has been an officer of a partnership or a director 5 Any misfeasance or breach of any fiduciary or other duty by the person in relation to a partnership or overseas partnership or a company or overseas company. 6 Any material breach of any legislative or other obligation of the person which applies as a result of being– (a) an officer of a partnership or overseas partnership; or (b) a director of a company or overseas company. 7 The frequency of conduct of the person which falls within paragraph 5 or 6. Interpretation 8 Subsections (1A) to (2A) of section 6 apply for the purposes of this Schedule as they apply for the purposes of that section. 9 In this Schedule ‘director’ includes a shadow director.]1’. 1 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg 2, Sch 2, paras 1, 8(1)–(5), (10), (11) (8 December 2017: substitution has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10). 2 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg  2, Sch  2, paras 1, 8(1), (6), (8), (9) (8  December 2017: insertion has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10). 3 Repealed by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg  2, Sch  2, paras 1, 8(1), (7) (8  December 2017: repeal has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10). 4 Inserted by the Insolvent Partnerships (Amendment) Order 2001, SI  2001/767, art  3(6) (2 April 2001).

977

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) SCHEDULE 9 FORMS

Form 1 [Administration application]1

978

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

979

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1 Form substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art 12, Sch 2 (1 July 2005).

980

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F [Form 1A Notice of intention to appoint an administrator by the members of the partnership]1

981

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

982

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1 Form inserted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 12, Sch 2 (1 July 2005) and substituted by the Insolvent Partnerships (Amendment) Order 2006, SI 2006/622, art 10, Schedule (6 April 2006).

983

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) [Form 1B Notice of an appointment of an administrator by the members of the partnership (where a notice of intention to appoint has not been issued)]1

984

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

985

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1 Form inserted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 12,

Sch 2 (1 July 2005) and substituted by the Insolvent Partnerships (Amendment) Order 2006,

SI 2006/622, art 10, Schedule (6 April 2006).

986

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F Form 2 Affidavit Verifying Petition to Wind up Partnership

987

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) Form 3 Petition to Wind Up Partnership by Liquidator, Administrator, Trustee or Supervisor1

988

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

989

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1 Form substituted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art 6, Schedule (31 May 2002).

990

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F Form 4 Written/Statutory Demand by Creditor1

991

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

992

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

993

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

994

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1 Form substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art 12, Sch 2 (1 July 2005).

995

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) Form 5 Creditor’s Petition to Wind Up Partnership (Presented in Conjunction with Petitions against Members)1

996

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

997

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1 Form substituted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI 2002/2708, art 10, Sch 2 (1 January 2003).

998

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F Form 6 Creditor’s Petition to Wind Up Corporate Member (Presented in Conjunction with Petition against Partnership)1

999

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1000

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1 Form substituted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI 2002/2708, art 10, Sch 2 (1 January 2003).

1001

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) Form 7 Creditor’s Bankruptcy Petition against Individual Member (Presented in Conjunction with Petition against Partnership)1

1002

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1003

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1004

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1 Form substituted by the Insolvent Partnerships (Amendment) (No. 2) Order 2002, SI 2002/2708, art 10, Sch 2 (1 January 2003).

1005

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) Form 8 Advertisement of Winding-Up Petition(s) against Partnership (and any Corporate Members)

1006

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F Form 9 Notice to Court of Progress on Petitions Presented

1007

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) Form 10 Demand by Member

1008

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1009

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1010

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F Form 11 Members’ Petition to Wind Up Partnership (Presented in Conjunction with Petitions against Members)1

1011

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1012

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1 Form substituted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art 6, Schedule (31 May 2002).

1013

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) Form 12 Members’ Petition to Wind Up Corporate Member (Presented in Conjunction with Petition against Partnership)1

1014

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1015

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1 Form substituted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art 6, Schedule (31 May 2002).

1016

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F Form 13 Members’ Bankruptcy Petition against Individual Member (Presented in Conjunction with Petition against Partnership)1

1017

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1018

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1 Form substituted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308,

art 6, Schedule (31 May 2002).

1019

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) Form 14 Joint Bankruptcy Petition against Individual Members1

1020

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1021

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1 Form substituted by the Insolvent Partnerships (Amendment) Order 2002, SI  2002/1308, art 6, Schedule (31 May 2002).

1022

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F Form 15 Affidavit of Individual Member(s) as to Concurrence of All Members in Presentation of Joint Bankruptcy Petition against Individual Members

1023

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) Form 16 Bankruptcy Orders on Joint Bankruptcy Petition Presented by Individual Members1

1 Form substituted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art 12, Sch 2 (1 July 2005).

1024

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F Form 17 Statement of Affairs of Member of Partnership

1025

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1026

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1027

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1028

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F Form 18 Statement of Affairs of Partnership

1029

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1030

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1031

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421)

1032

Insolvent Partnerships Order 1994 (SI 1994/2421) Appendix F

1033

Appendix F  Insolvent Partnerships Order 1994 (SI 1994/2421) SCHEDULE 10 SUBORDINATE LEGISLATION APPLIED The Insolvency Practitioners Tribunal (Conduct of Investigations) Rules 1986 The Insolvency Practitioners (Recognised Professional Bodies) Order 1986 [The Insolvency (England and Wales) Rules 2016]1 [The Insolvency Regulations 1994]2 The Insolvency Proceedings (Monetary Limits) Order 1986 The Administration of Insolvent Estates of Deceased Persons Order 1986 The Insolvency (Amendment of Subordinate Legislation) Order 1986. […]3 [The Companies (Disqualification Orders) Regulations 2001]2 The Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986 [The Insolvent Companies (Reports on Conduct of Directors) Rules 1996]2 The Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 [The Insolvency Practitioners Regulations 2005]2 [The Insolvency Practitioners and Insolvency Services Accounts (Fees) Order 2003; The Insolvency Proceedings (Fees) Order 2004.]4 1 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg  2, Sch  2, paras 1, 9 (8  December 2017: substitution has effect subject to transitional and savings provisions specified in the Insolvency (Miscellaneous Amendments) Regulations 2017, reg 2, Sch 2, para 10). 2 Substituted by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 13(a), (c), (d), (e) (1 July 2005). 3 Repealed by the Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516, art 13(b) (1 July 2005). 4 Inserted by the Insolvent Partnerships (Amendment) Order 2005, SI  2005/1516, art  13(f) (1 July 2005).

1034

Appendix G Limited Liability Partnerships Act 2000 [20th July 2000] An Act to make provision for limited liability partnerships. BE IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:– INTRODUCTORY 1  Limited liability partnerships. (1) There shall be a new form of legal entity to be known as a limited liability partnership. (2)

A limited liability partnership is a body corporate (with legal personality separate from that of its members) which is formed by being incorporated under this Act; and– (a) (b)

in the following provisions of this Act (except in the phrase ‘oversea limited liability partnership’), and in any other enactment (except where provision is made to the contrary or the context otherwise requires),

references to a limited liability partnership are to such a body corporate. (3)

A limited liability partnership has unlimited capacity.

(4) The members of a limited liability partnership have such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act. (5) Accordingly, except as far as otherwise provided by this Act or any other enactment, the law relating to partnerships does not apply to a limited liability partnership. (6)

The Schedule (which makes provision about the names and registered offices of limited liability partnerships) has effect.

1035

Appendix G  Limited Liability Partnerships Act 2000 INCORPORATION 2  Incorporation document etc. (1)

For a limited liability partnership to be incorporated– (a)

two or more persons associated for carrying on a lawful business with a view to profit must have subscribed their names to an incorporation document, [(b) the incorporation document or a copy of it must have been delivered to the registrar, and]1 (c) there must have been so delivered a statement […]2 made by either a solicitor engaged in the formation of the limited liability partnership or anyone who subscribed his name to the incorporation document, that the requirement imposed by paragraph (a) has been complied with. (2)

The incorporation document must– (a) […]2 (b) state the name of the limited liability partnership, (c) state whether the registered office of the limited liability partnership is to be situated in England and Wales, in Wales[, in Scotland or in Northern Ireland]1, (d) state the address of that registered office, [(e) give the required particulars of each of the persons who are to be members of the limited liability partnership on incorporation, […]3]1 (f) either specify which of those persons are to be designated members or state that every person who from time to time is a member of the limited liability partnership is a designated member; [and]4 [(g) include a statement of initial significant control.]4

[(2ZA) The required particulars mentioned in subsection (2)(e) are the particulars required to be stated in the LLP’s register of members and register of members’ residential addresses.]5 [(2A) […]2 (2B) […]2]6 (3)

If a person makes a false statement under subsection (1)(c) which he– (a) (b)

knows to be false, or does not believe to be true,

he commits an offence. (4)

A person guilty of an offence under subsection (3) is liable– (a) on summary conviction, to imprisonment for a period not exceeding six months or a fine not exceeding the statutory maximum, or to both, or (b) on conviction on indictment, to imprisonment for a period not exceeding two years or a fine, or to both.

1 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 1(1), (2), (4)(b), (c) (1 October 2009: substitution has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch 3, para 11). 2 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 1(1), (3), (4)(a), (6) (1 October 2009:

1036

Limited Liability Partnerships Act 2000 Appendix G repeal has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch 3, para 11). 3 Repealed by the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016, SI 2016/340, reg 5, Sch 3, para 1(a) (30 June 2016). 4 Inserted by the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016, SI 2016/340, reg 5, Sch 3, para 1 (30 June 2016). 5 Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  1(1), (5) (1  October 2009: insertion has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch  3, para 11). 6 Inserted by the Limited Liability Partnerships (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002, SI 2002/915, s 16, Sch 2, para 1 (2 April 2002).

3  Incorporation by registration. [(1) The registrar, if satisfied that the requirements of section  2 are complied with, shall– (a) (b)

register the documents delivered under that section, and give a certificate that the limited liability partnership is incorporated.

(1A) The certificate must state– (a) the name and registered number of the limited liability partnership, (b) the date of its incorporation, and (c) whether the limited liability partnership’s registered office is situated in England and Wales (or in Wales), in Scotland or in Northern Ireland.]1 (2) The registrar may accept the statement delivered under paragraph (c) of subsection (1) of section 2 as sufficient evidence that the requirement imposed by paragraph (a) of that subsection has been complied with. (3) The certificate shall either be signed by the registrar or be authenticated by his official seal. (4) The certificate is conclusive evidence that the requirements of section  2 are complied with and that the limited liability partnership is incorporated by the name specified in the incorporation document. 1 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 2 (1 October 2009: substitution has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11).

Membership 4 Members. (1) On the incorporation of a limited liability partnership its members are the persons who subscribed their names to the incorporation document (other than any who have died or been dissolved). (2)

Any other person may become a member of a limited liability partnership by and in accordance with an agreement with the existing members.

1037

Appendix G  Limited Liability Partnerships Act 2000 (3) A person may cease to be a member of a limited liability partnership (as well as by death or dissolution) in accordance with an agreement with the other members or, in the absence of agreement with the other members as to cessation of membership, by giving reasonable notice to the other members. (4)

A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.

[4A  Minimum membership for carrying on business (1) This section applies where a limited liability partnership carries on business without having at least two members, and does so for more than 6 months. (2) A person who, for the whole or any part of the period that it so carries on business after those 6 months– (a) (b)

is a member of the limited liability partnership, and knows that it is carrying on business with only one member,

is liable (jointly and severally with the limited liability partnership) for the payment of the limited liability partnership’s debts contracted during the period or, as the case may be, that part of it.]1 1 Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 3 (1 October 2009: insertion has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11).

5  Relationship of members etc. (1) Except as far as otherwise provided by this Act or any other enactment, the mutual rights and duties of the members of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its members, shall be governed– (a) by agreement between the members, or between the limited liability partnership and its members, or (b) in the absence of agreement as to any matter, by any provision made in relation to that matter by regulations under section 15(c). (2) An agreement made before the incorporation of a limited liability partnership between the persons who subscribe their names to the incorporation document may impose obligations on the limited liability partnership (to take effect at any time after its incorporation). 6  Members as agents. (1) Every member of a limited liability partnership is the agent of the limited liability partnership. (2)

But a limited liability partnership is not bound by anything done by a member in dealing with a person if– (a) the member in fact has no authority to act for the limited liability partnership by doing that thing, and

1038

Limited Liability Partnerships Act 2000 Appendix G (b)

the person knows that he has no authority or does not know or believe him to be a member of the limited liability partnership.

(3) Where a person has ceased to be a member of a limited liability partnership, the former member is to be regarded (in relation to any person dealing with the limited liability partnership) as still being a member of the limited liability partnership unless– (a)

the person has notice that the former member has ceased to be a member of the limited liability partnership, or (b) notice that the former member has ceased to be a member of the limited liability partnership has been delivered to the registrar. (4) Where a member of a limited liability partnership is liable to any person (other than another member of the limited liability partnership) as a result of a wrongful act or omission of his in the course of the business of the limited liability partnership or with its authority, the limited liability partnership is liable to the same extent as the member. 7 Ex-members. (1)

This section applies where a member of a limited liability partnership has either ceased to be a member or– (a) has died, (b) has become bankrupt or had his estate sequestrated or has been wound up, (c) has granted a trust deed for the benefit of his creditors, or (d) has assigned the whole or any part of his share in the limited liability partnership (absolutely or by way of charge or security).

(2)

In such an event the former member or– (a) (b)

his personal representative, his trustee in bankruptcy[, the trustee or interim trustee in the sequestration, under the Bankruptcy (Scotland) Act 2016, of the former member’s estate or the former member’s]1 liquidator, (c) his trustee under the trust deed for the benefit of his creditors, or (d) his assignee, may not interfere in the management or administration of any business or affairs of the limited liability partnership. (3)

But subsection (2) does not affect any right to receive an amount from the limited liability partnership in that event.

1 Substituted by the Bankruptcy (Scotland) Act 2016 (Consequential Provisions and Modifications) Order 2016, SI  2016/1034, art  7(1), Sch  1, para  22 (30  November 2016: substitution has effect subject to savings specified in the Bankruptcy (Scotland) Act 2016 (Consequential Provisions and Modifications) Order 2016, art 7(3)).

8 Designated members. (1)

If the incorporation document specifies who are to be designated members– (a) (b)

they are designated members on incorporation, and any member may become a designated member by and in accordance with an agreement with the other members,

1039

Appendix G  Limited Liability Partnerships Act 2000 and a member may cease to be a designated member in accordance with an agreement with the other members. (2) But if there would otherwise be no designated members, or only one, every member is a designated member. (3) If the incorporation document states that every person who from time to time is a member of the limited liability partnership is a designated member, every member is a designated member. (4)

A limited liability partnership may at any time deliver to the registrar– (a) (b)

notice that specified members are to be designated members, or notice that every person who from time to time is a member of the limited liability partnership is a designated member,

and, once it is delivered, subsection (1) (apart from paragraph (a)) and subsection (2), or subsection (3), shall have effect as if that were stated in the incorporation document. (5) […]1 (6)

A person ceases to be a designated member if he ceases to be a member.

1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  4 (1  October 2009: repeal has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11).

9  Registration of membership changes. (1)

A limited liability partnership must ensure that– (a)

where a person becomes or ceases to be a member or designated member, notice is delivered to the registrar within fourteen days, and (b) where there is any change in the [particulars contained in its register of members or its register of members’ residential addresses]1, notice is delivered to the registrar within [14 days]1. (2) Where all the members from time to time of a limited liability partnership are designated members, subsection (1)(a) does not require notice that a person has become or ceased to be a designated member as well as a member. [(3) A notice delivered under subsection (1) that relates to a person becoming a member or designated member must contain– (a) (b)

a statement that the member or designated member consents to acting in that capacity, and in the case of a person becoming a member, a statement of the particulars of the new member that are required to be included in the limited liability partnership’s register of members and its register of residential addresses.]1

[(3ZA) Where– (a)

a limited liability partnership gives notice of a change of a member’s service address as stated in its register of members, and (b) the notice is not accompanied by notice of any resulting change in the particulars contained in its register of members’ residential addresses, the notice must be accompanied by a statement that no such change is required.]2

1040

Limited Liability Partnerships Act 2000 Appendix G [(3A) […]3 (3B) […]3] (4)

If a limited liability partnership fails to comply with [this section]4, the partnership and every designated member commits an offence.

(5) But it is a defence for a designated member charged with an offence under subsection (4) to prove that he took all reasonable steps for securing that [this section]5 was complied with. (6)

A person guilty of an offence under subsection (4) is liable on summary conviction to a fine not exceeding level 5 on the standard scale.

1 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  5(1), (2), (3), (6) (1  October 2009: substitution has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch 3, para 11). 2 Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  5(1), (4) (1  October 2009: insertion has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch  3, para 11). 3 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 5(1), (5) (1 October 2009: repeal has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11). 4 Inserted by the Limited Liability Partnerships (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002, SI 2002/915, s 16, Sch 2, para 3 (2 April 2002). 5 Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 5(6).

Taxation 10

Income tax and chargeable gains.

(1) […]1 (2) […]2 (3)

In the Taxation of Chargeable Gains Act 1992, after section 59 insert–

‘59A Limited liability partnerships. (1) Where a limited liability partnership carries on a trade or business with a view to profit– (a) assets held by the limited liability partnership shall be treated for the purposes of tax in respect of chargeable gains as held by its members as partners, and (b) any dealings by the limited liability partnership shall be treated for those purposes as dealings by its members in partnership (and not by the limited liability partnership as such), and tax in respect of chargeable gains accruing to the members of the limited liability partnership on the disposal of any of its assets shall be assessed and charged on them separately.

1041

Appendix G  Limited Liability Partnerships Act 2000 (2)

Where subsection (1) ceases to apply in relation to a limited liability partnership with the effect that tax is assessed and charged– (a) (b)

on the limited liability partnership (as a company) in respect of chargeable gains accruing on the disposal of any of its assets, and on the members in respect of chargeable gains accruing on the disposal of any of their capital interests in the limited liability partnership,

it shall be assessed and charged on the limited liability partnership as if subsection (1) had never applied in relation to it. (3)

Neither the commencement of the application of subsection (1) nor the cessation of its application in relation to a limited liability partnership is to be taken as giving rise to the disposal of any assets by it or any of its members.’

(4)

After section 156 of that Act insert–

‘156A Cessation of trade by limited liability partnership. (1)

Where, immediately before the time of cessation of trade, a member of a limited liability partnership holds an asset, or an interest in an asset, acquired by him for a consideration treated as reduced under section 152 or 153, he shall be treated as if a chargeable gain equal to the amount of the reduction accrued to him immediately before that time.

(2) Where, as a result of section  154(2), a chargeable gain on the disposal of an asset, or an interest in an asset, by a member of a limited liability partnership has not accrued before the time of cessation of trade, the member shall be treated as if the chargeable gain accrued immediately before that time. (3) In this section ‘the time of cessation of trade’, in relation to a limited liability partnership, means the time when section 59A(1) ceases to apply in relation to the limited liability partnership.’ 1 Repealed by the Corporation Tax Act 2010, s 1181(1), Sch 3, Pt 1(1 April 2010 and has effect for corporation tax purposes for accounting periods ending on or after that day, and for income tax and capital gains tax purposes, for the tax year 2010–11 and subsequent tax years, subject to transitional provisions and savings specified in the Corporation Tax Act 2010, Sch 2). 2. Repealed by the Income Tax Act 2007, s 1031, Sch 3, Pt 1 (6 April 2007: for income tax purposes, for the tax year 2007–08 and subsequent tax years and for corporation tax purposes for accounting periods ending after 5 April 2007, subject to savings and transitional provisions specified in the Income Tax Act 2007, s 1030(1) and Sch 2).

11 Inheritance tax. In the Inheritance Tax Act 1984, after section 267 insert– ‘267A Limited liability partnerships. For the purposes of this Act and any other enactments relating to inheritance tax– (a) property to which a limited liability partnership is entitled, or which it occupies or uses, shall be treated as property to which its members are entitled, or which they occupy or use, as partners, (b)

any business carried on by a limited liability partnership shall be treated as carried on in partnership by its members,

(c)

incorporation, change in membership or dissolution of a limited liability partnership shall be treated as formation, alteration or dissolution of a partnership, and

1042

Limited Liability Partnerships Act 2000 Appendix G (d)

any transfer of value made by or to a limited liability partnership shall be treated as made by or to its members in partnership (and not by or to the limited liability partnership as such).’

12 Stamp duty. (1) Stamp duty shall not be chargeable on an instrument by which property is conveyed or transferred by a person to a limited liability partnership in connection with its incorporation within the period of one year beginning with the date of incorporation if the following two conditions are satisfied. (2)

The first condition is that at the relevant time the person– (a) (b)

(3)

is a partner in a partnership comprised of all the persons who are or are to be members of the limited liability partnership (and no-one else), or holds the property conveyed or transferred as nominee or bare trustee for one or more of the partners in such a partnership.

The second condition is that– (a) the proportions of the property conveyed or transferred to which the persons mentioned in subsection (2)(a) are entitled immediately after the [transfer]1 are the same as those to which they were entitled at the relevant time, or (b) none of the differences in those proportions has arisen as part of a scheme or arrangement of which the main purpose, or one of the main purposes, is avoidance of liability to any duty or tax.

(4) For the purposes of subsection (2) a person holds property as bare trustee for a partner if the partner has the exclusive right (subject only to satisfying any outstanding charge, lien or other right of the trustee to resort to the property for payment of duty, taxes, costs or other outgoings) to direct how the property shall be dealt with. (5)

In this section ‘the relevant time’ means– (a) if the person who conveyed or transferred the property to the limited liability partnership acquired the property after its incorporation, immediately after he acquired the property, and (b) in any other case, immediately before its incorporation.

(6) An instrument in respect of which stamp duty is not chargeable by virtue of subsection (1) shall not be taken to be duly stamped unless– (a)

it has, in accordance with section 12 of the Stamp Act 1891, been stamped with a particular stamp denoting that it is not chargeable with any duty or that it is duly stamped, or (b) it is stamped with the duty to which it would be liable apart from that subsection. 1 Substituted by the Finance Act 2003, s 125(4), Sch 20, para 3 (10 July 2003).

13  Class 4 national insurance contributions. In section 15 of the Social Security Contributions and Benefits Act 1992 and section 15 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (Class 4 contributions), after subsection (3)insert–

1043

Appendix G  Limited Liability Partnerships Act 2000 ‘(3A) Where income tax is (or would be) charged on a member of a limited liability partnership in respect of profits or gains arising from the carrying on of a trade or profession by the limited liability partnership, Class 4 contributions shall be payable by him if they would be payable were the trade or profession carried on in partnership by the members.’ Regulations 14  Insolvency and winding up. (1)

Regulations shall make provision about the insolvency and winding up of limited liability partnerships by applying or incorporating, with such modifications as appear appropriate[– (a) in relation to a limited liability partnership registered in Great Britain, Parts 1 to 4, 6 and 7 of the Insolvency Act 1986; (b) in relation to a limited liability partnership registered in Northern Ireland, Parts 2 to 5 and 7 of the Insolvency (Northern Ireland) Order 1989, and so much of Part 1 of that Order as applies for the purposes of those Parts.]1

(2)

Regulations may make other provision about the insolvency and winding up of limited liability partnerships, and provision about the insolvency and winding up of oversea limited liability partnerships, by– (a) (b)

applying or incorporating, with such modifications as appear appropriate, any law relating to the insolvency or winding up of companies or other corporations which would not otherwise have effect in relation to them, or providing for any law relating to the insolvency or winding up of companies or other corporations which would otherwise have effect in relation to them not to apply to them or to apply to them with such modifications as appear appropriate.

(3) In this Act ‘oversea limited liability partnership’ means a body incorporated or otherwise established outside [the United Kingdom]1 and having such connection with [the United Kingdom]2, and such other features, as regulations may prescribe . 1 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 6 (9 July 2009: substitution has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11).

15  Application of company law etc. Regulations may make provision about limited liability partnerships and oversea limited liability partnerships (not being provision about insolvency or winding up) by– (a)

applying or incorporating, with such modifications as appear appropriate, any law relating to companies or other corporations which would not otherwise have effect in relation to them,

(b) providing for any law relating to companies or other corporations which would otherwise have effect in relation to them not to apply to them or to apply to them with such modifications as appear appropriate, or (c)

applying or incorporating, with such modifications as appear appropriate, any law relating to partnerships.

1044

Limited Liability Partnerships Act 2000 Appendix G 16 Consequential amendments. (1)

Regulations may make in any enactment such amendments or repeals as appear appropriate in consequence of this Act or regulations made under it.

(2) The regulations may, in particular, make amendments and repeals affecting companies or other corporations or partnerships. 17 General. (1) In this Act ‘regulations’ means regulations made by the Secretary of State by statutory instrument. (2)

Regulations under this Act may in particular– (a)

make provision for dealing with non-compliance with any of the regulations (including the creation of criminal offences), (b) impose fees (which shall be paid into the Consolidated Fund), and (c) provide for the exercise of functions by persons prescribed by the regulations. (3)

Regulations under this Act may– (a) contain any appropriate consequential, incidental, supplementary or transitional provisions or savings, and (b) make different provision for different purposes.

(4) No regulations to which this subsection applies shall be made unless a draft of the statutory instrument containing the regulations (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament. (5)

Subsection (4) applies to– (a) regulations under section 14(2) not consisting entirely of the application or incorporation (with or without modifications) of provisions contained in or made under the Insolvency Act 1986 [or the Insolvency (Northern Ireland) Order 1989]1, [(b) regulations under section 15 not consisting entirely of the application or incorporation (with or without modifications) of provisions contained in or made under the following provisions of the Companies Act 2006 (c. 46)– Part 4 (a company’s capacity and related matters); Part 5 (a company’s name); Part 6 (a company’s registered office); Chapters 1 and 8 of Part 10 (register of directors); Part 15 (accounts and reports); Part 16 (audit); Part 19 (debentures); Part 21 (certification and transfer of securities); Part 24 (a company’s annual return); Part 25 (company charges); Part 26 (arrangements and reconstructions); Part 29 (fraudulent trading); Part 30 (protection of members against unfair prejudice); Part 31 (dissolution and restoration to the register); Part 35 (the registrar of companies);

1045

Appendix G  Limited Liability Partnerships Act 2000

(c) (d) (6)

Part 36 (offences under the Companies Acts); Part 37 (supplementary provisions); Part 38 (interpretation).]2 regulations under section 14 or 15 making provision about oversea limited liability partnerships, and regulations under section 16.

A statutory instrument containing regulations under this Act shall (unless a draft of it has been approved by a resolution of each House of Parliament) be subject to annulment in pursuance of a resolution of either House of Parliament.

1 Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 7(1), (2) (9 July 2009: insertion has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11). 2 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  7(1), (3) (9  July 2009: substitution has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch  3, para 11).

Supplementary 18 Interpretation. In this Act– […]1 ‘business’ includes every trade, profession and occupation, ‘designated member’ shall be construed in accordance with section 8, ‘enactment’ includes subordinate legislation (within the meaning of the Interpretation Act 1978), ‘incorporation document’ shall be construed in accordance with section 2, ‘limited liability partnership’ has the meaning given by section 1(2), ‘member’ shall be construed in accordance with section 4, ‘modifications’ includes additions and omissions, ‘name’, in relation to a member of a limited liability partnership, means– (a) if an individual, his forename and surname (or, in the case of a peer or other person usually known by a title, his title instead of or in addition to either or both his forename and surname), and (b) if a corporation or Scottish firm, its corporate or firm name, ‘oversea limited liability partnership’ has the meaning given by section 14(3), [‘the registrar’ means– (a) if the registered office of the limited liability partnership is, or is to be, in England and Wales (or Wales), the registrar of companies for England and Wales, (b) if the registered office of the limited liability partnership is, or is to be, in Scotland, the registrar of companies for Scotland, and (c) if the registered office of the limited liability partnership is, or is to be, in Northern Ireland, the registrar of companies for Northern Ireland;]2 ‘regulations’ has the meaning given by section 17(1). 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 8(1), (2) (1 October 2009: repeal has effect

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Limited Liability Partnerships Act 2000 Appendix G subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11). 2 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 8(1), (3) (1 October 2009: substitution has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch  3, para 11).

19  Commencement, extent and short title. (1) The preceding provisions of this Act shall come into force on such day as the Secretary of State may by order made by statutory instrument appoint; and different days may be appointed for different purposes. (2) The Secretary of State may by order made by statutory instrument make any transitional provisions and savings which appear appropriate in connection with the coming into force of any provision of this Act. (3) For the purposes of the Scotland Act 1998 this Act shall be taken to be a precommencement enactment within the meaning of that Act. [(4) This Act extends to the whole of the United Kingdom.]1 (5)

This Act may be cited as the Limited Liability Partnerships Act 2000.

1 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 9 (1 October 2009: substitution has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11).

SCHEDULE 1 NAMES AND REGISTERED OFFICES Part I Names 1 […]1 […]1 1 Repealed by the Companies Act 2006, s 1295, Sch 16 (1 October 2009 as the Companies Act 2006 (Commencement No. 8, Transitional Provisions and Savings) Order 2008, SI 2008/2860).

2  Name to indicate status (1)

The name of a limited liability partnership must end with– (a) (b)

the expression ‘limited liability partnership’, or the abbreviation ‘llp’ or ‘LLP’.

(2) But if the incorporation document for a limited liability partnership states that the registered office is to be situated in Wales, its name must end with– (a) one of the expressions ‘limited liability partnership’ and ‘partneriaeth atebolrwydd cyfyngedig’, or (b) one of the abbreviations ‘llp’, ‘LLP’, ‘pac’ and ‘PAC’.

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Appendix G  Limited Liability Partnerships Act 2000 3 […]1 […]1 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 10(1), (2) (1 October 2009: repeal has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11).

4  Change of name (1)

A limited liability partnership may change its name at any time.

[(2) The name of a limited liability partnership may also be changed– (a) on the determination of a new name by a company names adjudicator under section 73 of the Companies Act 2006 (c. 46) as applied to limited liability partnerships (powers of adjudicator on upholding objection to name); (b) on the determination of a new name by the court under section 74 of the Companies Act 2006 as so applied (appeal against decision of company names adjudicator); (c) under section 1033 as so applied (name on restoration to the register).]1 1 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 10(1), (3) (1 October 2009: substitution has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch  3, para 11).

5  Notification of change of name (1) Where a limited liability partnership changes its name it shall deliver notice of the change to the registrar. (2) […]1 (3) Where the registrar receives [notice of a change of name]2 he shall (unless the new name is one by which a limited liability partnership may not be registered)– [(a) enter the new name on the register in place of the former name, and]2 (b) issue a certificate of the change of name. (4)

The change of name has effect from the date on which the certificate is issued.

1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 10(1), (4)(a) (1 October 2009: repeal has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch  3, para 11). 2 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  10(1), (4)(b) (1  October 2009: substitution has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch 3, para 11).

6  Effect of change of name A change of name by a limited liability partnership does not–

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Limited Liability Partnerships Act 2000 Appendix G (a)

affect any of its rights or duties,

(b)

render defective any legal proceedings by or against it,

and any legal proceedings that might have been commenced or continued against it by its former name may be commenced or continued against it by its new name. 7  Improper use of ‘limited liability partnership’ etc. (1) If any person carries on a business under a name or title which includes as the last words– (a) (b)

the expression ‘limited liability partnership’ or ‘partneriaeth atebolrwydd cyfyngedig’, or any contraction or imitation of either of those expressions,

that person, unless a limited liability partnership or oversea limited liability partnership, commits an offence. (2) A person guilty of an offence under sub-paragraph  (1) is liable on summary conviction to a fine not exceeding level 3 on the standard scale. 8 […]1 […]1 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  10(1), (5) (1  October 2009: repeal has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch  3, para 11).

Part II […]1 9 […]1 […]1 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  10(1), (6) (1  October 2009: repeal has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch  3, para 11).

10 […]1 […]1 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  10(1), (6) (1  October 2009: repeal has effect subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch  1 and Sch  3, para 11).

1049

Appendix H Limited Liability Partnerships Regulations 2001 (SI 2001/1090) [19th March 2001] Whereas a draft of these Regulations has been approved by a resolution of each House of Parliament pursuant to section 17(4) of the Limited Liability Partnerships Act 2000; Now, therefore, the Secretary of State, in exercise of the powers conferred on him by sections 14, 15, 16 and 17 of the Limited Liability Partnerships Act 2000 and all other powers enabling him in that behalf hereby makes the following Regulations: PART I CITATION, COMMENCEMENT AND INTERPRETATION 1  Citation and commencement These Regulations may be cited as the Limited Liability Partnerships Regulations 2001 and shall come into force on 6th April 2001. 2 Interpretation In these Regulations– ‘the 1985 Act’ means the Companies Act 1985; ‘the 1986 Act’ means the Insolvency Act 1986; ‘the 2000 Act’ means the Financial Services and Markets Act 2000; ‘devolved’, in relation to the provisions of the 1986 Act, means the provisions of the 1986 Act which are listed in Schedule  4 and, in their application to Scotland, concern wholly or partly, matters which are set out in Section C.2 of Schedule 5 to the Scotland Act 1998 as being exceptions to the reservations made in that Act in the field of insolvency; ‘limited liability partnership agreement’, in relation to a limited liability partnership, means any agreement express or implied between the members of the limited liability partnership or between the limited liability partnership and the members of the limited liability partnership which determines the mutual rights and duties of the members, and their rights and duties in relation to the limited liability partnership; ‘the principal Act’ means the Limited Liability Partnerships Act 2000; and ‘shadow member’, in relation to limited liability partnerships, means a person in accordance with whose directions or instructions the members of the

1051

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) limited liability partnership are accustomed to act (but so that a person is not deemed a shadow member by reason only that the members of the limited partnership act on advice given by him in a professional capacity). [2A  Application of provisions (1)

The provisions of these Regulations applying– (a) (b)

the Company Directors Disqualification Act 1986, or provisions of the Insolvency Act 1986,

have effect only in relation to limited liability partnerships registered in Great Britain. (2) The other provisions of these Regulations have effect in relation to limited liability partnerships registered in any part of the United Kingdom.]1 1 Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (2) (1 October 2009: insertion has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1).

PART II ACCOUNTS AND AUDIT 3 […]1 […]1 1 Repealed by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 58(1)(a) (1 October 2008: repeal has effect subject to transitional provision specified in s 58(3)).

PART III COMPANIES ACT 1985 AND COMPANY DISQUALIFICATION ACT 1986 4  Application of [certain provisions]1 of the 1985 Act and of the provisions of the Company Directors Disqualification Act 1986 to limited liability partnerships (1)

The provisions of the 1985 Act specified in the first column of Part I of Schedule 2 to these Regulations shall apply to limited liability partnerships, except where the context otherwise requires, with the following modifications– (a) references to a company shall include references to a limited liability partnership; (b) […]2 (c) references to the Insolvency Act 1986 shall include references to that Act as it applies to limited liability partnerships by virtue of Part  IV of these Regulations; [(d) references in a provision of the 1985 Act to– (i) other provisions of that Act, or (ii) provisions of the Companies Act 2006, shall include references to those provisions as they apply to limited liability partnerships;]1

1052

Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H (e) […]2 (f) […]2 (g) references to a director of a company or to an officer of a company shall include references to a member of a limited liability partnership; (h) the modifications, if any, specified in the second column of Part  I of Schedule 2 opposite the provision specified in the first column; and (i) such further modifications as the context requires for the purpose of giving effect to that legislation as applied by these Regulations. (2) The provisions of the Company Director Disqualification Act 1986 shall apply to limited liability partnerships, except where the context otherwise requires, with the following modifications– (a) references to a company shall include references to a limited liability partnership; (b) references to the Companies Acts shall include references to the principal Act and regulations made thereunder and references to the companies legislation shall include references to the principal Act, regulations made thereunder and to any enactment applied by regulations to limited liability partnerships; (d) references to the Insolvency Act 1986 shall include references to that Act as it applies to limited liability partnerships by virtue of Part  IV of these Regulations; (e) […]3 (f) references to a shadow director shall include references to a shadow member; (g) references to a director of a company or to an officer of a company shall include references to a member of a limited liability partnership; (h) the modifications, if any, specified in the second column of Part  II of Schedule 2 opposite the provision specified in the first column; and (i) such further modifications as the context requires for the purpose of giving effect to that legislation as applied by these Regulations. 1 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (3)(a), (b)(ii) (1 October 2009: substitution has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1). 2 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (3)(b)(i) (1 October 2009: repeal has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1). 3 Repealed by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI 2009/1941, art 2(1), Sch 1, para 192(1), (2) (1 October 2009).

PART IV WINDING UP AND INSOLVENCY 5  Application of the 1986 Act to limited liability partnerships (1)

Subject to paragraphs (2) and (3), the following provisions of the 1986 Act, shall apply to limited liability partnerships– (a) Parts  I, II, III, IV, VI and VII of the First Group of Parts (company insolvency; companies winding up), (b) the Third Group of Parts (miscellaneous matters bearing on both company and individual insolvency; general interpretation; final provisions).

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Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) (2)

The provisions of the 1986 Act referred to in paragraph (1) shall apply to limited liability partnerships, except where the context otherwise requires, with the following modifications– (a) references to a company shall include references to a limited liability partnership; (b) references to a director or to an officer of a company shall include references to a member of a limited liability partnership; (c) references to a shadow director shall include references to a shadow member; (d) references to [the Companies Acts]1, the Company Directors Disqualification Act 1986, the Companies Act 1989 or to any provisions of those Acts or to any provisions of the 1986 Act shall include references to those Acts or provisions as they apply to limited liability partnerships by virtue of the principal Act; (e) references […]2 to the articles of association of a company shall include references to the limited liability partnership agreement of a limited liability partnership; (f) the modifications set out in Schedule 3 to these Regulations; and (g) such further modifications as the context requires for the purpose of giving effect to that legislation as applied by these Regulations.

(3)

In the application of this regulation to Scotland, the provisions of the 1986 Act referred to in paragraph (1) shall not include the provisions listed in Schedule 4 to the extent specified in that Schedule.

1 Substituted by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI  2009/1941, art  2(1), Sch  1, para  192(1), (3)(a) (1  October 2009). 2 Repealed by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI  2009/1941, art  2(1), Sch  1, para  192(1), (3)(b) (1  October 2009).

PART V FINANCIAL SERVICES AND MARKETS

6  Application of provisions contained in Parts XV and XXIV of the 2000 Act to limited liability partnerships (1) Subject to paragraph  (2), sections  215(3), (4) and (6), 356, 359(1) to (4), 361 to 365, 367, 370 and 371 of the 2000 Act shall apply to limited liability partnerships. (2)

The provisions of the 2000 Act referred to in paragraph (1) shall apply to limited liability partnerships, except where the context otherwise requires, with the following modifications– (a) references to a company shall include references to a limited liability partnership; (b) references to body shall include references to a limited liability partnership; and (c) references to the 1985 Act, the 1986 Act or to any of the provisions of those Acts shall include references to those Acts or provisions as they apply to limited liability partnerships by virtue of the principal Act.

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Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H PART VI DEFAULT PROVISION

7  Default provision for limited liability partnerships The mutual rights and duties of the members and the mutual rights and duties of the limited liability partnership and the members shall be determined, subject to the provisions of the general law and to the terms of any limited liability partnership agreement, by the following rules: (1)

All the members of a limited liability partnership are entitled to share equally in the capital and profits of the limited liability partnership.

(2) The limited liability partnership must indemnify each member in respect of payments made and personal liabilities incurred by him– (a)

in the ordinary and proper conduct of the business of the limited liability partnership; or (b) in or about anything necessarily done for the preservation of the business or property of the limited liability partnership. (3)

Every member may take part in the management of the limited liability partnership.

(4) No member shall be entitled to remuneration for acting in the business or management of the limited liability partnership. (5)

No person may be introduced as a member or voluntarily assign an interest in a limited liability partnership without the consent of all existing members.

(6) Any difference arising as to ordinary matters connected with the business of the limited liability partnership may be decided by a majority of the members, but no change may be made in the nature of the business of the limited liability partnership without the consent of all the members. (7) The books and records of the limited liability partnership are to be made available for inspection at the registered office of the limited liability partnership or at such other place as the members think fit and every member of the limited liability partnership may when he thinks fit have access to and inspect and copy any of them. (8)

Each member shall render true accounts and full information of all things affecting the limited liability partnership to any member or his legal representatives.

(9) If a member, without the consent of the limited liability partnership, carries on any business of the same nature as and competing with the limited liability partnership, he must account for and pay over to the limited liability partnership all profits made by him in that business. (10) Every member must account to the limited liability partnership for any benefit derived by him without the consent of the limited liability partnership from any transaction concerning the limited liability partnership, or from any use by him of the property of the limited liability partnership, name or business connection.

8 Expulsion No majority of the members can expel any member unless a power to do so has been conferred by express agreement between the members.

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Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) PART VII MISCELLANEOUS

9  General and consequential amendments (1) Subject to paragraph  (2), the enactments mentioned in Schedule  5 shall have effect subject to the amendments specified in that Schedule. (2)

In the application of this regulation to Scotland– (a) paragraph 15 of Schedule 5 which amends section 110 of the 1986 Act shall not extend to Scotland; and (b) paragraph 22 of Schedule 5 which applies to limited liability partnerships the culpable officer provisions in existing primary legislation shall not extend to Scotland insofar as it relates to matters which have not been reserved by Schedule 5 to the Scotland Act 1998.

10  Application of subordinate legislation (1) The subordinate legislation specified in Schedule 6 shall apply as from time to time in force to limited liability partnerships and– (a)

in the case of the subordinate legislation listed in Part I of that Schedule with such modifications as the context requires for the purpose of giving effect to the provisions of the Companies Act 1985 which are applied by these Regulations; (b) in the case of the subordinate legislation listed in Part II of that Schedule with such modifications as the context requires for the purpose of giving effect to the provisions of the Insolvency Act 1986 which are applied by these Regulations; and (c) in the case of the subordinate legislation listed in Part III of that Schedule with such modifications as the context requires for the purpose of giving effect to the provisions of […]1 the Company Directors Disqualification Act 1986 which are applied by these Regulations. (2) In the case of any conflict between any provision of the subordinate legislation applied by paragraph  (1) and any provision of these Regulations, the latter shall prevail. 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  13(1), (4) (1  October 2009: repeal has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1).

[…]1

SCHEDULE 1 […]1

1 Repealed by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 58(1)(a) (1 October 2008: repeal has effect subject to transitional provision specified in s 58(3)).

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Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H SCHEDULE 2 Part I Modifications to provisions of the 1985 Act applied to limited liability partnerships

Provisions

Modifications

[…]

1

[…]2 […]1 […]2 Investigation of companies and their affairs: Requisition of documents 431 (investigation of a company on its own application or that of its members)

For subsection (2) substitute the following: ‘(2) The appointment may be made on the application of the limited liability partnership or on the application of not less than onefifth in number of those who appear from notifications made to the registrar of companies to be currently members of the limited liability partnership.’

432 (other company investigations) subsection (4)

For the words ‘but to whom shares in the company have been transferred or transmitted by operation of law’ substitute ‘but to whom a member’s share in the limited liability partnership has been transferred or transmitted by operation of law.’

433 (inspectors’ powers during investigation) 434 (production of documents and evidence to inspectors) 436 (obstruction of inspectors treated as contempt of court) 437 (inspectors’ reports) […]1 439 (expenses of investigating a company’s affairs) subsection (5)

Omit paragraph (b) together with the word ‘or’ at the end of paragraph (a).

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Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Provisions

Modifications

441 (inspectors’ report to be evidence) [section 446A (general powers to give directions)]3 [section 446B (direction to terminate investigation)]3 [section 446C (resignation and revocation of appointment)]3 [section 446D (appointment of replacement inspectors)]3 [section 446E (obtaining information from former inspectors etc)]3 447 (Secretary of State’s power to require production of documents) [447A (information provided: evidence)]4 448 (entry and search of premises) [448A (protection in relation to certain disclosures: information provided to Secretary of State)]4 449 (provision for security of information obtained) 450 (punishment for destroying, mutilating etc. company documents)

[Omit subsection (1A).]5

451 (punishment for furnishing false information) 451A (disclosure of information by Secretary of State or inspector)

[In subsection (1), for the words ‘sections 434 to 446E’ substitute ‘sections 434 to 441 and 446E’.]6 Omit subsection (5).

452 (privileged information)

[In subsection (1), for the words ‘sections 431 to 446E’ substitute ‘sections 431 to 441 and 446E’.]6 In subsection (1A), for the words ‘sections 434, 443 or 446’ substitute ‘section 434’.

[453A (power to enter and remain on premises)]4

[In subsection (7), for the words ‘section 431, 432 or 442’ substitute ‘section 431 or 432.’]4

[453B (power to enter and remain on premises: procedural)]4

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Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H Provisions

Modifications

[453C (failure to comply with certain requirements)]4 […]1 Floating charges and Receivers (Scotland) 464 (ranking of floating charges)

In subsection (1), for the words ‘section 462’ substitute ‘the law of Scotland’.

466 (alteration of floating charges)

Omit subsections (1), (2), (3) and (6).

486 (interpretation for Part XVIII generally)

For the current definition of ‘company’ substitute ‘“company” means a limited liability partnership;’ Omit the definition of ‘Register of Sasines’.

487 (extent of Part XVIII) […]1 […]2 […]1 [Schedule 15C (security of information obtained: specified persons)]4 [Schedule 15D (security of information obtained: specified disclosures)]4

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Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Provisions

Modifications

Schedule 24 (Punishment of offences under this Act)

Delete the references to those sections which are not applied to limited liability partnerships including, in particular, the following sections: […]1 Section 444(3) failing to give Secretary of State, when required to do so, information about interests in shares etc.; giving false information; […]1 Schedule 14, Pt II, paragraph 1(3) company failing to give notice of location of overseas branch register, etc.; Schedule 14, Pt II, paragraph 4(2) company failing to transmit to its registered office in Great Britain copies of entries in overseas branch register or to keep duplicate of overseas branch register.; […]1

1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (5)(a), (b) (1 October 2009; repeal has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1). 2 Repealed by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 58(1)(b) (1 October 2008: repeals have effect subject to transitional provision specified in s 58(3)). 3 Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (5)(c) (1 October 2009: insertion has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1). 4 Inserted by the Limited Liability Partnerships (Amendment) Regulations 2007, SI 2007/2073, regs 2, 3 (1 October 2007). 5 Substituted by the Financial Services and Markets Act 2000 (Consequential Amendments) Order 2004, SI 2004/355, art 9(1), (2) (4 March 2004). 6 Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  13(1), (5)(d), (e) (1  October 2009: substitution has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1).

[…]1

Part II […]1

1 Repealed by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg 2, Sch 1, paras 4, 5 (8 December 2017).

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Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H SCHEDULE 3 MODIFICATIONS TO THE 1986 ACT

Provisions

Modifications

Section 1 (those who may propose an arrangement) subsection (1)

For ‘The directors of a company’ substitute ‘A limited liability partnership’ and delete ‘to the company and’.

subsection (3)

At the end add ‘but where a proposal is so made it must also be made to the limited liability partnership’.

[Section 1A (moratorium)]1 [subsection (1)

For ‘the directors of an eligible company intend’ substitute ‘an eligible limited liability partnership intends’.]1 [For ‘they’ substitute ‘it’.]1

The following modifications to sections 2 to 7 apply where a proposal under section 1 has been made by the limited liability partnership. Section 2 (procedure where the nominee is not the liquidator or administrator) [subsection (1)

For ‘the directors do’ substitute ‘the limited liability partnership does’.]1

[subsection (2)

In paragraph (b) omit ‘a meeting of the company and by’;]2 [Omit paragraph (c).]2

subsection (3)

For ‘the person intending to make the proposal’ substitute ‘the designated members of the limited liability partnership’.

subsection (4)

[In paragraph (a)]1 for ‘the person intending to make the proposal’ substitute ‘the designated members of the limited liability partnership’. [In paragraph (b) for ‘that person’ substitute ‘those designated members’.]1

Section 3 (summoning of meetings)

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Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Provisions

Modifications

[subsection (1)

For subsection (1) substitute– ‘(1) Where the nominee under section 1 is not the liquidator or administrator, and it has been reported to the court under section 2(2) that the proposal should be considered by the creditors of the limited liability partnership, the person making the report shall (unless the court otherwise directs) seek a decision from the creditors of the limited liability partnership as to whether they approve the proposal.’.]2

[subsection (2)

Omit paragraph (a).]2

Section 4 (decisions of meetings) [subsection (1)

Omit paragraph (a).]2

[subsection (1A)

For ‘The company and its creditors’ substitute ‘The creditors of the limited liability partnership’.]3

[subsection (3)

For ‘Neither the company nor its creditors’ substitute ‘The creditors of the limited liability partnership may not’.]3

[subsection (4)

For ‘Neither the company nor its creditors’ substitute ‘The creditors of the limited liability partnership may not’.]3

[subsection (5)

Omit ‘the meeting of the company and’.]2

[new subsection (5A)

Insert a new subsection (5A) as follows– ‘(5A) If modifications to the proposal are proposed by creditors, the nominee under section 1(2) must, before the date on which the creditors are to be asked whether to approve the proposed voluntary arrangement, ascertain from the limited liability partnership whether or not it agrees to the proposed modifications; and if at that date the limited liability partnership has failed to respond to a proposed modification, it shall be presumed not to have agreed to it.’]2

[subsection (6)

Omit.]2

[subsection (6A)

In paragraph (a) after ‘creditors’ decision’ insert ‘(including, where modifications to the proposal were proposed, the response of the limited liability partnership)’.]3

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Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H Provisions

Modifications [In paragraph (b) after ‘be prescribed’ insert ‘and to the limited liability partnership’.]3

[Section 4A (approval of arrangement)]1 [[subsection (2)

In paragraph (a) for ‘meeting of the company summoned under (section 3) and by the company’s creditors pursuant to that section, or’, substitute ‘the creditors of the limited liability partnership pursuant to (section 3)’;]2]1 [[Omit paragraph (b).]2]1

[subsection (3)

Omit.]1

[subsection (4)

Omit.]1

[subsection (5)

Omit.]1

[subsection (5A)

Omit.]3

[subsection (6)

Omit.]1

Section 5 (effect of approval) […]4 [subsection (4)

In paragraph (a) for ‘each of the reports required by (section 4(6) and (6A))’ substitute ‘the report required by (section 4(6A))’.]2

Section 6 (challenge of decisions) [subsection (1)

In paragraph (b) omit ‘the meeting of the company, or in relation to’.]2

[subsection (2)

In paragraph (a) omit ‘at the meeting of the company or’.]2 [After paragraph (aa) insert a new paragraph as follows– ‘(ab) any member of the limited liability partnership; and’.]2 [Omit the word ‘and’ at the end of paragraph (b).]2 [Omit paragraph (c).]2

[subsection (3)

In paragraph (a) for ‘each for the reports required by (section 4(6) and (6A))’ substitute ‘the report required by (section 4(6A))’.]2

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Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Provisions

Modifications

[subsection (4)

For subsection (4) substitute the following– ‘(4) Where on such an application the court is satisfied as to either of the grounds mentioned in subsection (1), it may do one or both of the following, namely– (a) revoke or suspend any decision approving the voluntary arrangement which has effect under section 4A or, in a case falling within subsection (1)(b) any decision taken in the relevant qualifying decision procedure which has effect under that section; (b) direct any person– (i) to seek a decision from the creditors of the limited liability partnership, using a qualifying decision procedure, as to whether they approve any revised proposal the person who made the original proposal may make; or (ii) in a case falling within subsection (1)(b) and relating to the relevant qualifying decision procedure, to seek a decision from the creditors of the limited liability partnership, using a qualifying decision procedure, as to whether they approve the original proposal.’.]2

[subsection (5)

Omit ‘or (c)’.]2

[subsection (7)

Omit paragraph (a)’.]3

[Section 6A (false representations, etc)]1 [subsection (1)

Omit ‘members or’]1

Section 7 (implementation of proposal) […]4 [[subsection (2)

In paragraph (a) for ‘company or its creditors (or both)’ substitute ‘creditors of the limited liability partnership’.]2]1

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Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H Provisions

Modifications

The following modifications to sections 2 and 3 apply where a proposal under section 1 has been made, where [the limited liability partnership is in administration]5, by the administrator or, where the limited liability partnership is being wound up, by the liquidator. Section 2 (procedure where the nominee is not the liquidator or administrator) [subsection (2)

In paragraph (b) for ‘the company’ substitute ‘members of the limited liability partnership’.]2

Section 3 (summoning of meetings) [subsection (2)

For ‘the company’ substitute ‘members of the limited liability partnership’.]2

[…]4 […]6 Section 74 (liability as contributories of present and past members) For section 74 there shall be substituted the following–

‘74. When a limited liability partnership is wound up every present and past member of the limited liability partnership who has agreed with the other members or with the limited liability partnership that he will, in circumstances which have arisen, be liable to contribute to the assets of the limited liability partnership in the event that the limited liability partnership goes into liquidation is liable, to the extent that he has so agreed, to contribute to its assets to any amount sufficient for payment of its debts and liabilities, and the expenses of the winding up, and for the adjustment of the rights of the contributories among themselves. However, a past member shall only be liable if the obligation arising from such agreement survived his ceasing to be a member of the limited liability partnership.’

Section 75 to 78

Delete sections 75 to 78.

Section 79 (meaning of ‘contributory’)

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Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Provisions

Modifications

subsection (1)

In subsection (1) for ‘every person’ substitute ‘(a) every present member of the limited liability partnership and (b) every past member of the limited liability partnership’.

subsection (2)

After ‘section 214 (wrongful trading)’ insert ‘or 214A (adjustment of withdrawals)’.

subsection (3)

Delete subsection (3).

Section 83 (companies registered under Companies Act, Part XXII, Chapter II)

Delete Section 83.

Section 84 (circumstances in which company may be wound up voluntarily) subsection (1)

For subsection (1) substitute the following– ‘(1) A limited liability partnership may be wound up voluntarily when it determines that it is to be wound up voluntarily.’

subsection (2)

Omit subsection (2).

[subsection (2A)

For ‘company passes a resolution for voluntary winding up’ substitute ‘limited liability partnership determines that it is to be wound up voluntarily’ and for ‘resolution’ where it appears for the second time substitute ‘determination’.]1

[subsection (2B)

For ‘resolution for voluntary winding up may be passed only’ substitute ‘determination to wind up voluntarily may only be made’ and in sub-paragraph (b), for ‘passing of the resolution’ substitute ‘making of the determination’.]1

subsection (3)

For subsection (3) substitute the following– ‘(3) Within 15 days after a limited liability partnership has determined that it be wound up there shall be forwarded to the registrar of companies either a printed copy or else a copy in some other form approved by the registrar of the determination.’

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Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H Provisions

Modifications

subsection [(5)]

5

After subsection [(4)]5 insert a new subsection [(5)]5– ‘[(5)]5 If a limited liability partnership fails to comply with this regulation the limited liability partnership and every designated member of it who is in default is liable on summary conviction to a fine not exceeding level 3 on the standard scale.’

Section 85 (notice of resolution to wind up) subsection (1)

For subsection (1) substitute the following– ‘(1) When a limited liability partnership has determined that it shall be would up voluntarily, it shall within 14 days after the making of the determination give notice of the determination by advertisement in the Gazette.’

Section 86 (commencement of winding up)

Substitute the following new section– ‘86. A voluntary winding up is deemed to commence at the time when the limited liability partnership determines that it be wound up voluntarily.’.

Section 87 (effect on business and status of company) subsection (2)

In subsection (2), for ‘articles’ substitute ‘limited liability partnership agreement’.

Section 88 (avoidance of share transfers, etc. after windingup resolution)

For ‘shares’ substitute ‘the interest of any member in the property of the limited liability partnership’.

Section 89 (statutory declaration of solvency)

For ‘director(s)’ wherever it appears in section 89 substitute ‘designated member(s)’;

subsection (2)

For paragraph (a) substitute the following– ‘(a) it is made within the 5 weeks immediately preceding the date when the limited liability partnership determined that it be wound up voluntarily or on that date but before the making of the determination, and’.

subsection (3)

For ‘the resolution for winding up is passed’ substitute ‘the limited liability partnership determined that it be wound up voluntarily’.

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Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Provisions

Modifications

subsection (5)

For ‘in pursuance of a resolution passed’ substitute ‘voluntarily’.

Section 90 (distinction between ‘members’ and ‘creditors’ voluntary winding up)

For ‘directors’ substitute ‘designated members’.

Section 91 (appointment of liquidator) subsection (1)

Delete ‘in general meeting’.

subsection (2)

For the existing wording substitute ‘(2) On the appointment of a liquidator the powers of the members of the limited liability partnership shall cease except to the extent that a meeting of the members of the limited liability partnership summoned for the purpose or the liquidator sanctions their continuance.’ After subsection (2) insert– ‘(3) Subsections (3) and (4) of section 92 shall apply for the purposes of this section as they apply for the purposes of that section.’

Section 92 (power to fill vacancy in office of liquidator) subsection (1)

For ‘the company in general meeting’ substitute ‘a meeting of the members of the limited liability partnership summoned for the purpose’.

subsection (2)

For ‘a general meeting’ substitute ‘a meeting of the members of the limited liability partnership’.

subsection (3)

In subsection (3), for ‘articles’ substitute ‘limited liability partnership agreement’.

new subsection (4)

Add a new subsection (4) as follows– ‘(4) The quorum required for a meeting of the members of the limited liability partnership shall be any quorum required by the limited liability partnership agreement for meetings of the members of the limited liability partnership and if no requirement for a quorum has been agreed upon the quorum shall be 2 members.’

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Modifications

Section 93 (general company meeting at each year’s end) subsection (1)

For ‘a general meeting of the company’ substitute ‘a meeting of the members of the limited liability partnership’.

new subsection (4)

Add a new subsection (4) as follows– ‘(4) subsections (3) and (4) of section 92 shall apply for the purposes of this section as they apply for the purposes of that section.’

[…]6 Section 95 (effect of company’s insolvency) subsection (1)

For ‘directors’’ substitute ‘designated members’’.

[…]6 Section 96 (conversion to creditors’ voluntary winding up) [subsection (2)

For ‘directors’ substitute ‘designated members’.]2

[…]6 […]6 Section 99 (directors to lay statement of affairs before creditors) [subsection (1)

For ‘directors of the company’ substitute ‘designated members’.]2

[subsection (2A)

For ‘directors’ substitute ‘designated members’.]2

[subsection (3)

For ‘directors’ substitute ‘designated members’.]2

Section 100 (appointment of liquidator) [subsection (1)

For subsection (1) substitute the following– ‘(1) The members of the limited liability partnership may nominate a person to be liquidator at the meeting at which the resolution for voluntary winding up is passed.’]2

[subsection (1B)

For ‘directors of the company’ substitute ‘designated members’.]3

subsection (3)

Delete ‘director,’.

Section 101 (appointment of liquidation committee)

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Modifications

subsection (2)

For subsection (2) substitute the following– ‘(2) If such a committee is appointed, the limited liability partnership may, when it determines that it be wound up voluntarily or at any time thereafter, appoint such number of persons as they think fit to act as members of the committee, not exceeding 5.’

Section 105 (meetings of company and creditors at each year’s end) subsection (1)

For ‘a general meeting of the company’ substitute ‘a meeting of the members of the limited liability partnership’.

new subsection (5)

Add a new subsection (5) as follows– ‘(5) Subsections (3) and (4) of section 92 shall apply for the purposes of this section as they apply for the purposes of that section.’

Section 106 (final meeting prior to dissolution) […]6 new subsection (5A)

After subsection (5) insert a new subsection (5A) as follows– ‘(5A) Subsections (3) and (4) of section 92 shall apply for the purposes of this section as they apply for the purposes of that section.’

subsection (6)

For ‘a general meeting of the company’ substitute ‘a meeting of the members of the limited liability partnership’.

Section 110 (acceptance of shares, etc., as consideration for sale of company property)

For the existing section substitute the following: ‘(1) This section applies, in the case of a limited liability partnership proposed to be, or being, wound up voluntarily, where the whole or part of the limited liability partnership’s business or property is proposed to be transferred or sold to another company whether or not it is a company within the meaning of the Companies Act (‘the transferee company’) or to a limited liability partnership (‘the transferee limited liability partnership’).

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Modifications (2)

With the requisite sanction, the liquidator of the limited liability partnership being, or proposed to be, wound up (‘the transferor limited liability partnership’) may receive, in compensation or part compensation for the transfer or sale, shares, policies or other like interests in the transferee company or the transferee limited liability partnership for distribution among the members of the transferor limited liability partnership.

(3)

The sanction required under subsection (2) is– (a)

(b)

in the case of a members’ voluntary winding up, that of a determination of the limited liability partnership at a meeting of the members of the limited liability partnership conferring either a general authority on the liquidator or an authority in respect of any particular arrangement, (subsections (3) and (4) of section 92 to apply for this purpose as they apply for the purposes of that section), and in the case of a creditor’s voluntary winding up, that of either court or the liquidation committee.

(4)

Alternatively to subsection (2), the liquidator may (with the sanction) enter into any other arrangement whereby the members of the transferor limited liability partnership may, in lieu of receiving cash, shares, policies or other like interests (or in addition thereto), participate in the profits, or receive any other benefit from the transferee company or the transferee limited liability partnership.

(5)

A sale or arrangement in pursuance of this section is binding on members of the transferor limited liability partnership.

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Modifications (6)

A determination by the limited liability partnership is not invalid for the purposes of this section by reason that it is made before or concurrently with a determination by the limited liability partnership that it be wound up voluntarily or for appointing liquidators; but, if an order is made within a year for winding up the limited liability partnership by the court, the determination by the limited liability partnership is not valid unless sanctioned by the court.’

Section 111 (dissent from arrangement under section 110) subsections (1) (3)

For subsections (1)–(3) substitute the following– ‘(1) This section applies in the case of a voluntary winding up where, for the purposes of section 110(2) or (4), a determination of the limited liability partnership has provided the sanction requisite for the liquidator under that section.

subsection (4)

(2)

If a member of the transferor limited liability partnership who did not vote in favour of providing the sanction required for the liquidator under section 110 expresses his dissent from it in writing addressed to the liquidator and left at the registered office of the limited liability partnership within 7 days after the date on which that sanction was given, he may require the liquidator either to abstain from carrying the arrangement so sanctioned into effect or to purchase his interest at a price to be determined by agreement or arbitration under this section.

(3)

If the liquidator elects to purchase the member’s interest, the purchase money must be paid before the limited liability partnership is dissolved and be raised by the liquidator in such manner as may be determined by the limited liability partnership.’

Omit subsection (4).

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Modifications

Section 117 (high court and county court jurisdiction) subsection (2)

Delete ‘Where the amount of a company’s share capital paid up or credited as paid up does not exceed £120,000, then (subject to this section)’.

subsection (3)

Delete subsection (3).

Section 120 (court of session and sheriff court jurisdiction) subsection (3)

Delete ‘Where the amount of a company’s share capital paid up or credited as paid up does not exceed £120,000,’.

subsection (5)

Delete subsection (5).

Section 122 (circumstances in which company may be wound up by the court) subsection (1)

For subsection (1) substitute the following– ‘(1) A limited liability partnership may be wound up by the court if– (a)

the limited liability partnership has determined that the limited liability partnership be wound up by the court, (b) the limited liability partnership does not commence its business within a year from its incorporation or suspends its business for a whole year, (c) the number of members is reduced below two, (d) the limited liability partnership is unable to pay its debts, […]4 [(da) at the time at which a moratorium for the limited liability partnership under section 1A comes to an end, no voluntary arrangement approved under Part I has effect in relation to the limited liability partnership,]1 (e) the court is of the opinion that it is just and equitable that the limited liability partnership should be wound up.’]4, 5 Section 124 (application for winding up)

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Modifications

subsections (2), (3) and (4)(a)

Delete these subsections.

[subsection (3A)

For ‘122(1)(fa)’ substitute ‘122(1)(da)’.]1

Section 124A (petition for windingup on grounds of public interest) subsection (1)

[Omit paragraphs (b) and (bb).]7

Section 126 (power to stay or restrain proceedings against company) subsection (2)

Delete subsection (2).

Section 127 (avoidance of property dispositions, etc.) [subsection (1)]1

For ‘any transfer of shares’ substitute ‘any transfer by a member of the limited liability partnership of his interest in the property of the limited liability partnership’.

Section 129 (commencement of winding up by the court) subsection (1)

For ‘a resolution has been passed by the company’ substitute ‘a determination has been made’ and for ‘at the time of the passing of the resolution’ substitute ‘at the time of that determination’.

Section 130 (consequences of winding-up order) subsection (3)

Delete subsection (3).

Section 148 (settlement of list of contributories and application of assets) subsection (1)

Delete ‘, with power to rectify the register of members in all cases where rectification is required in pursuance of the Companies Act or this Act,’.

Section 149 (debts due from contributory to company) subsection (1)

Delete ‘the Companies Act or’.

subsection (2)

Delete subsection (2).

subsection (3)

Delete ‘, whether limited or unlimited,’.

Section 160 (delegation of powers to liquidator (England and Wales)) subsection (1)

In subsection (1)(b) delete ‘and the rectifying of the register of members’.

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Modifications

subsection (2)

For subsection (2) substitute the following– ‘(2) But the liquidator shall not make any call without the special leave of the court or the sanction of the liquidation committee.’

Section 165 (voluntary winding up) […]6 subsection (4)

For paragraph (c) substitute the following– ‘(c) summon meetings of the members of the limited liability partnership for the purpose of obtaining their sanction or for any other purpose he may think fit.’

new subsection (4A)

Insert a new subsection (4A) as follows– ‘(4A) Subsections (3) and (4) of section 92 shall apply for the purposes of this section as they apply for the purposes of that section.’

Section 166 (creditors’ voluntary winding up) [subsection (5)

For ‘directors’ substitute ‘designated members’.]2

Section 171 (removal, etc. (voluntary winding up)) subsection (2)

For paragraph (a) substitute the following– ‘(a) in the case of a members’ voluntary winding up, by a meeting of the members of the limited liability partnership summoned specially for that purpose, or’

[new subsection (8)

Insert a new subsection (8) as follows– ‘(8) Subsections (3) and (4) of section 92 are to apply for the purposes of this section as they apply for the purposes of that section.’]2

Section 173 (release (voluntary winding up)) [subsection (2)

In paragraph (a)(i) for ‘a general meeting of the company’ substitute ‘a meeting of the members of the limited liability partnership’.]2

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Modifications

Section 183 (effect of execution or attachment (England and Wales)) subsection (2)

Delete paragraph (a).

Section 184 (duties of sheriff (England and Wales)) subsection (1)

For ‘a resolution for voluntary winding up has been passed’ substitute ‘the limited liability partnership has determined that it be wound up voluntarily’.

subsection (4)

Delete ‘or of a meeting having been called at which there is to be proposed a resolution for voluntary winding up,’ and ‘or a resolution is passed (as the case may be)’.

Section 187 (power to make over assets to employees)

Delete section 187.

[…]6 Section 195 (meetings to ascertain wishes of creditors or contributories) subsection (3)

Delete ‘the Companies Act or’.

Section 206 (fraud, etc. in anticipation of winding up) subsection (1)

For ‘passes a resolution for voluntary winding up’ substitute ‘makes a determination that it be wound up voluntarily’.

Section 207 (transactions in fraud of creditors) subsection (1)

For ‘passes a resolution for voluntary winding up’ substitute ‘makes a determination that it be wound up voluntarily’.

Section 210 (material omissions from statement relating to company’s affairs) subsection (2)

For ‘passes a resolution for voluntary winding up’ substitute ‘made a determination that it be wound up voluntarily’.

Section 214 (wrongful trading) subsection (2)

Delete from ‘but the court shall not’ to the end of the subsection.

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Modifications

After section 214

Insert the following new section 214A ‘214A Adjustment of withdrawals (1)

This section has effect in relation to a person who is or has been a member of a limited liability partnership where, in the course of the winding up of that limited liability partnership, it appears that subsection (2) of this section applies in relation to that person.

(2)

This subsection applies in relation to a person if– (a)

(b)

1077

within the period of two years ending with the commencement of the winding up, he was a member of the limited liability partnership who withdrew property of the limited liability partnership, whether in the form of a share of profits, salary, repayment of or payment of interest on a loan to the limited liability partnership or any other withdrawal of property, and it is proved by the liquidator to the satisfaction of the court that at the time of the withdrawal he knew or had reasonable ground for believing that the limited liability partnership– (i) was at the time of the withdrawal unable to pay its debts within the meaning of section 123, or (ii) would become so unable to pay its debts after the assets of the limited liability partnership had been depleted by that withdrawal taken together with all other withdrawals (if any) made by any members contemporaneously with that withdrawal or in contemplation when that withdrawal was made.

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Provisions

Modifications (3)

(4)

(5)

(6)

(a)

(b) (7)

(8) (9)

Where this section has effect in relation to any person the court, on the application of the liquidator, may declare that that person is to be liable to make such contribution (if any) to the limited liability partnership’s assets as the court thinks proper. The court shall not make a declaration in relation to any person the amount of which exceeds the aggregate of the amounts or values of all the withdrawals referred to in subsection (2) made by that person within the period of two years referred to in that subsection. The court shall not make a declaration under this section with respect to any person unless that person knew or ought to have concluded that after each withdrawal referred to in subsection (2) there was no reasonable prospect that the limited liability partnership would avoid going into insolvent liquidation. For the purposes of subsection (5) the facts which a member ought to know or ascertain and the conclusions which he ought to reach are those which would be known, ascertained, or reached by a reasonably diligent person having both: the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that member in relation to the limited liability partnership, and the general knowledge, skill and experience that that member has. For the purposes of this section a limited liability partnership goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up. In this section ‘member’ includes a shadow member. This section is without prejudice to section 214.’

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Modifications

Section 215 (proceedings under ss 213, 214) subsection (1)

Omit the word ‘or’ between the words ‘213’ and ‘214’ and insert after ‘214’ or ‘214A’.

subsection (2)

For ‘either section’ substitute ‘any of those sections’.

subsection (4)

For ‘either section’ substitute ‘any of those sections’.

subsection (5)

For ‘Sections 213 and 214’ substitute ‘Sections 213, 214 or 214A’.

Section 218 (prosecution of delinquent officers and members of company) subsection (1)

For ‘officer, or any member, of the company’ substitute ‘member of the limited liability partnership’.

subsections (3), (4) and (6)

For ‘officer of the company, or any member of it,’ substitute ‘officer or member of the limited liability partnership’.

[…]4 Section 247 (‘insolvency’ and ‘go into liquidation’) subsection (2)

For ‘passes a resolution for voluntary winding up’ substitute ‘makes a determination that it be wound up voluntarily’ and for ‘passing such a resolution’ substitute ‘making such a determination’.

[subsection (3)

For ‘resolution for voluntary winding up’ substitute ‘determination to wind up voluntarily’.]1

Section 249 (‘connected with a company’)

For the existing words substitute ‘For the purposes of any provision in this Group of Parts, a person is connected with a company (including a limited liability partnership) if– (a)

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he is a director or shadow director of a company or an associate of such a director or shadow director (including a member or a shadow member of a limited liability partnership or an associate of such a member or shadow member); or

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Provisions

Modifications (b)

he is an associate of the company or of the limited liability partnership.’

Section 250 (‘member’ of a company)

Delete section 250.

Section 251 (expressions used generally)

Delete the word ‘and’ appearing after the definition of ‘the rules’ and insert the word ‘and’ after the definition of ‘shadow director’. After the definition of ‘shadow director’ insert the following– ‘“shadow member”, in relation to a limited liability partnership, means a person in accordance with whose directions or instructions the members of the limited liability partnership are accustomed to act (but so that a person is not deemed a shadow member by reason only that the members of the limited liability partnership act on advice given by him in a professional capacity);’.

Section 386 (categories of preferential debts) subsection (1)

In subsection (1), omit the words ‘or an individual’.

subsection (2)

In subsection (2), omit the words ‘or the individual’.

Section 387 (‘the relevant date’) subsection (3)

[In paragraph (ab) for ‘passed a resolution for voluntary winding up’ substitute ‘made a determination that it be wound up voluntarily’.]1 In paragraph (c) for ‘passing of the resolution for the winding up of the company’ substitute ‘making of the determination by the limited liability partnership that it be wound up voluntarily’.

subsection (5)

Omit subsection (5).

subsection (6)

Omit subsection (6).

Section 388 (meaning of ‘act as insolvency practitioner’) subsection (2)

Omit subsection (2).

subsection (3)

Omit subsection (3).

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Modifications

subsection (4)

Delete ‘“company” means a company within the meaning given by section 735(1) of the Companies Act or a company which may be wound up under Part V of this Act (unregistered companies);’ and delete ‘“interim trustee” and “permanent trustee” mean the same as the Bankruptcy (Scotland) Act 1985’.

Section 389 (acting without qualification an offence) subsection (1)

Omit the words ‘or an individual’.

[[…] ]

8 1

Section 402 (official petitioner)

Delete section 402.

Section 412 (individual insolvency rules (England and Wales))

Delete section 412.

Section 415 (Fees orders (individual insolvency proceedings in England and Wales))

Delete section 415.

Section 416 (monetary limits (companies winding up)) subsection (1)

In subsection (1), omit the words ‘section 117(2) (amount of company’s share capital determining whether county court has jurisdiction to wind it up);’ and the words ‘section 120(3) (the equivalent as respects sheriff court jurisdiction in Scotland),’.

subsection (3)

In subsection (3), omit the words ‘117(2), 120(3) or’.

Section 418 (monetary limits (bankruptcy))

Delete section 418.

Section 420 (insolvent partnerships)

Delete section 420.

Section 421 (insolvent estates of deceased persons)

Delete section 421.

Section 422 (recognised banks, etc.)

Delete section 422.

[Section 426A (disqualification from Parliament (England and Wales))

Omit]1

[Section 426B (devolution)

Omit.]1

[Section 426C (irrelevance of privilege)

Omit.]1

Section 427 (parliamentary disqualification)

Delete section 427.

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Modifications

Section 429 (disabilities on revocation or administration order against an individual)

Delete section 429.

Section 432 (offences by bodies corporate) subsection (2)

Delete ‘secretary or’.

Section 435 (meaning of ‘associate’) new subsection (3A)

Insert a new subsection (3A) as follows– ‘(3A) A member of a limited liability partnership is an associate of that limited liability partnership and of every other member of that limited liability partnership and of the husband or wife [or civil partner]9 or relative of every other member of that limited liability partnership.’.

subsection (11)

For subsection (11) there shall be substituted ‘(11) In this section ‘company’ includes any body corporate (whether incorporated in Great Britain or elsewhere); and references to directors and other officers of a company and to voting power at any general meeting of a company have effect with any necessary modifications.’

Section 436 (expressions used generally)

The following expressions and definitions shall be added to the section– ‘designated member’ has the same meaning as it has in the Limited Liability Partnerships Act 2000; ‘limited liability partnership’ means a limited liability partnership formed and registered under the Limited Liability Partnerships Act 2000; ‘limited liability partnership agreement’, in relation to a limited liability partnership, means any agreement, express or implied, made between the members of the limited liability partnership or between the limited liability partnership and the members of the limited liability partnership which determines the mutual rights and duties of the members, and their rights and duties in relation to the limited liability partnership.

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Modifications

Section 437 (transitional provisions, Delete section 437. and savings) Section 440 (extent (Scotland)) subsection (2)

In subsection (2), omit paragraph (b).

Section 441 (extent (Northern Ireland))

Delete section 441.

Section 442 (extent (other territories))

Delete section 442.

[Schedule A1]1 [Paragraph 6]1 [sub-paragraph (1)

For ‘directors of a company wish’ substitute ‘limited liability partnership wishes’. For ‘they’ substitute ‘the designated members of the limited liability partnership’.]1

[[sub-paragraph (2)

For ‘directors’ substitute ‘designated members of the limited liability partnership’.]2 [In sub-paragraph (c), for ‘company and by the company’s creditors’ substitute ‘creditors of the limited liability partnership’.]2]1

[Paragraph 7]1 [[sub-paragraph (1)

For ‘directors of a company’ substitute ‘designated members of the limited liability partnership’.]2 [In sub-paragraph (e)(iii), for ‘company and by the company’s creditors’ substitute ‘creditors of the limited liability partnership’.]2]1

[Paragraph 8]1 [[sub-paragraph (2)(a)

Omit.]2]1

[[sub-paragraph (3A)

Omit.]2]1

[sub-paragraph (4)(a)

Omit.]2]1

[sub-paragraph (6)(c)(i)

Omit.]2]1

[Paragraph 9]1 [sub-paragraph (1)

For ‘directors’ substitute ‘designated members of the limited liability partnership’.]1

[sub-paragraph (2)

For ‘directors’ substitute ‘designated members of the limited liability partnership’.]1

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Modifications

[Paragraph 12]

1

[sub-paragraph (1)(b)

Omit.]1

[sub-paragraph (1)(c)

For ‘resolution may be passed’ substitute ‘determination that it may be wound up may be made’.]1

[sub-paragraph (2)

For ‘transfer of shares’ substitute ‘any transfer by a member of the limited liability partnership of his interest in the property of the limited liability partnership’.]1

[Paragraph 20]1 [sub-paragraph (8)

For ‘directors’ substitute ‘designated members of the limited liability partnership’.]1

[sub-paragraph (9)

For ‘directors’ substitute ‘designated members of the limited liability partnership’.]1

[Paragraph 24]1 [sub-paragraph (2)

For ‘directors’ substitute ‘designated members of the limited liability partnership’.]1

[Paragraph 25]1 [sub-paragraph (2)(c)

For ‘directors’ substitute ‘designated members of the limited liability partnership’.]1

[Paragraph 26]1 [sub-paragraph (1)

Omit ‘, director’.]1

[Paragraph 29]1 [[sub-paragraph (1)(a)

Omit.]2]1

[Paragraph 30]1 [[sub-paragraph (1)

Omit ‘the company meeting summoned under (paragraph 29) and’.]2]1 [[For ‘that paragraph’ substitute ‘(paragraph 29)’.]2]1

[[new sub-paragraph (1A)

‘If modifications to the proposal are proposed by creditors, the nominee must, before the date on which the creditors are to be asked whether to approve the proposed voluntary arrangement, ascertain from the limited liability partnership whether or not it agrees to the proposed modifications; and if at that date the limited liability partnership has failed to respond to a proposed modification, it shall be presumed not to have agreed to it.’.]2]1

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Modifications

[sub-paragraph (2)

Omit.]3

[[…]6]1 [[sub-paragraph (3)

Omit.]2]1

[Paragraph 31]1 [[sub-paragraph (1)(a)

Omit.]2]1

[[sub-paragraph (1A)

For ‘The company and its creditors’ substitute ‘The creditors of the limited liability partnership’.]2]1

[[sub-paragraph (4)

For ‘Neither the company nor its creditors may’ substitute ‘The creditors of the limited liability partnership may not’.]2]1

[[sub-paragraph (5)

For ‘neither the company nor its creditors may’ substitute ‘the creditors of the limited liability partnership may not’.]2]1

[[sub-paragraph (7)

For sub-paragraph (7) substitute the following– ‘(7) The designated members of the limited liability partnership may, before the beginning of the relevant period, give notice to the nominee of any modifications of the proposal for which the designated members intend to seek the approval of the creditors.’.]2]1

[[sub-paragraph (7A)(a)

Omit.]2]1

[Paragraph 32]1 [[sub-paragraph (1)

Omit.]2]1

[[sub-paragraph (3)

Omit ‘the meeting of the company or (as the case may be) inform’.]2]1

[[sub-paragraph (4)

For sub-paragraph (4) substitute– ‘(4) Where, in accordance with subparagraph (3)(b) the nominee informs the creditors of the limited liability partnership, of the expected cost of his intended actions, the creditors by a qualifying decision procedure shall decide whether or not to approve that expected cost.’.]2]1

[[sub-paragraph (6)

For ‘A meeting of the company may resolve, and the creditors by a qualifying decision procedure may decide,’ substitute ‘The creditors by a qualifying decision procedure may decide’.]2]1

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Modifications

[Paragraph 35]

3

[sub-paragraph (1)

Omit ‘a meeting of the company resolves, or’.]3

[sub-paragraph (1A)

Omit ‘meeting may resolve, and the.]3 [Omit ‘by the meeting or (as the case may be)’.]3

[sub-paragraph (2)

Omit.]3

[Paragraph 36]1 [sub-paragraph (2)

For sub-paragraph (2) substitute– ‘(2) The decision has effect if, in accordance with the rules, it has been taken by the creditors’ meeting summoned under paragraph 29.’.]1

[sub-paragraph (3)

Omit.]1

[sub-paragraph (4)

Omit.]1

[sub-paragraph (5)

Omit.]1

[[…]6]1 [Paragraph 38]1 [[sub-paragraph (1)(b)

Omit ‘at or in relation to the meeting of the company summoned under (paragraph 29), or’.]2]1

[[sub-paragraph (2)(a)

Omit ‘at the meeting of the company or’.]2]1

[[sub-paragraph (3)(a)

For ‘30(3) and (4)’ substitute ‘30(4)’.]2]1

[[sub-paragraph (4)(a)(ii)

Omit ‘by the meeting of the company, or’.]2]1

[[sub-paragraph (4)(b)

Omit.]2]1

[[sub-paragraph (5)

Omit ‘(b)(i) or’.]2]1

[[sub-paragraph (6)

For ‘(4)(b) or (c)’ substitute ‘(4)(c)’.]2]1

[[sub-paragraph (7)(a)

Omit ‘(b) or’.]2]1

[[…]6]1 [Schedule B1]1 [Paragraph 2]1 [sub-paragraph (c)

For ‘company or its directors’ substitute ‘limited liability partnership’.]1

[Paragraph 8]1

1086

Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H Provisions

Modifications

[sub-paragraph (1)(a)

For ‘resolution for voluntary winding up’ substitute ‘determination to wind up voluntarily’.]1

[Paragraph 9

Omit.]1

[Paragraph 12]

1

[sub-paragraph (1)(b)

Omit.]1

[Paragraph 22

For sub-paragraph (1) substitute– ‘(1) A limited liability partnership may appoint an administrator.’. Omit sub-paragraph (2).]1

[Paragraph 23]1 [sub-paragraph (1)(b)

Omit ‘or its directors’.]1

[Paragraph 42]1 [sub-paragraph (2)

For ‘resolution may be passed for the winding up of’ substitute ‘determination to wind up voluntarily may be made by’.]1

[Paragraph 60A]3 [sub-paragraph (3)(b)

For ‘a company connected with the company’ substitute ‘a company or limited liability partnership connected with the limited liability partnership’.]3

[Paragraph 61

For paragraph 61 substitute– ‘61. The administrator has power to prevent any person from taking part in the management of the business of the limited liability partnership and to appoint any person to be a manager of that business.’.]1

[Paragraph 62

At the end add the following– Subsections (3) and (4) of section 92 shall apply for the purposes of this paragraph as they apply for the purposes of that section..]1

[Paragraph 83]1 [sub-paragraph (6)(b)

For ‘resolution for voluntary winding up’ substitute ‘determination to wind up voluntarily’.]1

1087

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Provisions

Modifications

[sub-paragraph (8)(b)

For ‘passing of the resolution for voluntary winding up’ substitute ‘determination to wind up voluntarily’.]1

[sub-paragraph (8)(e)

For ‘passing of the resolution for voluntary winding up’ substitute ‘determination to wind up voluntarily’.]1

[Paragraph 87]1 [sub-paragraph (2)(b)

Insert at the end ‘or’.]1

[sub-paragraph (2)(c)

Omit ‘, or’.]1

[sub-paragraph (2)(d)

Omit the words from ‘(d)’ to ‘company’.]1

[Paragraph 89]1 [sub-paragraph (2)(b)

Insert at the end ‘or’.]1

[sub-paragraph (2)(c)

Omit ‘, or’.]1

[sub-paragraph (2)(d)

Omit the words from ‘(d)’ to ‘company’.]1

[Paragraph 91]

1

[sub-paragraph (1)(c)

Omit.]1

[Paragraph 94

Omit.]1

[Paragraph 95

For ‘to 94’ substitute ‘and 93’.]1

[Paragraph 97]1 [sub-paragraph (1)(a)

Omit ‘or directors’.]1

[Paragraph 103]1 [sub-paragraph (5)

Omit.]1

[Paragraph 105

Omit.]1

Schedule 1 Paragraph 19

For paragraph 19 substitute the following– ‘19. Power to enforce any rights the limited liability partnership has against the members under the terms of the limited liability partnership agreement.’

Schedule 10 [Section 6A(1)

In the entry relating to section 6A omit ‘members’ or’.]1

Section 85(2)

In the entry relating to section 85(2) for ‘resolution for voluntary winding up’ substitute ‘making of determination for voluntary winding up’.

1088

Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H Provisions

Modifications

Section 89(4)

In the entry relating to section 89(4) for ‘Director’ substitute ‘Designated member’.

Section 93(3)

In the entry relating to section 93(3) for ‘general meeting of the company’ substitute ‘meeting of members of the limited liability partnership’.

Section 99(3)

In the entries relating to section 99(3) for ‘director’ and ‘directors’ where they appear substitute ‘designated member’ or ‘designated members’ as appropriate.

Section 105(3)

In the entry relating to section 105(3) for ‘company general meeting’ substitute ‘meeting of the members of the limited liability partnership’.

[…]6 Sections 353(1) to 362

Delete the entries relating to sections 353(1) to 362 inclusive.

Section 429(5)

Delete the entry relating to section 429(5).

[Schedule A1, paragraph 9(2)

For ‘Directors’ substitute ‘Designated Members’.]1

[Schedule A1, paragraph 20(9)

For ‘Directors’ substitute ‘Designated Members’.]1

[Schedule B1, paragraph 27(4)

Omit ‘or directors’.]1

[Schedule B1, paragraph 29(7)

Omit ‘or directors’.]1

[Schedule B1, paragraph 32

Omit ‘or directors’.]1

1 Inserted by the Limited Liability Partnerships (Amendment) Regulations 2005, SI 2005/1989, reg  3, Sch  2, paras 1, 2, 3(a)(i), (iii), (b), (e), (f)(ii), 5(a), 6, 7, 8, 10, 11, 12, 13, 14, 15 (1 October 2005: insertion has effect subject to transitional provisions specified in the Limited Liability Partnerships (Amendment) Regulations 2005, reg 4). 2 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg 2, Sch 1, paras 4, 6-9, 11-13, 15, 17, 18, 20, 21, 25, 28, 29, 33-35, 37-42, 45-47, 50 (8 December 2017). 3 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 6, 10, 14, 16, 19, 30, 37, 43, 48, 52, 53 (8 December 2017). 4 Repealed by the Limited Liability Partnerships (Amendment) Regulations 2005, SI 2005/1989, reg 3, Sch 2, paras 1, 3(c), (f)(i), 4, 6, 9 (1 October 2005: repeal has effect subject to transitional provisions specified in the Limited Liability Partnerships (Amendment) Regulations 2005, reg 4). 5 Substituted by the Limited Liability Partnerships (Amendment) Regulations 2005, SI  2005/1989, reg  3, Sch  2, paras 1, 3(g), 5(b) (1  October 2005: substitution has effect subject to transitional provisions specified in the Limited Liability Partnerships (Amendment) Regulations 2005, reg 4). 6 Repealed by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg 2, Sch 1, paras 4, 6, 22-24, 26, 27, 31, 32, 36, 37, 44, 49, 51, 54 (8 December 2017). 7 Substituted by the Financial Services and Markets Act 2000 (Consequential Amendments) Order 2004, SI 2004/355, art 10(1), (3) (4 March 2004).

1089

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) 8 Repealed by the Deregulation Act 2015 (Insolvency) (Consequential Amendments and Transitional and Savings Provisions) Order 2015, SI 2015/1641, art 4, Sch 1, para 3(1), (2) (1 October 2015). 9 Inserted by the Civil Partnership Act 2004 (Amendments to Subordinate Legislation) Order 2005, SI 2005/2114, art 2(18), Sch 18, Pt 1, para 3 (5 December 2005).

SCHEDULE 4 The provisions listed in this Schedule are not applied to Scotland to the extent specified below: Sections 50 to 52; Section  53(1) and (2), to the extent that those subsections do not relate to the requirement for a copy of the instrument and notice being forwarded to the registrar of companies; Section 53(4), (6) and (7); Section  54(1), (2), (3) (to the extent that that subsection does not relate to the requirement for a copy of the interlocutor to be sent to the registrar of companies), and subsections (5), (6) and (7); Sections 55 to 58; Section 60, other than subsection (1); Section 61, including subsections (6) and (7) to the extent that those subsections do not relate to anything to be done or which may be done to or by the registrar of companies; Section 62, including subsection (5) to the extent that that subsection does not relate to anything to be done or which may be done to or by the registrar of companies; Sections 63 to 66; Section  67, including subsections (1) and (8) to the extent that those subsections do not relate to anything to be done or which may be done to the registrar of companies; Section 68; Section  69, including subsections (1) and (2) to the extent that those subsections do not relate to anything to be done or which may be done by the registrar of companies; Sections 70 and 71; Subsection 84(3), to the extent that it does not concern the copy of the resolution being forwarded to the registrar of companies within 15 days; Sections 91 to 93; Section 94, including subsections (3) and (4) to the extent that those subsections do not relate to the liquidator being required to send to the registrar of companies a copy of the account and a return of the final meeting; Section 95; Section 97; Sections 100 to 102;

1090

Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H Sections 104 to 105; Section 106, including subsections [(3) to (7)]1 to the extent that those subsections do not relate to the liquidator being required to send to the registrar of companies a copy of the account of winding up and a return of the final meeting/quorum [or a statement about a member state liquidator]2; Sections 109 to 111; Section 112, including subsection (3) to the extent that that subsection does not relate to the liquidator being required to send to the registrar a copy of the order made by the court; Sections 113 to 115; Sections 126 to 128; Section 130(1) to the extent that that subsection does not relate to a copy of the order being forwarded by the court to the registrar; Section 131; Sections 133 to 135; Sections 138 to 140; Sections 142 to 146; Section 147, including subsection (3) to the extent that that subsection does not relate to a copy of the order being forwarded by the company to the registrar; Section  162 to the extent that that section concerns the matters set out in Section C.2 of Schedule 5 to the Scotland Act 1998 as being exceptions to the insolvency reservation; Sections 163 to 167; Section 169; Section 170, including subsection (2) to the extent that that subsection does not relate to an application being made by the registrar to make good the default; Section 171; Section 172, including [subsection (8) to (10) to the extent that those subsections do]1 not relate to the liquidator being required to give notice to the registrar [or a statement about a member state liquidator]2; Sections 173 and 174; Section 177; Sections 185 to 189; Sections 191 to 194; Section 196 to the extent that that section applies to the specified devolved functions of Part IV of the Insolvency Act 1986; Section 199; Section 200 to the extent that it applies to the specified devolved functions of Part IV of the First Group of Parts of the 1986 Act; Sections 206 to 215;

1091

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Section 218 subsections (1), (2), (4) and (6); Section 231 to 232 to the extent that the sections apply to administrative receivers, liquidators and provisional liquidators; Section 233, to the extent that that section applies in the case of the appointment of an administrative receiver, of a voluntary arrangement taking effect, of a company going into liquidation or where a provisional liquidator is appointed; [Section 233A to the extent that that section applies in the case of a voluntary arrangement taking effect;]3 Section 234 to the extent that that section applies to situations other than those where an administration order applies; Section 235 to the extent that that section applies to situations other than those where an administration order applies; Sections 236 to 237 to the extent that those sections apply to situations other than administration orders and winding up; Sections 242 to 243; Section  244 to the extent that that section applies in circumstances other than a company which is subject to an administration order; Section 245; Section 251, to the extent that that section contains definitions which apply only to devolved matters; Section 416(1) and (4), to the extent that those subsections apply to section 206(1)(a) and (b) in connection with the offence provision relating to the winding up of a limited liability partnership; Schedule 2; Schedule 3; Schedule 4; Schedule 8, to the extent that that Schedule does not apply to voluntary arrangements or administrations within the meaning of Parts I and II of the 1986 Act. In addition, Schedule 10, which concerns punishment of offences under the Insolvency Act 1986, lists various sections of the Insolvency Act 1986 which create an offence. The following sections, which are listed in Schedule 10, are devolved in their application to Scotland: Section 51(4); Section 51(5); Sections 53(2) to 62(5) to the extent that those subsections relate to matters other than delivery to the registrar of companies; Section 64(2); Section 65(4); Section 66(6); Section 67(8) to the extent that that subsection relates to matters other than delivery to the registrar of companies;

1092

Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H Section 93(3); Section 94(4) to the extent that that subsection relates to matters other than delivery to the registrar of companies; Section 94(6); Section 95(8); Section 105(3); Section 106(4) to the extent that that subsection relates to matters other than delivery to the registrar of companies; Section 106(6); Section 109(2); Section 114(4); Section 131(7); Section 164; Section 166(7); Section 188(2); Section 192(2); Sections 206 to 211; and Section 235(5) to the extent that it relates to matters other than administration orders. 1 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg 2, Sch 1, para 56(1), (2)(a), (3)(a) (8 December 2017). 2 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, para 56(1), (2)(b), (3)(b) (8 December 2017). 3 Inserted by the Insolvency (Protection of Essential Supplies) Order 2015, SI 2015/989, art 6, Schedule, para 2 (1 October 2015).

SCHEDULE 5 GENERAL AND CONSEQUENTIAL AMENDMENTS IN OTHER LEGISLATION The Bills of Sale Act (1878) Amendment Act 1882 c. 43 1 In section  17, after ‘incorporated company’ insert ‘or by any limited liability partnership’ and after ‘such company’ insert ‘or a limited liability partnership’. […]1 2 […]1 1 Repealed by the Third Parties (Rights against Insurers) Act 2010, s 20(3), Sch 4 (1 August 2016).

1093

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) The Corporate Bodies’ Contracts Act 1960 c. 46 3 In section 2, insert at the end ‘or to a limited liability partnership’. The Criminal Justice Act 1967 c. 80 4 In section 9(8)(d), insert at the end– ‘; and in paragraph (d) of this subsection references to the secretary, in relation to a limited liability partnership, are to any designated member of the limited liability partnership.’ The Solicitors Act 1974 c. 47 5 In section 87, after the definition of ‘non-contentious business’, insert– ‘“officer”, in relation to a limited liability partnership, means a member of the limited liability partnership;’. The Sex Discrimination Act 1975 c. 65 6 In section 11, insert at the end– ‘(6) This section applies to a limited liability partnership as it applies to a firm; and, in its application to a limited liability partnership, references to a partner in a firm are references to a member of the limited liability partnership.’ The Race Relations Act 1976 c. 74 7 In section 10, insert at the end– ‘(5) This section applies to a limited liability partnership as it applies to a firm; and, in its application to a limited liability partnership, references to a partner in a firm are references to a member of the limited liability partnership.’ The Betting and Gaming Duties Act 1981 c. 63 8 After section 32, insert– ‘32A Application to limited liability partnerships. (1)

This Act applies to limited liability partnerships as it applies to companies.

(2) In its application to a limited liability partnership, references to a director of a company are references to a member of the limited liability partnership.’

1094

Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H The Companies Act 1985 c. 6 9 […]1 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  13(1), (6) (1  October 2009: repeal has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1).

The Business Names Act 1985 c. 7 10 […]1 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  13(1), (6) (1  October 2009: repeal has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1).

The Business Names Act 1985 c. 7 11 […]1 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI  2009/1804, reg  85, Sch  3, para  13(1), (6) (1  October 2009: repeal has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1).

The Administration of Justice Act 1985 c. 61 12 In section 9(8), after the definition of ‘multi-national partnership’, insert– ‘“officer”, in relation to a limited liability partnership, means a member of the limited liability partnership;’. 13 In section 39(1), after the definition of ‘the Council’, insert– ‘“director”, in relation to a limited liability partnership, means a member of the limited liability partnership;’. 14 In paragraph 1(3) of Schedule 2, insert at the end ‘; and references in this Schedule to a director, in relation to a limited liability partnership, are references to a member of the limited liability partnership.’

1095

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) The Insolvency Act 1986 c. 45 15 (1)

Section 110 is amended as follows.

(2)

In subsection (1), after ‘sold’ insert ‘(a)’ and at the end insert– ‘, or (b) to a limited liability partnership (the ‘transferee limited liability partnership’).’

(3)

In subsection (2), for the words ‘sale,’ onwards substitute

‘sale– (a) (b)

(4)

in the case of the transferee company, shares, policies or other like interests in the transferee company for distribution among the members of the transferor company, or in the case of the transferee limited liability partnership, membership in the transferee limited liability partnership for distribution among the members of the transferor company.’

In subsection (4), for the words ‘company may,’ onwards substitute

‘company may– (a) in the case of the transferee company, in lieu of receiving cash, shares, policies or other like interests (or in addition thereto) participate in the profits of, or receive any other benefit from, the transferee company, or (b) in the case of the transferee limited liability partnership, in lieu of receiving cash or membership (or in addition thereto), participate in some other way in the profits of, or receive any other benefit from, the transferee limited liability partnership.’ The Building Societies Act 1986 c. 53 16 In paragraph 1(2) of Schedule 21, after ‘In this Schedule–’, insert– ‘“director”, in relation to a limited liability partnership, means a member of the limited liability partnership;’. The Courts and Legal Services Act 1990 c. 41 17 In section 119(1), after the definition of ‘multi-national partnership’ insert– ‘“officer”, in relation to a limited liability partnership, means a member of the limited liability partnership;’. The Employment Rights Act 1996 c. 18 18 (1)

Section 166 is amended as follows.

1096

Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H (2)

In subsection (5), omit the word ‘and’ at the end of paragraph (a), and insert at the end of paragraph (b) ‘, and (c) where the employer is a limited liability partnership, if (but only if) subsection (8) is satisfied.’

(3)

After subsection (7) insert–

‘(8) This subsection is satisfied in the case of an employer which is a limited liability partnership– (a) if a winding-up order, an administration order or a determination for a voluntary winding-up has been made with respect to the limited liability partnership, (b) if a receiver or (in England and Wales only) a manager of the undertaking of the limited liability partnership has been duly appointed, or (in England and Wales only) possession has been taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the limited liability partnership comprised in or subject to the charge, or (c) if a voluntary arrangement proposed in the case of the limited liability partnership for the purpose of Part I of the Insolvency Act 1986 has been approved under that Part of that Act.’ 19 (1)

Section 183 is amended as follows.

(2)

In subsection (1), omit the word ‘and’ at the end of paragraph (a), and insert at the end of paragraph (b) ‘, and (c) where the employer is a limited liability partnership, if (but only if) subsection (4) is satisfied.’

(3)

After subsection (3) insert–

‘(4) This subsection is satisfied in the case of an employer which is a limited liability partnership– (a) if a winding-up order, an administration order or a determination for a voluntary winding-up has been made with respect to the limited liability partnership, (b) if a receiver or (in England and Wales only) a manager of the undertaking of the limited liability partnership has been duly appointed, or (in England and Wales only) possession has been taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the limited liability partnership comprised in or subject to the charge, or (c) if a voluntary arrangement proposed in the case of the limited liability partnership for the purposes of Part I of the Insolvency Act 1986 has been approved under that Part of that Act.’ The Contracts (Rights of Third Parties) Act 1999 c. 31 20 In section 6, after subsection (2) insert–

1097

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) ‘(2A) Section  1 confers no rights on a third party in the case of any incorporation document of a limited liability partnership or any limited liability partnership agreement as defined in the Limited Liability Partnerships Regulations 2001 (S.I. No. 2001/).’ The Financial Services and Markets Act 2000 c. 8 21 In each of sections 177(2), 221(2) and 232(2) insert at the end– ‘; and ‘officer’, in relation to a limited liability partnership, means a member of the limited liability partnership.’ Culpable officer provisions 22 (1) A culpable officer provision applies in the case of a limited liability partnership as if the reference in the provision to a director (or a person purporting to act as a director) were a reference to a member (or a person purporting to act as a member) of the limited liability partnership. (2) A culpable officer provision is a provision in any Act or subordinate legislation (within the meaning of the Interpretation Act 1978) to the effect that where– (a) a body corporate is guilty of a particular offence, and (b) the offence is proved to have been committed with the consent or connivance of, or to be attributable to the neglect on the part of, (among others) a director of the body corporate, he (as well as the body corporate) is guilty of the offence. SCHEDULE 6 APPLICATION OF SUBORDINATE LEGISLATION Part I Regulations made under the 1985 Act 1 […]1 1 Repealed by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 58(1)(c) (1 October 2008: repeals have effect subject to transitional provision specified in s 58(3)).

2 […]1 1 Repealed by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 58(1)(c) (1 October 2008: repeals have effect subject to transitional provision specified in s 58(3)).

1098

Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H 3 […]1 1 Repealed by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 58(1)(c) (1 October 2008: repeals have effect subject to transitional provision specified in s 58(3)).

4 […]1 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (7)(a)(i) (1 October 2009: repeal has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1).

5 […]1 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (7)(a)(ii) (1 October 2009: repeal has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1).

6 […]1 1 Repealed by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 58(1)(c) (1 October 2008: repeals have effect subject to transitional provision specified in s 58(3)).

[7 The Companies Act 1985 (Power to Enter and Remain on Premises: Procedural) Regulations 2005.]1 1 Inserted by the Limited Liability Partnerships (Amendment) Regulations 2007, SI 2007/2073, reg 4 (1 October 2007).

Part II Regulations made under the 1986 Act 1 Insolvency Practitioners Regulations 1990 2 The Insolvency Practitioners (Recognised Professional Bodies) Order 1986 3 The [Insolvency (England and Wales) Rules 2016]1 and the Insolvency (Scotland) Rules 1986 (except in so far as they relate to the exceptions to the reserved matters specified in section C.2 of Part II of Schedule 5 to the Scotland Act 1998) 1 Substituted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, reg 2, Sch 1, para 1 (8 December 2017).

1099

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) 4 The Insolvency Fees Order 1986 5 The Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986 6 The Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1996 7 The Co-operation of Insolvency Courts (Designation of Relevant Country) Order 1998 8 Insolvency Proceedings (Monetary Limits) Order 1986 9 […]1 1 Repealed by the Deregulation Act 2015 (Insolvency) (Consequential Amendments and Transitional and Savings Provisions) Order 2015, SI 2015/1641, art 4, Sch 1, para 3(1), (3) (1 October 2015).

10 Insolvency Regulations 1994 11 Insolvency (Amendment) Regulations 2000 Part III Regulations made under other legislation 1 […]1 1 Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (7)(b) (1 October 2009: repeal has effect subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1).

2 The Companies (Disqualification Orders) Regulations 1986 3 The Insolvent Companies (Disqualification of Unit Directors) Proceedings Rules 1987 4 The Contracting Out (Functions of the Official Receiver) Order 1995 5 The Uncertificated Securities Regulations 1995

1100

Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H 6 [The Insolvent Companies (Reports on Conduct of Directors) (England and Wales) Rules 2016]1 1 Substituted by the Enterprise and Regulatory Reform Act 2013 (Consequential Amendments) (Bankruptcy) and the Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) Regulations 2016, SI 2016/481, reg 4(1), (2) (6 April 2016).

7 [The Insolvent Companies (Reports on Conduct of Directors) (Scotland) Rules 2016]1 1 Substituted by the Enterprise and Regulatory Reform Act 2013 (Consequential Amendments) (Bankruptcy) and the Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) Regulations 2016, SI 2016/481, reg 4(1), (2) (6 April 2016).

[SCHEDULE 7 TRANSITIONAL AND SAVINGS PROVISIONS 1 Interpretation In this Schedule– ‘the 1986 Act’ means the Insolvency Act 1986, as applied to limited liability partnerships; ‘the 1986 Rules’ means the Insolvency Rules 1986 as they had effect immediately before the 6th April 2017 in their application to limited liability partnerships; ‘the 2016 Rules’ means the Insolvency (England and Wales) Rules 2016, as applied to limited liability partnerships; and ‘the commencement date’ means the date this Schedule comes into force.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[2  Amendments to the 2016 Rules made by the Insolvency Amendment (EU 2015/848) Regulations 2017 do not apply where proceedings opened before commencement date (1) The amendments made by the Insolvency Amendment (EU  2015/848) Regulations 2017 to the 2016 Rules do not apply where proceedings in relation to a limited liability partnership opened before the commencement date. (2)

The time at which proceedings are opened is to be determined for the purpose of this paragraph in accordance with Article 2(8) of Regulation (EU) 2015/848 of the European Parliament and of the Council of 20th May 2015.]1

1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[3  Requirement for office-holder to provide information to creditors on opting out (1)

Rule 1.39 of the 2016 Rules (which requires an office-holder to inform a creditor in the first communication that the creditor may elect to opt out of receiving

1101

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) further documents relating to the proceedings) does not apply to an office-holder in relation to a limited liability partnership who delivers the first communication before the commencement date. (2) However, if such an office-holder informs a creditor in a communication that the creditor may elect to opt out as mentioned in sub-paragraph  (1), the communication must contain the information required by rule 1.39(2) of the 2016 Rules.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[4  Electronic communication (1)

Where proceedings in relation to a limited liability partnership commence before the commencement date, Rule 1.45(4) of the 2016 Rules does not apply.

(2)

For the purposes of this paragraph proceedings ‘commence’ on– (a) the delivery of a proposal for a voluntary arrangement to the intended nominee; (b) the appointment of an administrator under paragraph 14 or 22 of Schedule B1 to the 1986 Act; (c) the making of an administration order; (d) the appointment of an administrative receiver; (e) the passing or deemed passing of a resolution to wind up a limited liability partnership; or (f) the making of a winding-up order.]1

1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[5  Statements of affairs (1) Where proceedings in relation to a limited liability partnership commence before the commencement date and a person is required to provide a statement of affairs, the provisions of the 2016 Rules relating to statements of affairs in administration, administrative receivership and winding up do not apply and the following rules in the 1986 Rules continue to apply– (a) (b) (c) (2)

rules 2.28 to 2.32 (administration); rules 3.3 to 3.8 (administrative receivership); and rules 4.32 to 4.42 (winding up).

For the purposes of this paragraph proceedings ‘commence’ on– (a) the appointment of an administrator under paragraph  14 or 22 of Schedule B1; (b) the making of an administration order; (c) the appointment of an administrative receiver (d) the passing or deemed passing of a resolution to wind up a limited liability partnership; or (e) the making of a winding-up order.]1

1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

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Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H [6  Savings in respect of meetings taking place on or after the commencement date and resolutions by correspondence (1)

This paragraph applies where in relation to a limited liability partnership on or after the commencement date– (a)

a creditors’ or contributories’ meeting is to be held as a result of a notice issued before that date in relation to a meeting for which provision is made by the 1986 Rules or the 1986 Act; (b) a meeting is to be held as a result of a requisition by a creditor or contributory made before that date; (c) a meeting is to be held as a result of a statement made under paragraph 52(1) (b) of Schedule B1 to the 1986 Act and a request is made before that date which obliges the administrator to summon an initial creditors’ meeting; or (d) a meeting is required by sections 93 or 105 of the 1986 Act in the winding up of a limited liability partnership where the resolution to wind up was passed before 6th April 2010. (2)

Where a meeting referred to in sub-paragraph (1)(a) to (d) is held in relation to a limited liability partnership, Part 15 of the 2016 Rules does not apply and the provisions of the 1986 Rules relating to the following continue to apply– (a) (b) (c) (d) (e) (f)

the requirement to hold the meeting; notice and advertisement of the meeting; governance of the meeting; recording and taking minutes of the meeting; the report or return of the meeting; membership and formalities of establishment of liquidation and creditors’ committees where a resolution to form the committee is passed at the meeting; (g) the office-holder’s resignation or removal at the meeting; (h) the office-holder’s release; (i) fixing the office-holder’s remuneration; (j) hand-over of assets to a supervisor of a voluntary arrangement where the proposal is approved at the meeting; (k) the notice of the appointment of a supervisor of a voluntary arrangement where the appointment is made at the meeting; (l) claims that remuneration is or that other expenses are excessive; and (m) complaints about exclusion at the meeting. (3)

Where in relation to a limited liability partnership, before the commencement date, the office-holder seeks to obtain the passing of a resolution by correspondence under rule 2.48, 4.63A or 6.88A of the 1986 Rules– (a) (b) (c)

(4)

the relevant provisions of the 2016 Rules do not apply; the provisions of the 1986 Rules relating to resolutions by correspondence continue to apply; and the provisions of the 1986 Rules referred to in sub-paragraph (2) of this paragraph apply in relation to any meeting that those provisions require the office-holder to summon.

However, any application to the court in respect of a meeting or vote to which this paragraph applies is to be made in accordance with Part 12 of the 2016 Rules.]1

1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

1103

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) [7  Savings in respect of final meetings taking place on or after the commencement date (1)

This paragraph applies where– (a)

(b) (2)

Where this paragraph applies, Part 15 of the 2016 Rules does not apply and the provisions of the 1986 Rules relating to the following continue to apply– (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)

(3)

before the commencement date– (i) a final report to creditors is sent under rule 4.49D of the 1986 Rules (final report to creditors in liquidation), (ii) a final report to creditors and bankrupt is sent under rule 6.78B of the 1986 Rules (final report to creditors and bankrupt), or (iii) a meeting is called under sections 94, 106, 146 or 331 of the 1986 Act (final meeting); and a meeting under section 94, 106, 146 or 331 of the 1986 Act is held on or after the commencement date.

the requirement to hold the meeting; notice and advertisement of the meeting; governance of the meeting; recording and taking minutes of the meeting; the form and content of the final report; the office-holder’s resignation or removal; the office-holder’s release; fixing the office-holder’s remuneration; requests for further information from creditors; claims that remuneration is or other expenses are excessive; and complaints about exclusion at the meeting.

However, any application to the court in respect of such a meeting is to be made in accordance with Part 12 of the 2016 Rules.]1

1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[8  Progress reports and statements to the registrar of companies (1) Where in relation to a limited liability partnership an obligation to prepare a progress report arises but is not fulfilled before the commencement date the following provisions of the 1986 Rules continue to apply– (a) (b)

rule 2.47 (reports to creditors in administration); and rules 4.49B and 4.49C (progress reports – winding up).

(2) Where before the commencement date, a notice under paragraph  83(3) of Schedule B1 to the 1986 Act is sent to the registrar of companies, rule 2.117A(1) of the 1986 Rules continues to apply. (3)

The provisions of the 2016 Rules relating to progress reporting do not apply in the case of the winding up of a limited liability partnership, where the windingup order was made on a petition presented before 6th April 2010.

(4) Where the voluntary winding up of a limited liability partnership commenced before 6th April 2010, rule 4.223-CVL of the 1986 Rules as it had effect immediately before that date in its application to limited liability partnerships, continues to apply

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Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H (5) Where, in relation to a limited liability partnership, before the commencement date an office-holder ceases to act, or an administrator sends a progress report to creditors in support of a request for their consent to an extension of the administration, resulting in a change in reporting period under rule 2.47(3A), 2.47(3B), 4.49B(5), 4.49C(3), or 6.78A(4) of the 1986 Rules, the period for which reports must be made is the period for which reports were required to be made under the 1986 Rules immediately before the commencement date.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[9 Foreign currency (1) Where, in relation to a limited liability partnership, before the commencement date an amount stated in a foreign currency on an application, claim or proof of debt is converted into sterling by the office-holder under rules 2.86, 4.91, 5A.3 or 6.111 of the 1986 Rules, the office-holder and any successor to the officeholder must continue to use the same exchange rate for subsequent conversions of that currency into sterling for the purpose of distributing any assets of the limited liability partnership. (2) However when, in relation to a limited liability partnership, an office-holder, convener, appointed person or chair uses an exchange rate to convert an application, claim or proof in a foreign currency into sterling solely for voting purposes before the commencement date, sub-paragraph  (1) does not prevent the office-holder from using an alternative rate for subsequent conversions.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[10 CVA moratoria Where, before the commencement date, the designated members of a limited liability partnership submit to the nominee the document, statement and information required under paragraph 6(1) of Schedule A1 to the 1986 Act, the provisions of the 1986 Rules relating to moratoria continue to apply to the proposed voluntary arrangement.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[11  Priority of expenses of voluntary arrangements Rule 4.21A of the 1986 Rules (expenses of voluntary arrangement) continues to apply in relation to a limited liability partnership where a winding up petition is presented before the commencement date.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[12  General powers of liquidator Rule 4.184 of the 1986 Rules (general powers of liquidator) continues to apply in relation to a limited liability partnership as regards a person dealing in good faith and for value with a liquidator and in respect of the power of the court or the liquidation

1105

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) committee to ratify anything done by the liquidator without permission before the commencement date.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[13  Applications before the court (1) Where, in relation to a limited liability partnership, an application to court is filed or a petition for winding up is presented under the 1986 Act or under the 1986 Rules before the commencement date and the court remains seised of that application or petition on the commencement date, the 1986 Rules continue to apply to that application or petition. (2) For the purpose of sub-paragraph  (1), the court is no longer seised of an application or petition for winding up when– (a) in relation to an application, it makes an order having the effect of determining of the application; or (b) in relation to a petition for winding up– (i) the court makes a winding up order, (ii) the court dismisses the petition, or (iii) the petition is withdrawn.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[14 Forms A form contained in Schedule 4 to the 1986 Rules may be used in relation to a limited liability partnership on or after the commencement date if– (a) the form is used to provide a statement of affairs in proceedings where pursuant to paragraph 5 of this Schedule the provisions of the 1986 Rules set out in that paragraph continue to apply; (b) the form relates to a meeting held under the 1986 Rules as described in paragraph 6(1) of this Schedule; (c) the form is required because before the commencement date, the officeholder seeks to obtain the passing of a resolution by correspondence; or (d) the form relates to any application to the court or petition for winding up presented before the commencement date.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[15  Administrations commenced before 15th September 2003 The 1986 Rules continue to apply to administrations of limited liability partnerships where the petition for an administration order was presented before 15th September 2003.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[16  Set-off in insolvency proceedings commenced before 1st April 2005 Where before 1st April 2005 a limited liability partnership entered administration or went into liquidation, the office-holder calculating any set-off must apply the 1986

1106

Limited Liability Partnerships Regulations 2001 (SI 2001/1090) Appendix H Rules as they had effect in their application to limited liability partnerships immediately before 1st April 2005.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[17  Calculating the value of future debts in insolvency proceedings commenced before 1st April 2005 Where before 1st April 2005 a limited liability partnership entered administration or went into liquidation the office-holder calculating the value of a future debt for the purpose of dividend (and no other purpose) must apply the 1986 Rules as they had effect in their application to limited liability partnerships immediately before 1st April 2005.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[18  Insolvency practitioner fees and expenses estimates (1)

Rules 18.4(1)(e), 18.16(4) to (10), and 18.30 of the 2016 Rules do not apply in relation to limited liability partnerships where before 1st October 2015– (a) the appointment of an administrator took effect; (b) a liquidator was nominated under section  100(2), or 139(3) of the 1986 Act; (c) a liquidator was appointed under section 139(4) or 140 of the 1986 Act; (d) a person was directed by the court or appointed to be a liquidator under section 100(3) of the 1986 Act; or (e) a liquidator was nominated or the administrator became the liquidator under paragraph 83(7) of Schedule B1 to the 1986 Act.

(2) Rule 18.20(4) and (5) of the 2016 Rules do not apply in relation to a limited liability partnership where an administrator was appointed before 1st October 2015 and– (a) the limited liability partnership is wound up under paragraph  83 of Schedule B1 to the 1986 Act on or after the commencement date and the administrator becomes the liquidator; or (b) a winding-up order is made upon the appointment of an administrator ceasing to have effect on or after the commencement date and the court under section  140(1) of the 1986 Act appoints as liquidator the person whose appointment as administrator has ceased to have effect.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

[19  Transitional provision for limited liability partnerships entering administration before 6th April 2010 and moving to voluntary liquidation between 6th April 2010 and commencement (inclusive of those dates) Where– (a) a limited liability partnership went into administration before 6th April 2010, and

1107

Appendix H  Limited Liability Partnerships Regulations 2001 (SI 2001/1090) (b) the limited liability partnership goes into voluntary liquidation under paragraph 83 of Schedule B1 between 6th April 2010 and commencement (inclusive of those dates), the 1986 Rules as amended by the Insolvency (Amendment) Rules 2010 apply to the extent necessary to give effect to section 104A of the Act notwithstanding that by virtue of paragraph 1(6)(a) or (b) of Schedule 4 to the Insolvency (Amendment) Rules 2010 those amendments to the Insolvency Rules 1986 would otherwise not apply.]1 1 Inserted by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI  2017/1119, reg 2, Sch 1, paras 4, 55 (8 December 2017).

1108

Appendix I Law of Partnership Act 1865 (repealed) Cap LXXXVI An act to amend the Law of Partnership. [5th July 1865] 1  Lender not a Partner by advancing Money for Share of Profits The Advance of Money by Way of Loan to a Person engaged or about to engage in any Trade or Undertaking upon a Contract in Writing with such Person that the Lender shall receive a Rate of Interest varying with the Profits or shall receive a Share of the Profits arising from carrying on such Trade or Undertaking, shall not, of itself, constitute the Lender a Partner with the Person or the Persons carrying on such Trade or Undertaking, or render him responsible as such. 2  Where Agents, etc not Partners No Contract for the Remuneration of a Servant or Agent of any Person engaged in any Trade or Undertaking by a Share of the Profits of such a Trade or Undertaking shall, of itself, render such Servant or Agent responsible as a Partner therein, nor give him the Rights of a Partner. 3  Certain Annuitants not Partners No Person being the Widow or Child of the deceased Partner of a Trader, and receiving by way of Annuity a Portion of the Profits made by such Trader in his Business, shall, by reason only of such Receipt, be deemed to be a Partner of or to be subject to any Liabilities incurred by such Trader. 4  Where seller not a Partner No Person receiving by way of Annuity or otherwise a Portion of the Profits of any Business, in consideration of the Sale by him of the Goodwill of such Business, shall, by reason only of such Receipt, be deemed to be a Partner of or be subject to the Liabilities of the Person carrying on such Business. 5  In case of Bankruptcy, etc Lender not to rank with other Creditors In the event of any such Trader as aforesaid being adjudged a Bankrupt, or taking the Benefit of any Act for the Relief of Insolvent Debtors, or entering into an Arrangement to pay his Creditors less than Twenty Shillings in the Pound, or dying in insolvent Circumstances, the Lender of any such Loan as aforesaid shall not be entitled to

1109

Appendix I  Law of Partnership Act 1865 (repealed) recover any Portion of his Principal, or of the Profits or Interest payable in respect of such Loan, nor shall any such Vendor of a Goodwill as aforesaid be entitled to recover any such Profits as aforesaid until the Claims of the other Creditors of the said Trader for valuable Consideration in Money or Money’s Worth have been satisfied. 6  Interpretation of ‘Person’ In the Construction of this Act the Word ‘Person’ shall include a Partnership Firm, a Joint Stock Company, and a Corporation.

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Appendix J British Venture Capital Association statement 26 May 1987 Statement approved by the Inland Revenue and the Department of Trade and Industry on the use of limited partnerships as venture capital investment funds: The Board of Inland Revenue has agreed with the Taxation Committee of the BVCA the tax treatment of partnerships established under the Limited Partnerships Act 1907 and used as vehicles for raising funds wholly or partly for equity investment in unquoted companies. The British Venture Capital Association considers that the existence of an effective onshore structure for UK  venture capital investment funds will help to ensure the continuing and increasing commitment of funds to the venture capital industry for investment in young and growing businesses. The sources of these funds include domestic UK financial institutions, corporate and other investors, as well as fastdeveloping interest from foreign sources of finance, which have been impressed by the success of the UK venture capital industry and with the companies in which it is invested over the past seven years. The principal points agreed by the Inland Revenue and the Department of Trade and Industry are set out below. They are considered further in guidelines prepared by the BVCA and agreed with the Inland Revenue which are attached as Annex A.

1) TAXATION TREATMENT OF THE PARTNERSHIP 1.1)  A limited partnership established for the purpose of raising funds for investment into companies will be regarded as carrying on a business and will represent a partnership within the definition in section  1 of the Partnership Act 1890 for the purposes of UK taxation. 1.2)  Where one of the partners in a limited partnership is the trustee of an unauthorised unit trust for exempt funds, the partner concerned will be regarded as a single partner

1111

Appendix J  British Venture Capital Association statement 26 May 1987 for the purposes of the 20-partner limit. Where, in order to avoid exceeding the 20-partner limit, two or more limited partnerships are established having the same structure as each other and investing in parallel, each will be treated as a separate partnership by the Inland Revenue and the Department of Trade and Industry. 1.3)  The income and CG arising within the partnership will be subject to tax upon receipt by the partnership as the income and gains of the partners who are entitled to them. In accordance with the Statement of Practice of 17  January 1975, each partner will be regarded as owning a fractional share of each of the partnership assets, dependent on its profit sharing ratio, and not an interest in the partnership. Tax will be recoverable only from the partners and not from the partnership. 1.4)  Where a venture capital fund is run through the medium of a limited partnership and it purchases shares and securities with the intention of holding them as investments, any profits or losses on disposal of those shares and securities will not, unless paragraphs 1.6 or 1.7 apply, be treated as income of a trade within Case I Schedule D. 1.5)  Where the general partner provides management assistance to the companies in which investments are held by the partnership, such assistance would not, of itself, cause the limited partnership to be treated as trading. 1.6)  The treatment set out in paragraph 1.4 above does not extend to circumstances where the partnership is carrying on a business of lending money and the acquisition of shares and securities is ancillary to that business. 1.7)  The tax treatment appropriate to each member of the partnership would be looked at separately. For this purpose, its activities as a partner will be regarded as part of its total activities. Thus, for example, a pension fund will retain its exempt status even if some of its investments are made as a limited partner. Similarly, a bank or general insurance company will remain assessable on a Case I ‘realisation’ basis both in respect of its investments made as a limited partner and its other investments, on the basis that investments made via the limited partnership will be a small part of its aggregate trade. 1.8)  These provisions will be applicable from the commencement of the partnership even though, pending the acquisition of investments, its assets may be temporarily limited to holding cash deposits or short-term monetary investments.

2) TAXATION TREATMENT OF INDIVIDUAL PARTNERS INVOLVED IN MANAGEMENT Where a partnership is established with a relatively small amount of partnership capital and substantial loans to the partnership, individuals involved in the management of the partnership, whether as directors or employees of the general partner or any body corporate providing services to the general partner or otherwise and who receive full arm’s length rates of remuneration for the services they perform as directors or employees, and who become limited partners (directly or indirectly) by subscribing or purchasing a proportion of capital but not loans to the partnership, will not be considered to have acquired either their partnership interests or their interests in underlying investments of the partnership acquired after they became partners by reason of rights conferred upon them or opportunities offered to them as directors or employees of any body corporate for the purposes of FA72/S79.

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British Venture Capital Association statement 26 May 1987 Appendix J Gains realised by such persons in consequence of their limited partnership interests will be treated as accruing to those persons as CG for the purposes of UK taxation.

3)  CHANGE IN PROFIT SHARING RATIOS 3.1)  Where the ratios in which partners share in the proceeds of disposal of assets vary during the life of a limited partnership without consideration passing outside the partnership, the provisions of paragraph 4 of the Inland Revenue Statement of Practice dated 17 January 1975 apply and, in consequence, where no revaluation or adjustment is made through the partnership accounts the disposal between the partners will be treated as made for a consideration equal to the relevant portion of the disposer’s CG cost. A change in ratios will not give rise to a chargeable gain nor an allowable loss in consequence. 3.2)  Where, as a result of the application of paragraph 4 of the Statement of Practice certain limited partners are deemed to have acquired a proportion of costs financed by other partners, the limited partnership may adjust the amounts payable to members of the partnership at its termination to compensate those partners whose liability to tax on chargeable gains has arisen in part by reason of reduction of their allowable costs to the extent of any tax benefit which has accrued to the partners whose profit shares have increased. The adjustment to be debited to the partners whose costs are deemed to have increased on a change in profit sharing ratios will represent an adjustment to the payments out of partnership capital upon termination and not consideration for the disposal of part of any partner’s share in the partnership assets or for the disposal of any other asset. Provided any such adjustment on termination of the partnership is not expressed as being in consideration of the change in profit sharing ratio, it will not be treated as consideration for the purposes of paragraph 6 of the SP17 January 1985.

4) TAXATION TREATMENT OF THE GENERAL PARTNER 4.1)  Where the general partner is a company and derives its remuneration solely from being a partner in the limited partnership, it will normally be expected to qualify as an investment company under ICTA70/S304 as its income will consist of its share of the profits and CG from the partnership. 4.2)  The general partner will suffer tax on income and gains of the partnership which are apportioned to it as its particular share according to the nature of the profits received ie, franked investment income, unfranked investment income and chargeable gains. 4.3)  Where the general partner is an investment company, expenses of management incurred by the general partner in connection with the business of the partnership may be deducted in computing, for the purposes of CT, the total profits of the general partner in accordance with the provisions of ICTA70/S304.

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Appendix J  British Venture Capital Association statement 26 May 1987

ANNEX A BVCA guidelines agreed with the Inland Revenue for the establishment of onshore venture capital funds structured as limited partnerships. Promoters of venture capital funds must rely on their own professional advice on the taxation and other consequences of the structure of their funds. Clearly the BVCA can take no responsibility for the matters stated in these guidelines.

1)  Nature of the limited partnership 1.1)  A partnership is defined as ‘the relation which subsists between persons carrying on a business in common with a view of profit’. A limited partnership is a partnership which is registered as such (with the Registrar of Companies) under the Limited Partnership Act 1907; between a general partner (or general partners), who alone has responsibility for the management of the partnership business, and limited partners, who enjoy limited liability so long as they do not participate in the management of the partnership business. 1.2)  Like all partnerships (other than certain professional partnerships) the number of partners may not exceed twenty: where there are more than this number of participants, it may be necessary to establish more than one limited partnership investment in parallel. 1.3)  Certain pension funds are precluded by their trust deeds from being partners in a partnership (including in a limited partnership). To cater for such pension funds, it may be desirable for one of the partners in the partnership to be the trustee of an exempt unauthorised unit trust in which only unit holders which are exempt from CGT or CT (otherwise than by reason of residence) may be members and which will therefore be exempt from CGT under CGTA79/S96. 1.4)  Both the Inland Revenue and the Department of Trade and Industry have confirmed that, where partnerships are established for the purpose of holding venture capital funds: a)

they would treat each parallel partnership referred to in paragraph 1.2 separately; and

b)

they would regard the trustee of the trust referred to in paragraph 1.3 as a single partner for the purposes of the twenty-partner limit;

but since the consequences of exceeding the limit would not be confined to taxation, sponsors of venture capital investment funds may wish to take their own advice on this subject. 1.5)  The Inland Revenue have confirmed that a venture capital investment fund structured as a limited partnership would be subject to taxation on CG in accordance with the Statement of Practice of 17 January 1975 and that ‘each partner has therefore to be regarded as owning a fractional share of each of the partnership assets and not for this purpose an interest in the partnership’. Net income will be allocated to the partners on the agreed profit sharing basis.

2)  Outline structure 2.1)  In agreeing the taxation consequences of a limited partnership carrying on the business of a venture capital investment fund with the Inland Revenue, the following

1114

British Venture Capital Association statement 26 May 1987 Appendix J ‘model’ outline structure was put forward. Potential sponsors will clearly wish to take advice as to whether this structure is appropriate to their requirements, but any material deviation from this structure would not necessarily be treated by the Inland Revenue in the same way (see paragraph 5 below). 2.2)  The following structure assumes a ‘carried interest’ for the individuals and companies who establish the fund (ie, a capital share in the surplus profits of the fund as a whole over the initial value of the fund) at the rate of 20% with or without a ‘hurdle rate’ (ie a notional rate of return on the initial value of the fund below which the ‘carried interest’ would not participate). Clearly different levels of ‘carried interest’ and varying ‘hurdle rates’, if any, will be appropriate in particular cases. There are three categories of partners: founder partners who would be the individuals and companies sponsoring the partnership who would receive a 20% ‘carried interest’ represented by a 20% share in the partnership capital, the general partner which would participate in profits only to the extent of its ‘management charge’ and investors who would subscribe both 80% of the partnership capital and advance loans to the limited partnership: a)

the founder partners would establish, or arrange the establishment of, the company which would become general partner and also establish the partnership with the general partner by becoming (directly or indirectly by nominating a third party) limited partners, subscribing partnership capital and being granted the right, following the subscription by investors as described in paragraph (c) below, to subscribe a total of 20% of the capital of that and any other limited partnership carrying on business in parallel (to avoid exceeding the 20-partner limit);

b)

the limited partnership (or its sponsors and promoters) would then issue a document seeking funds from investors;

c)

investors would subscribe capital to the limited partnership amounting to 80% of its total capital (the remaining 20% being held by founder partners) and a large amount of loan which may or may not carry interest (representing the ‘hurdle rate’) depending on the fund concerned and the founders’ perception of the basis upon which investors would be interested in participating;

d)

the general partner would: i) identify investments; ii) prepare investment appraisals and investigate potential investments; iii) negotiate the terms of investment and complete the investments; iv) monitor investments (often involving the provision of a director to the board) and provide advice and assistance to invested companies; and v) at the end of the life of the fund or at any appropriate time provide advice to invested companies on making a market for its shares or arrange a sale of its shares in the company;

e)

the general partner might, instead of providing these services directly to the limited partnership, procure that an associated body (‘the manager’) which would employ or retain the services of the founder partners and various other executives, rent premises, employ secretarial staff etc, would act as manager of the partnership;

f)

the general partner would pay a fee to the manager for these services: in addition the manager would receive directors fees, syndication fees and arrangement fees from invested target companies;

g)

the general partner would receive a partnership share (‘the management charge’) equal to 2.5%, or such other figure as is considered appropriate, of the initial value of the fund and payable in the manner described in paragraph (h) below;

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Appendix J  British Venture Capital Association statement 26 May 1987 h)

the partnership deed would provide for the proceeds of distributions from investments and realisations to be applied: i) ii)

as a first charge on income and CG in the payment of the management charge; if there is insufficient income and capital gain in any year to cover the management charge payable to the general partner, the balance will be advanced from the partnership as an interest free loan; iii) if in any year income and CG exceed the amount of the management charge, any balance will be applied in reducing or repaying the interest free loan (any balance of this interest free loan at the termination of the partnership would be written off); iv) in repaying the loan from investors together with any interest; and v) any balance after the loans and interest (if any) have been repaid (such point in time being referred to as ‘the loan repayment date’) will be divided between the limited partners according to their contribution towards partnership capital (that is 20% to founder partners and 80% to investors); in some cases this order may be varied (see paragraph 4.4 below); i)

the partnership deed would provide that, subject to the share of profits of the general partner, the profit sharing ratio of the investors prior to the loan repayment date would be 100% and after the loan repayment date that of the investors would be 80% and the founders, 20%.

3) Taxation treatment of individual partners involved in management 3.1)  The Inland Revenue have confirmed that they take the view, provided that the employees or directors in question receive full arm’s length rates of remuneration for the services they perform as directors or employees, that the interests in shares held by employees or directors of the general partner or service company (whether directly or indirectly) as limited partners as a result of the partnership acquiring investments after they become partners does not arise in pursuance of a right conferred on them as directors or employees and that FA72/S79 would therefore not apply to the increase in value of such interests. 3.2)  In some cases an employee or director might become a partner after the establishment of the partnership either by purchasing the interests of one or more founder partners or by subscribing further partnership capital. The Inland Revenue has confirmed that the taxation treatment above would also apply to such persons.

4)  Apportionment of CG 4.1)  As stated above the Inland Revenue has confirmed that they would regard the Statement of Practice of 17 January 1975 relating to the CGT treatment of partnerships as applying to limited partnerships of this nature. Capital realisations would therefore be treated as belonging to partners as they arise in accordance with their profit sharing ratios. Subject to the general partner’s share of the profits of the partnerships in an amount equal to the ‘management charge’, the founder partners would not be treated as having any profit sharing ratio prior to the loan repayment date: after the loan

1116

British Venture Capital Association statement 26 May 1987 Appendix J repayment date their profit sharing ratio would be 20% and that of the investors would be 80%. 4.2)  The Inland Revenue would regard paragraph  4 of the Statement of Practice as applying at the loan repayment date. This provides that, on a change in profit sharing ratios where no consideration is paid for the change, each partner whose ratio is reduced is treated as disposing of a fractional share in the partnership assets to each partner whose share is increased at a value such that neither a loss nor a gain accrues. The investors will therefore be treated as having disposed of 20% of the investments held by the partnership to the founder partners at the base cost for CGT of such assets. After the loan repayment date, founder partners would be liable to CGT on the difference between their share of the disposal proceeds and the base cost apportioned to them as a result of the disposal. 4.3)  The allocation of part of the investors’ base cost to the founder partners for no consideration, in accordance with paragraph 4 of the statement of practice, may in certain circumstances affect the apportionment of the overall capital gain among the partners. More will arise to the investor partners because they will not be able to deduct the whole of their investment in the partnership from their shares of the disposal proceeds and less to founder partners because they will be able to deduct part of the investor partners’ acquisition costs from their shares of the disposal proceeds. While this will be of no concern to exempt investors, it may affect others and in such cases it may be considered appropriate for the founder partners to compensate the investors by an adjustment in profit sharing ratios after the loan repayment date, by a payment at the termination of the partnership or by other methods. Provided any such compensation payment is not expressed to be consideration for the change in profit sharing ratios, it will not be taxable and will not affect the tax treatment referred to above. 4.4)  Some venture capital funds allow the holders of the carried interest (ie  the founder partners) to receive a share in the gains on disposal of investments before the level of realisations of the fund as a whole equals the initial value of the fund plus any hurdle rate, provided the remaining investments have been valued by the fund’s auditors at an appropriate amount taking into account distributions of capital and of income already made. Such distributions before the loan repayment date could involve a special variation of the profit sharing ratio of the partnership with regard to the investment then disposed of so that a proportion of the base cost and the disposal proceeds of that investment would be apportioned to the founder partners. [Annex B has been omitted. Section  2 of the statement (taxation treatment of individual partners involved in the management of the partnership) was replaced by a Memorandum of Understanding agreed between the BVCA and the Inland Revenue dated 25 July 2003]

1117

Index [All references are to paragraph number]

A Abandonment dissolution, and 16.17 illegality, and 4.24 limitation periods, and 15.64 Access to partnership books and records accountants, by 11.24 agents, by 11.24 generally 11.23 partners, by 11.25 Account account stated 14.23 arbitration, and 14.33 challenge to settled account 14.42– 14.49 compromise, and 14.33 debarred defendants, and 14.41 defences arbitration 14.33 debarred defendants 14.41 compromise 14.33 delay 14.38 discretion 14.39 illegality of partnership 14.32 introduction 14.31 laches 14.38 liability for firm’s loss only 14.37 limit on right to query accounts 14.36 limitation 14.39 non-existent partnership 14.32 non-joinder of all parties 14.40 releases 14.35 settled account 14.34 delay 14.38 discretion, and 14.39 general right 14.18

Account – contd illegality of partnership, and 14.32 jurisdiction of courts 14.19 laches 14.38 liability for firm’s loss only 14.37 limit on right to query accounts 14.36 limitation 14.39 meaning account stated 14.23 claim by partner against firm 14.22 generally 14.20 obligation to account for particular liability 14.21 production of financial statements 14.23 non-existent partnership, and 14.32 non-joinder of all parties 14.40 obligation to account for particular liability 14.21 partner against firm, by 14.22 procedure allowances 14.28 payment into court 14.30 practice 14.27 presumptions against accountable partner 14.29 procedural rules 14.26 summary order to produce 14.25 production of financial statements 14.23 releases 14.35 settled account 14.34 summary order to produce 14.25 taking accounts 14.25–14.30 Accountability for separate businesses duty of good faith, and 11.5

1119

Index Accounting treatment conventions, and 12.21 partnership capital, and 9.4 sharing profits, and 12.27 Accounts access to books and records accountants, by 11.24 agents, by 11.24 generally 11.23 partners, by 11.25 accounting conventions 12.21 duty of good faith, and generally 11.22 introduction 11.16 generally 12.19 interest on advances to firm 12.23 interest on capital and current accounts 12.22 limited liability partnerships, and Companies Act obligations 25.84 generally 25.86 information 25.37 partnerships comprising only corporate partners 12.20 Accruer continuation of partnership, and 7.10 Acknowledgment limitation periods, and 15.57–15.58 Acknowledgment of service limited liability partnerships, and 25.25 method 21.30 persons disputes liability as partner 21.32 time 21.31 Acquiescence authority of partners, and firm’s knowledge 19.7 generally 19.6 limitation periods, and 15.64 tracing, and 19.69 Actions against firm and see Litigation cause of action against one or all partners 21.12 changes in firm 21.15 dissolution of firm 21.16 foreign partners 21.14 minor as partner 21.13 partner under disability 21.13 defences authority 21.17 limitation 21.19 ‘one defence stands for all’ 21.18

Actions against firm – contd procedure 21.20–21.37 Actions by firm and see Litigation bankruptcy of partner 21.5 cause of action 21.1–21.6 death of partner 21.5 disability of partner 21.5 incoming partners 21.6 indemnity 21.4 leaving partners 21.6 partners entitled to authorise as against defendant 21.7 as between firm and solicitors 21.8 as between partners 21.9 set-off 21.10–21.11 Adjustment of liabilities claimant partner ceased to be in competition with creditors 23.47 debt arisen as result of fraud 23.48 debt arisen in ordinary course of business 23.49 insolvent partner’s estate seeks contribution from solvent partner, where 23.50 liquidator’s powers 23.44 partners are solvent, where 23.43 partner’s rights 23.45–23.49 statutory winding up, in 23.44 Administration and see Insolvency administrator as manager generally 22.50 position of partners 22.52 replacement of 22.53 secured property 22.51 agricultural receivers, and 22.44 creditor’s applications adjournment 22.43 administrator as manager 22.50– 22.52 agricultural receivers, and 22.44 effect of order 22.49 effect of petition 22.43–22.46 generally 22.42 interim orders 22.45 notification 22.47 pending application 22.46 replacement administrator 22.53 timing of order 22.48 withdrawal 22.43 dissolution, and 17.5 effect of order 22.49

1120

Index Administration – contd generally 22.41 limited liability partnerships, and 25.89 members’ applications 22.55 secured property 22.51 timing of order 22.48 Admission of new partner decision-making, and 12.4 Admissions authority of partners, and 19.14 litigation, and 21.37 Adoption of acts authority of partners, and 19.5 Adultery dissolution, and 17.19 Advances to firm interest, and 12.23 Age discrimination and see Discrimination generally 13.3 Agency partnership property, and 8.1 Agents duty of good faith, and 11.11 entities akin to partnerships, and 2.42 existence of partnership, and 2.32–2.33 Agreements to enter into partnership damages for breach generally 14.4 refusal of incomer to work 14.6 rejection of incomer 14.5 enforcement damages for breach 14.4–14.6 injunctions 14.2 introduction 14.1 part performance 14.3 rescission for misrepresentation 14.7–14.10 specific performance 14.2 injunctions 14.2 introduction 14.1 part performance 14.3 rescission for misrepresentation consequences 14.9 damages 14.10 generally 14.7 nature 14.8 Agricultural credits partnership property, and 8.49–8.50 Agricultural land credits 8.49–8.50 sham arrangements 8.48 statutory protection of tenants 8.48

Alienation partnership leases, and 8.45 Allowances for management generally 18.9 personal representatives 18.10 Alternative dispute resolution (ADR) generally 15.24 introduction 15.21 Anti-competitive practices illegality, and English law 4.9 EU law 4.10 Apparent authority breach of trust, and 19.61 generally 19.3 knowledge of lack of authority 19.4 Appeals arbitration, and 15.30 Appointment of receiver agreement, by 15.39 applicants to court 15.40 appointees 15.41 county court procedure 15.45 execution of judgments, and 21.45 generally 15.38 grounds before dissolution 15.42 grounds in dissolution 15.43 High Court procedure 15.44 management of business, and 15.47 partnership share, and consequences 10.16 judgment creditor’s claim 10.15 powers 15.48 remuneration 15.46 restrictions on creditors 15.49 status 15.48 Appropriation of business profiting from firm, and 11.33 Arbitration appeals 15.30 applications to court 15.25 arbitration clauses 15.23 arbitrator’s powers 15.28 claim for account, and 14.33 continuation of partnership, and 7.10 costs 15.29 disadvantages 15.22 discrimination, and 13.26 dissolution, and 16.16 enforcement of awards 15.26 generally 15.22 introduction 15.21

1121

Index Arbitration – contd powers of arbitrator 15.28 stay of court proceedings, and 15.27 Article 11 petitions generally 22.67 jurisdiction 22.69 limited partnerships, and 24.55 modifications to bankruptcy law 22.70 petition 22.68 trustee 22.71 Assets and liabilities of partnership agricultural land agricultural credits 8.49–8.50 sham arrangements 8.48 statutory protection of tenants 8.48 charges 8.51 confidential information client information 8.69 firm’s information 8.68 loyalty of client 8.70 privilege 8.71 copyright 8.72 design rights 8.72 firm name generally 8.55 goodwill, and 8.59 holding out, and 8.58 meaning 8.55 lent or sold 8.59 passing off, and 8.57 restrictions 8.56–8.60 statutory regulation 8.60–8.67 goodwill meaning 8.52 medical practice, of 8.54 partnership property, and 8.5 value 8.53 guarantees firm as creditor, for 8.8 generally 8.6 liability of firm, for 8.7 implied agreement as to ownership date of use, from 8.26 discerned from firm’s accounts 8.22 generally 8.21 property bought from profits of partners’ land 8.25 property bought with money of a partner 8.24 property bought with partnership money 8.23 individual partners’ property

Assets and liabilities of partnership – contd ascertaining ownership by more than one partner 8.20–8.27 non-proprietary rights 8.16–8.19 proprietary rights 8.16–8.19 intangible property 8.11 intellectual property 8.72 land beneficial interest 8.33 contracts for sale or purchase 8.35 conversion 8.37 generally 8.33–8.35 nature 8.36–8.38 presumption in favour of tenancy in common 8.28 problems as asset 8.34 survivorship 8.38 vesting 8.36 leases agreements binding on firm 8.39 alienation 8.45 break clauses 8.47 covenants against assignment 8.45 firm as landlord 8.42 firm as tenant of partner landlord 8.43–8.44 parting with possession 8.45 periodic tenancies, and 8.46 surrender 8.47 unincorporated associations as tenants 8.41 vesting 8.40 life assurance policies 8.9 mortgages 8.51 name of firm business name 8.61–8.67 generally 8.55–8.60 partners’ property claims by partnership 8.18 monies owed by partnership 8.17 mortgage debts 8.19 non-proprietary rights 8.16–8.19 proprietary rights 8.16–8.19 partnership property, and 8.14 rules for ascertaining ownership 8.20–8.27 partnership capital 8.13 partnership land beneficial interest 8.33 contracts for sale or purchase 8.35 conversion 8.37

1122

Index Assets and liabilities of partnership – contd partnership land – contd generally 8.33–8.35 nature 8.36–8.38 presumption in favour of tenancy in common 8.28 problems as asset 8.34 survivorship 8.38 vesting 8.36 partnership leases agreements binding on firm 8.39 alienation 8.45 break clauses 8.47 covenants against assignment 8.45 firm as landlord 8.42 firm as tenant of partner landlord 8.43–8.44 parting with possession 8.45 periodic tenancies, and 8.46 surrender 8.47 unincorporated associations as tenants 8.41 vesting 8.40 partnership property agency, and 8.1 capital, and 8.13 categories 8.3–8.11 contracts 8.11 definition 8.1 goodwill 8.5 guarantees 8.6–8.8 intangible property 8.11 introduction 8.1–8.2 land 8.4 life assurance policies 8.9 offices 8.11 partners’ property, and 8.14 partnership capital, and 8.13 patents 8.11 relationship with other property 8.12–8.15 rules for ascertaining ownership 8.20–8.27 survivorship 8.2 unsaleable property 8.11 work in progress 8.10 patents 8.11 property used but not owned by partnership 8.15 reversions 8.39–8.47 rules for ascertaining ownership express agreement 8.20

Assets and liabilities of partnership – contd rules for ascertaining ownership – contd gifts 8.27 implied agreement 8.21–8.26 inventions 8.27 windfalls 8.27 tenancies 8.39–8.47 theft by partner, and 8.1 transfer of property agreements between firm and members 8.28 creditors 8.29 evidence 8.43 requirement of writing 8.30–8.31 unsaleable property 8.11 work in progress 8.10 Assignment partnership leases, and 8.45 Assignment of debts authority of partners, and 19.15 Assignment of partnership share assignees’ liability 10.13 assignees’ rights after dissolution 10.12 before dissolution 10.11 generally 10.10 assignors’ continuing liability 10.14 generally 10.4 limited partnerships, and 24.23 Attorneys partnership share, and 10.24 Audits limited liability partnerships, and Companies Act obligations 25.84 generally 25.85 Authority of partners acquiescence firm’s knowledge 19.7 generally 19.6 admissions 19.14 adoption of acts 19.5 apparent authority generally 19.3 knowledge of lack of authority 19.4 assignment of debts 19.15 bank accounts 19.16 bills of exchange 19.17 borrowing 19.18 breach of partnership obligations 19.43

1123

Index Authority of partners – contd business of firm ‘business’ 19.8–19.9 business as it appears to outsiders 19.10 contracts 19.12 examples 19.14–19.43 old case law 19.11 ordinary business 19.9 partnership debts 19.12 trading relationships 19.13 usual business 19.9 compromise 19.19 distress 19.21 employees 19.22 execution of deeds 19.20 express authority 19.1 firm’s knowledge 19.7 guarantees 19.23 illegal behaviour 19.24 implied authority 19.2 implied ratification of acts 19.6 instructing lawyers 19.27 knowledge of lack of authority 19.4 lending 19.25 limitation 19.26 limited liability partnerships, and actual authority 25.65 generally 25.63 ostensible authority 25.67–25.68 litigation 19.27 mortgaging 19.28 notices to quit 19.29 options 19.30 ordinary business 19.9 ostensible authority 19.3 partnership debts 19.12 powers of attorney 19.32 property of another partner 19.33 ratification of acts firm’s knowledge 19.7 generally 19.5 implied 19.6 receipt of payment 19.34 release 19.19 set-off 19.35 subscribing for shares 19.36 tender 19.37 trading relationships 19.13 trusteeships 19.38 undertakings 19.39 unreasonable behaviour 19.24 usual business 19.9

Authority of partners – contd variations of contracts 19.40 warranties 19.41 written contracts 19.42 B Bank accounts authority of partners, and 19.16 Bankruptcy capacity, and generally 3.29 solicitors 3.30 creditors’ petitions 22.13 dissolution, and 16.29 duties after dissolution insolvent partner 22.17 solvent partners 22.18 effect 22.14–22.18 execution of judgments, and 21.47 generally 22.10 holding out, and 5.8 introduction 22.1 joint applications without winding up generally 22.67 jurisdiction 22.69 modifications to bankruptcy law 22.70 petition 22.68 trustee 22.71 limited partnerships, and generally 24.46 petitions 24.51 members’ applications 22.11–22.12 powers on dissolution insolvent partner 22.16 solvent partners 22.18 solicitors, and 3.30 stipulations purporting to restrict insolvency laws 22.15 trustee in bankruptcy 22.14 Banks winding of partnership, and 18.27 Barristers capacity, and 3.13 Barristers’ chambers generally 2.43 Beneficial interest partnership land, and 8.33 Benefit from transactions with firm profiting from firm, and 11.27 Bills of exchange authority of partners, and 19.17

1124

Index Books and records accountants 11.24 agents 11.24 generally 11.23 limited liability partnerships, and 25.36 partners 11.25 partnership actions, and 15.11 Borrowing authority of partners, and 19.18 Boyfriend/girlfriend relationships generally 2.58 Bovill’s Act generally 1.2 Breach of contract generally 14.50 liability of firm for partner’s wrongs and omissions, and 19.49 Breach of fiduciary duty forfeiture of wrongdoing partner’s profit share 14.52 wrongdoing partner’s gain and firm’s loss 14.51 Breach of partnership agreement dissolution, and 17.20 repudiation, and application of doctrine 14.11–14.13 damages following 14.17 effect 14.16 meaning 14.14 mistaken expulsion notices 14.15 Breach of partnership obligations authority of partners, and 19.43 Beach of solicitors’ undertakings generally 19.72 pay money, to 19.73 Breach of trust apparent authority, and 19.61 comparison of statutory provisions 19.59 express authority, and 19.60 general principles 19.58 implied authority, and 19.61 liability of partners for firm’s liabilities, and joint and several liability 20.6 knowledge of partner 20.37 partner acting outside authority 19.62–19.69 partner acting within authority 19.60–19.61 partners with notice 19.62 tracing claims 19.63–19.69

Break clauses partnership leases, and 8.47 Bribes and commissions profiting from firm, and 11.37 Burden of proof discrimination, and 13.24 Business name breach of obligations 8.65 disclosure of partners’ names 8.63 firms of more than 20 partners 8.64 generally 8.61 introduction 8.60 limited partnerships, and 24.37 professional bodies, and 8.66–8.67 prohibition of use of certain names 8.62 statutory regulation 8.61 Business opportunities duty of good faith, and 11.35 Buying out asset cannot be easily sold 18.50 delay on part of seller 18.49 nature of asset such that sale would damage value 18.48 offer by other partners 18.46–18.49 partners agreed on division or valuation 18.51 share of partner selling is small 18.47 Syers v Syers order 18.46 C Capacity bankrupts generally 3.29 solicitors 3.30 barristers 3.13 children affirmation 3.23 generally 3.22 judgment and execution 3.24 clergymen 3.14 convicts 3.3 corporations of England and Wales 3.2 disqualified company directors 3.28 disqualified professionals 3.21 drunks 3.16 enemies 3.18 English firms 3.17 foreign corporations 3.6 foreign diplomats 3.4 foreign enemies 3.18 foreign persons 3.5

1125

Index Capacity – contd heads of state 3.4 introduction 3.1 local authorities 3.7 married women 3.10 mental patients commencement of partnership, at 3.25 Court of Protection 3.26 loss during course of partnership 3.27 minors affirmation 3.23 generally 3.22 judgment and execution 3.24 personal representatives 3.9 prisoners 3.3 Scottish firms 3.8 solicitors 3.30 state immunity 3.4 trustees 3.9 women 3.10 Capital accounting treatment 9.4 background 9.1 capital accounts blending 9.6 generally 9.4 interest 9.7 variation 9.6 capital contributions 9.8 current accounts blending 9.6 generally 9.5 variation 9.6 meaning 9.2 ownership 9.9 partners’ capital 9.3 partnership property, and 8.13 repayment 9.9 Capital accounts blending 9.6 generally 9.4 interest 9.7, 12.22 variation 9.6 Capital contributions generally 9.8 Capital profits and losses winding of partnership, and 18.6 Carrying on business in common with view to profit ‘business … with view to profit’ 2.16–2.18

Carrying on business in common with view to profit – contd generally 2.15 ‘in common’ 2.19 joint ownership 2.19 landlord and tenant cases 2.17 mutual agency 2.19 ‘single adventure or undertaking’ 2.18 temporary activity 2.18 ‘Carrying on business within the jurisdiction’ litigation, and 21.23 Cause of action actions against firm against one or all partners 21.12 changes in firm 21.15 dissolution of firm 21.16 foreign partners 21.14 minor as partner 21.13 partner under disability 21.13 actions by firm 21.1–21.6 Cesser of business duration of partnerships, and 7.5 limited liability partnerships, and agreement with other members 25.80 breach of contractual obligation 25.78 effect 25.83 generally 25.77 registration 25.82 repudiation 25.79 retirement on notice 25.81 Challenges to settled accounts errors of fact or law introduction 14.43 lesser errors 14.46 serious errors 14.45 fraud 14.44 generally 14.42 grounds fraud 14.44 introduction 14.43 lesser errors of fact or law 14.46 manifest errors 14.43 misrepresentation 14.44 serious errors of fact or law 14.45 undue influence 14.44 interests of justice 14.43 leave to surcharge and falsify 14.49 lesser errors of fact or law 14.46 manifest errors 14.43 misrepresentation 14.44

1126

Index Challenges to settled accounts – contd orders available introduction 14.47 leave to surcharge and falsify 14.49 re-opening accounts 14.48 re-opening 14.48 serious errors of fact or law 14.45 surcharge and falsify 14.49 undue influence 14.44 Champerty illegality, and 4.4 Change in the business decision-making, and 12.3 Change of partners liability of firm for partner’s wrongs and omissions, and 19.56 Channel Islands generally 1.12 Charge of partnership share chargees’ rights 10.10–10.12 dissolution, and 16.32 generally 10.4 limited partnerships, and 24.23 Charges assets and liabilities of partnership, and 8.51 Charging orders execution of judgments, and 21.46 limited partner’s share, and 24.45 partnership share, and consequences 10.16 judgment creditor’s claim 10.15 Children capacity, and affirmation 3.23 generally 3.22 judgment and execution 3.24 Civil partnership discrimination, and and see Discrimination generally 13.5 introduction 13.3 generally 2.45, 2.58 Claim for an account account stated 14.23 arbitration, and 14.33 challenge to settled account 14.42– 14.49 compromise, and 14.33 debarred defendants, and 14.41 defences arbitration 14.33 compromise 14.33

Claim for an account – contd defences – contd debarred defendants 14.41 delay 14.38 discretion 14.39 illegality of partnership 14.32 introduction 14.31 laches 14.38 liability for firm’s loss only 14.37 limit on right to query accounts 14.36 limitation 14.39 non-existent partnership 14.32 non-joinder of all parties 14.40 releases 14.35 settled account 14.34 delay 14.38 discretion, and 14.39 general right 14.18 illegality of partnership, and 14.32 jurisdiction of courts 14.19 laches 14.38 liability for firm’s loss only 14.37 limit on right to query accounts 14.36 limitation 14.39 meaning account stated 14.23 claim by partner against firm 14.22 generally 14.20 obligation to account for particular liability 14.21 production of financial statements 14.23 non-existent partnership, and 14.32 non-joinder of all parties 14.40 obligation to account for particular liability 14.21 partner against firm, by 14.22 procedure allowances 14.28 payment into court 14.30 practice 14.27 presumptions against accountable partner 14.29 procedural rules 14.26 summary order to produce 14.25 production of financial statements 14.23 releases 14.35 settled account 14.34 summary order to produce 14.25 taking accounts 14.25–14.30

1127

Index Clergymen capacity, and 3.14 CLS funding partnership actions, and 15.2 Clubs and societies members’ clubs 2.47 non-profit making organisations 2.46 proprietary clubs 2.48 Collective investment schemes generally 24.7 regulation 24.39 Commencement partnership agreements, and 7.4 Commercial agents generally 2.44 Communication with legal advisers partnership actions, and 15.13 Companies capacity, and 3.2 existence of partnership, and 2.25 generally 2.49 introduction 1.7 Company directors capacity, and 3.28 duty of good faith, and 11.10 Compensation distinction from other remedies 14.63 generally 14.62 Competing with firm and see Non-competition covenants ‘consent of the other partners’ 11.39 introduction 11.38 ‘profit’ 11.42 profits of office 11.41 ‘same nature … and competing’ 11.40 Compromise authority of partners, and 19.19 claim for account, and 14.33 Concealment limitation periods, and 15.60 Concurrent petitions creditor’s applications contributory, against 22.40 corporate members, against 22.37 grounds 22.36 hearing of petitions 22.33 individual partner, against 22.38 introduction 22.31 jurisdiction of courts 22.32 limited partners, against 22.39 public examination of partners 22.34 trusteeship 22.34–22.35 unable to pay its debts 22.36–22.38

Concurrent petitions – contd members’ applications generally 22.59 grounds 22.62 hearings 22.63 jurisdiction of courts 22.61 limited partners, and 22.65 member as contributory, and 22.66 petitioners 22.60 Confidential information client information 8.69 firm’s information 8.68 generally 19.75 loyalty of client 8.70 privilege 8.71 Conflicts of interest duty of good faith, and 11.8 generally 19.75 Consent competing with firm, and 11.39 duty of good faith, and 11.14 joining partners, and 11.45 sale and purchase of partnership share, and 11.45 Consideration partnership agreements, and 7.3 Construction partnership agreements, and foreign law 7.12 generally 7.11 Constructive trustees generally 2.50 liability of firm for partner’s wrongs and omissions, and 19.53 Contempt of court liability of firm for partner’s wrongs and omissions, and 19.54 Continuation duration of partnerships, and implicit partnership at will 7.8 surviving terms 7.10 Continuing contracts winding of partnership, and 18.30– 18.32 Contracts disclosure of information, and 11.18 partnership property, and 8.11 Contracts for sale or purchase partnership land, and 8.35 Contracts with partners disclosure of information, and 11.18 Contribution claims distinction from other remedies

1128

Index Contribution claims – contd enforcement 14.57–14.59 equity, in 14.61 generally 14.59 statute, under 14.60 Conversion partnership land, and 8.37 Convicts capacity, and 3.3 Copyright partnership assets and liabilities, and 8.72 Corporate partnerships generally 6.8 Corporations of England and Wales capacity, and 3.2 Corruption illegality, and 4.5 Costs arbitration, and 15.29 dissolution, and 17.7 joint and several liability, and 20.7 litigation, and firm as litigant in person 21.51 generally 21.50 non-competition covenants, and 18.69 partnership actions, and 15.19 Costs and expenses in proceedings bankruptcy of partner 23.20 dissolution of firm 23.21 statutory winding up of firm 23.22– 23.23 statutory winding up of firm and partner 23.24–23.26 Counterclaims litigation, and 21.25 Course of dealing decision-making, and 12.1 Court-ordered dissolution administration orders, and 17.5 adultery, for 17.19 applicants 17.3 breach of partnership agreement, for 17.20 costs 17.7 county court jurisdiction 17.2 dishonesty, for 17.18 effect 17.6 generally 17.1 grounds incapacity 17.8–17.15 insolvency 17.22–17.23 just and equitable 17.24–17.26 misconduct 17.16–17.21

Court-ordered dissolution – contd High Court jurisdiction 17.2 incapacity, for application against incapable partner 17.13 application by incapable partner 17.14 court’s discretion 17.15 date of dissolution 17.9 generally 17.8 mental incapacity 17.10–17.12 insolvency basis of application 17.23 corporate partner, of 16.30 firm, of 16.31 generally 17.22 partner, of 16.29 procedure 17.22 terminology 16.2 interlocutory application 17.4 just and equitable breakdown in relations 17.26 fault of applicant 17.25 jurisdiction 17.24 mental incapacity, for generally 17.10 jurisdiction of courts 17.12 practice 17.11 misconduct, for adultery 17.19 breach of partnership agreement 17.20 dishonesty 17.18 duty of good faith, and 17.20 generally 17.16 negligence 17.20 single partner, of 17.17 negligence, for 17.20 Covenants against assignment partnership leases, and 8.45 Covenants in restraint of competition and see Competing with firm client-related restrictions 18.74 costs 18.69 damages 18.68 duration 18.73 duty of good faith, and 11.1 employee-related restrictions 18.74 enforceability 18.67 general right to compete 18.63 geographical extent 18.73 inducing breach of contract 18.71 NHS practitioners, and 18.77

1129

Index Covenants in restraint of competition – contd passing off, and 18.64 persons entitled to enforce 18.70 ‘reasonable’ client-related restrictions 18.74 duration 18.73 employee-related restrictions 18.74 geographical extent 18.73 introduction 18.72 NHS practitioners, and 18.77 solicitor-client relations, and 18.76 whole agreement, and 18.75 restrictions on general right passing off 18.64 sale of goodwill 18.66 winding up 18.65 sale of goodwill, and 18.66 solicitor-client relations, and 18.76 whole agreement, and 18.75 winding up, and 18.65 Creditors administration, and adjournment 22.43 administrator as manager 22.50– 22.52 agricultural receivers, and 22.44 effect of order 22.49 effect of petition 22.43–22.46 generally 22.42 interim orders 22.45 notification 22.47 pending application 22.46 replacement administrator 22.53 timing of order 22.48 withdrawal 22.43 dissolution, and 16.5 winding of partnership, and 18.29 Creditor’s applications administration, and adjournment 22.43 administrator as manager 22.50– 22.52 agricultural receivers, and 22.44 effect of order 22.49 effect of petition 22.43–22.46 generally 22.42 interim orders 22.45 notification 22.47 pending application 22.46 replacement administrator 22.53 timing of order 22.48 withdrawal 22.43

Criminal offences liability of firm for partner’s wrongs and omissions, and 19.50 Current accounts blending 9.6 generally 9.5 interest 12.22 variation 9.6 D Damages breach of agreement to enter into partnership, for generally 14.4 refusal of incomer to work 14.6 rejection of incomer 14.5 misrepresentation, for 14.10 non-competition covenants, and 18.68 partnership actions, and 15.5 repudiation, and 14.17 Death dissolution, and 16.28 duty of good faith, and 11.47 holding out, and 5.8 liability of partners for firm’s liabilities, and debts arising after departure of partner 20.25–20.31 debts existing at time of departure of partner 20.17–20.24 joint and several liability 20.12 limited partnerships, and 24.9 Debarring defendants claim for account, and 14.41 Debt claims partnership actions, and 15.5 Debts arising after departure of partner apparent members 20.27–20.30 generally 20.25 holding out 20.26 restricted liability 20.31 Debts existing at time of departure of partner agreement to release 20.21 continuing liability 20.18 dead partner’s estate 20.23 election 20.22 estoppel 20.22 existing debts and obligations 20.19 guarantees 20.24 novation 20.25 statutory provisions 20.17 variation of contractual relations 20.20

1130

Index Debts of insolvent firms adjustment of liabilities claimant partner ceased to be in competition with creditors 23.47 debt arisen as result of fraud 23.48 debt arisen in ordinary course of business 23.49 insolvent partner’s estate seeks contribution from solvent partner, where 23.50 liquidator’s powers 23.44 partners are solvent, where 23.43 partner’s rights 23.45–23.49 statutory winding up, in 23.44 costs and expenses in proceedings bankruptcy of partner 23.20 dissolution of firm 23.21 statutory winding up of firm 23.22–23.23 statutory winding up of firm and partner 23.24–23.26 creditors where IPO 1994 applies Article 11 petitions made, where 23.32 concurrent petition not presented, where 23.28–23.30 concurrent petition presented, where 23.31 liquidator 23.28 members as contributories 23.29 partner’s creditors 23.30 creditors where IPO 1994 not apply agreement with creditor 23.36 debt owed by firm and partner 23.37 distinct trade 23.40 exceptions to rule 23.34 firm represents itself as single trader 23.38 fraudulent conversion of property 23.39 general rule 23.33 no joint estate 23.42 petitioning creditor, and 23.41 statutory winding up, and 23.35 estate of dead partner effect 23.55 generally 23.54 personal representatives’ position 23.57 priorities in insolvent estate 23.56 insolvent member of solvent firm dissolution effected, where 23.53

Debts of insolvent firms – contd insolvent member of solvent firm – contd dissolution not effected, where 23.52 generally 23.51 joint and several liability, and agreement between creditor and debtor 20.3 breach of trust 20.6 contractual claims 20.4 costs orders 20.7 death of partner, and 20.12 debt claims 20.3 deeds 20.8 defences, and 20.10 election by creditor 20.2 generally 20.1 merger of claim in judgment, and 20.11 misapplication of money claims 20.5 obligations under seal 20.8 release, and 20.9–20.11 tort claims 20.5 legatees, and 23.12 partner’s lien priority 23.18 registration 23.19 postponed creditors lenders 23.4 partners 23.2 partner’s spouse 23.3 person advanced money by way of loan 23.7 person entitled to share in gross returns 23.8 person with interest in profit share 23.4–23.8 set-off, and 23.9 vendor of goodwill 23.6 priority costs and expenses in proceedings 23.20–23.26 creditors 23.27–23.42 generally 23.1 partner’s lien 23.18–23.19 postponed debts 23.2–23.9 secured debts 23.14–23.17 relative priority of creditors generally 23.27 IPO 1994 applies, where 23.28– 23.32 IPO 1994 not apply, where 23.33– 23.42

1131

Index Debts of insolvent firms – contd secured creditors generally 23.14 joint estate of firm 23.15–23.16 reality of security 23.16 separate estate of partners 23.15– 23.17 set-off generally 23.10 joint debts of firm 23.11–23.13 legatees 23.12 postponed creditors, and 23.9 separate debts of partners 23.11– 23.13 statutory winding up, and 23.1 Decision-making admission of new partner 12.4 change in the business 12.3 course of dealing 12.1 duration of firm 12.5 employees discrimination 12.15 indemnity 12.17 protection 12.15 tax advantages of status 12.16 exclusion from participation 12.13 gardening leave 12.13 generally 12.1 majority decisions generally 12.6 oppression of minority 12.10 ordinary matters connected with business 12.7–12.9 management committee 12.12 non-employees 12.18 ordinary matters connected with business business 12.8 generally 12.7 ordinary matters 12.9 right of single partner to act 12.11 salaried partners 12.14 self-employed persons 12.18 share of profits and losses 12.5 terms of partnership agreement 12.5 unanimous decisions admission of new partner 12.4 change in the business 12.3 generally 12.2 non-ordinary matters 12.5 Deeds existence of partnership, and 2.9 joint and several liability, and 20.8

Defences claim for account, and arbitration 14.33 compromise 14.33 debarred defendants 14.41 delay 14.38 discretion 14.39 illegality of partnership 14.32 introduction 14.31 laches 14.38 liability for firm’s loss only 14.37 limit on right to query accounts 14.36 limitation 14.39 non-existent partnership 14.32 non-joinder of all parties 14.40 releases 14.35 settled account 14.34 joint and several liability, and 20.10 tracing, and 19.68–19.69 Delay claim for account, and 14.38 limitation periods, and activity by defendants 15.62 generally 15.61 inactivity by claimant 15.63 tracing, and 19.69 Derivative actions partnership actions, and 15.10 Design rights partnership assets and liabilities, and 8.72 Disability discrimination and see Discrimination failure to make reasonable adjustments 13.11 generally 13.4 introduction 13.3 Discharge of liabilities and losses default by partner 18.61 partners share shortfall 18.60 Disclaimer existence of partnership, and 2.3 Disclosure generally 21.35 partnership actions, and existence of partnership disputed 15.12 partnership books and records 15.11 privilege 21.36 Disclosure of information contracts with partner, as to 11.18

1132

Index Disclosure of information – contd disposal of partnership share, as to 11.20 financial standing of partner, as to 11.19 generally 11.17 introduction 11.16 obtained from outsiders, where 11.21 profiting from firm, and 11.36 Disclosure of partners’ names actions against firm 21.34 actions by firm 21.33 Discretion claim for account, and 14.39 Discrimination addiction, and 13.4 age 13.3 arbitration clauses 13.26 burden of proof 13.24 cancer 13.4 civil partnership generally 13.5 introduction 13.3 direct discrimination 13.9 disability failure to make reasonable adjustments 13.11 generally 13.4 introduction 13.3 employees of partnerships 13.21 Equality Act 2010 generally 13.2 protected characteristics 13.3 exclusion clauses 13.26 existing partners 13.16 failure to make reasonable adjustments for disabled person 13.11 former partners 13.19 gender reassignment 13.3 generally 13.1 harassment 13.12 HIV infection 13.4 indirect discrimination 13.10 jurisdiction of tribunal 13.22 limited liability partnerships generally 25.45 introduction 13.20 limited partnerships, and generally 24.9 introduction 13.17 marriage generally 13.5 introduction 13.3

Discrimination – contd maternity 13.3 multiple sclerosis 13.4 positive action 13.14 pregnancy 13.3 procedure arbitration clauses 13.26 burden of proof 13.24 exclusion clauses 13.26 jurisdiction of tribunal 13.22 remedies 13.25 time limits 13.23 prohibited conduct direct discrimination 13.9 failure to make reasonable adjustments for disabled person 13.11 harassment 13.12 indirect discrimination 13.10 introduction 13.8 positive action 13.14 victimisation 13.13 proposed firm 13.18 proposed LLP 13.20 prospective partners 13.15 race generally 13.6 introduction 13.3 religion or belief generally 13.7 introduction 13.3 remedies 13.25 sex 13.3 sexual orientation 13.3 time limits 13.23 victimisation 13.13 Dishonesty dissolution, and 17.18 Disposal of partnership share disclosure of information, and 11.20 Disqualification of partners applications generally 22.84 public interest 22.85 effect 22.87 generally 22.81 grounds 22.86 introduction 22.81 limited liability partnerships, and effect 25.105 generally 25.100 grounds 25.104 insolvency applications, and 25.102

1133

Index Disqualification of partners – contd limited liability partnerships, and – contd making order 25.101 public interest applications, and 25.103 limited partnerships, and 24.56 making of order 22.83–22.86 public interest applications 22.85 statutory basis 22.82 Disqualified company directors capacity, and 3.28 Disqualified professionals capacity, and 3.21 illegality, and 4.11 Dissolution and see Expulsion, Retirement, ‘Winding up’ of partnership abandonment, by 16.17 administration orders, and 17.5 adultery, for 17.19 agreements generally 16.42 personal representatives, by 16.20 setting aside 16.19 allowance for management generally 18.9 personal representatives 18.10 announcement of dissolution 18.3 application of partnership property 18.41 arbitration, under 16.16 bankruptcy, by 16.29 bankrupts, and 18.5 banks, and 18.27 breach of partnership agreement, for 17.20 buying out asset cannot be easily sold 18.50 delay on part of seller 18.49 nature of asset such that sale would damage value 18.48 offer by other partners 18.46–18.49 partners agreed on division or valuation 18.51 share of partner selling is small 18.47 Syers v Syers order 18.46 capital profits and losses 18.6 charge of partner’s share, on 16.32 consequences creditors, on 16.5 management, on 18.1–18. winding up 16.4

Dissolution – contd continuing contracts, and 18.30– 18.32 costs 17.7 county court jurisdiction 17.2 court order, by administration orders, and 17.5 adultery, for 17.19 applicants 17.3 breach of partnership agreement, for 17.20 costs 17.7 county court jurisdiction 17.2 dishonesty, for 17.18 effect 17.6 generally 17.1 grounds 17.8–17.26 High Court jurisdiction 17.2 incapacity, for 17.8–17.15 insolvency 17.22–17.23 interlocutory application 17.4 just and equitable 17.24–17.26 mental incapacity 17.10–17.12 misconduct, for 17.16–17.21 negligence, for 17.20 creditors, and 16.5 death, by 16.28 discharge of liabilities and losses default by partner 18.61 partners share shortfall 18.60 dishonesty, for 17.18 distribution of net assets accounting 18.52 claim for an account 18.53 costs 18.58 generally 18.54 interest 18.57 repayment of partner’s capital 18.56 ultimate residue 18.59 distrust, and 17.21 duty of good faith, and generally 11.7 introduction 17.20 effect creditors, on 16.5 management, on 18.1–18.33 winding up 16.4 effect on outsiders banks 18.27 continuing contracts 18.30–18.32 creditors 18.29 employees 18.23–18.25

1134

Index Dissolution – contd effect on outsiders – contd general 18.21 insurance contracts 18.28 landlords 18.22 novation 18.32 salaried partners 18.26 taxation 18.33 employees generally 18.23 no transfer of undertakings 18.25 salaried partners 18.26 transfer of undertakings 18.24 end of agreed venture, at 16.11 frustration, and 16.7 happening of some other event, on 16.12 High Court jurisdiction 17.2 illegality, and generally 4.20 introduction 16.6 incapacity, for application against incapable partner 17.13 application by incapable partner 17.14 court’s discretion 17.15 date of dissolution 17.9 generally 17.8 mental incapacity 17.10–17.12 income profits and losses between continuing partners generally 18.8 management allowance 18.9–18.10 income profits and losses where a partner has left firm dissolution for illegality, and 18.13 election between profits and interest 18.14 election for 5% interest 18.19 election to take profits 18.15 general 18.11 profit attributable to a share 18.15–18.18 ‘profits’ 18.16 ‘share’ 18.18 ‘share of profits’ 18.17 survivors not liable for profits and interest 18.12 income profits and losses where all partners continue active 18.7 indemnity from firm, and 12.33 injunctions, and 15.35

Dissolution – contd insolvency, by basis of application 17.23 corporate partner, of 16.30 firm, of 16.31 generally 17.22 partner, of 16.29 procedure 17.22 Insolvency Act terminology 16.2 insurance contracts, and 18.28 just and equitable, when breakdown in relations 17.26 fault of applicant 17.25 jurisdiction 17.24 landlords, and 18.22 limited liability partnerships, and effect 25.91 generally 25.90 priority of creditors 25.93 striking off register 25.92 limited partnerships, and bankruptcy, on 24.46 charge over limited partner’s share, on 24.45 corporate insolvency, on 24.46 death, on 24.46 dissolution of general partner or limited partner, on 24.46 express provision, under 24.43 mental incapacity, due to 24.48 notice, by 24.44 ‘winding up’ procedure 24.49 lives of certain persons, and 16.9 management after and see ‘Winding up’ of partnership announcement of dissolution 18.3 bankrupts, and 18.5 introduction 18.1 outsiders, and 18.21–18.33 position of partners between themselves 18.4 powers and duties of partners 18.2 profits and losses 18.6–18.20 meaning 16.1 mental incapacity, for generally 17.10 jurisdiction of courts 17.12 practice 17.11 misconduct, for adultery 17.19 breach of partnership agreement 17.20 dishonesty 17.18

1135

Index Dissolution – contd misconduct, for – contd duty of good faith, and 17.20 generally 17.16 negligence 17.20 single partner, of 17.17 mutual agreement, by 16.15 negligence, for 17.20 non-competition covenants, and 18.65 notice, by consequences 16.27 effective date 16.26 generally 16.22 method 16.24 partnerships at will, of 16.23 service 16.25 novation, and 18.32 outsiders, and banks 18.27 continuing contracts 18.30–18.32 creditors 18.29 employees 18.23–18.25 general 18.21 insurance contracts 18.28 landlords 18.22 novation 18.32 salaried partners 18.26 taxation 18.33 partition of land 18.45 partnership agreement, under end of agreed venture 16.11 generally 16.9 happening of some other event 16.12 lives of certain persons 16.9 terms of years 16.10 waiver of conditions 16.13 position of partners between themselves 18.4 powers and duties of partners 18.2 procedure and see ‘Winding up’ of partnership announcement of dissolution 18.3 bankrupts, and 18.5 introduction 18.1 outsiders, and 18.21–18.33 position of partners between themselves 18.4 powers and duties of partners 18.2 profits and losses 18.6–18.20 profits and losses capital profits and losses 18.6

Dissolution – contd profits and losses – contd income profits and losses 18.7– 18.19 profits where continuing partners exercise option to buy share of outgoing partner 18.20 publication of notices 16.21 release of liability 18.32 repudiation, and 16.7 rescission, and 16.8 return of premiums 18.62 rights of partners application of partnership property 18.41 discharge of liabilities and losses 18.60–18.61 distribution of net assets 18.52–18.59 return of premiums 18.62 sale 18.42–18.51 salaried partners, and 18.26 sale of assets general right 18.42 manner 18.43 partner’s right to bid or buy 18.44 scope 16.3 subsequent agreement, by generally 16.14 mutuality 16.15 Syers v Syers order 18.46 taxation, and 18.33 ‘technical dissolution’ 16.1 terms of years, and 16.10 transfer of business, by 16.18 trivial matters, and 17.21 waiver of conditions, and 16.13 winding up 16.4 Dissolution notices duty of good faith, and 11.7 Distress authority of partners, and 19.21 Distribution of net assets accounting 18.52 claim for an account 18.53 costs 18.58 generally 18.54 interest 18.57 repayment of partner’s capital 18.56 ultimate residue 18.59 Distrust dissolution, and 17.21 Domestic arrangements existence of partnership, and 2.26

1136

Index Draft agreements existence of partnership, and 2.8 Drawings sharing profits and losses, and 12.32 Drunks capacity, and 3.16 Duration of partnerships agreed period 7.6 commencement date 7.4 decision-making, and 12.5 termination date 7.5 will, at 7.7 Duty of care generally 14.53 Duty of good faith access to books and records accountants, by 11.24 agents, by 11.24 generally 11.23 partners, by 11.25 accountability for separate businesses, and 11.5 accounts, and generally 11.22 introduction 11.16 agent’s duties, and 11.11 appropriation of partnership business 11.33 books and records, and accountants, by 11.24 agents, by 11.24 generally 11.23 partners, by 11.25 bribes and commissions 11.37 business opportunities obtained as partner 11.35 company directors duties, and 11.10 competing with firm ‘consent of the other partners’ 11.39 introduction 11.38 ‘profit’ 11.42 profits of office 11.41 ‘same nature … and competing’ 11.40 conflicts of interest, and 11.8 consent to breach 11.14 contracts with partner 11.18 disclosure of information, to make contracts with partner, as to 11.18 disposal of partnership share, as to 11.20 financial standing of partner, as to 11.19

Duty of good faith – contd disclosure of information, to make – contd generally 11.17 introduction 11.16 obtained from outsiders, where 11.21 disposal of partnership share 11.20 dissolution, and generally 11.7 introduction 17.20 duration commencement 11.12 end 11.13 employees duties, and 11.10 enforcement introduction 11.1 third parties, against 11.15 estate agent’s duties, and 11.11 estate of dead partner, and 11.47 expulsion notices, and 11.7 extent 11.9 fiduciary duty 11.2 financial standing of partner 11.19 general duty extent 11.9 fiduciary duty 11.2 generally 11.1 limits 11.3–11.8 meaning 11.1 honesty 11.1 information obtained as partner 11.35 interest in contracts 11.28 joining partners, and confidentiality of information 11.46 consent of other partners, and 11.45 general duty 11.43 knowledge of other partners, and 11.45 no sale materialises, and 11.46 purchaser’s duty 11.44 vendor’s duty 11.44 keep accounts, to generally 11.22 introduction 11.16 limited liability partnerships, and 25.72–25.73 meaning 11.1 minority, and 11.1 non-competition, and 11.1

1137

Index Duty of good faith – contd office-holding 11.31 openness 11.1 outside work 11.31 ownership of partnership share, and 11.6 partnership leases, and renewal 11.29 reversion 11.30 private capacity of partner, and 11.8 profiting from firm appropriation of business 11.33 benefit from transactions with firm 11.27 bribes and commissions 11.37 business opportunities obtained as partner 11.35 disclosure 11.36 generally 11.26 information obtained as partner 11.35 interest in contracts 11.28 office-holding 11.31 outside work 11.31 renewal of contracts 11.34 renewal of leases 11.29 reversion of leases 11.30 use of other partnership property 11.32–11.36 provision of information, to make contracts with partner, as to 11.18 disposal of partnership share, as to 11.20 financial standing of partner, as to 11.19 generally 11.17 introduction 11.16 obtained from outsiders, where 11.21 records, and accountants, by 11.24 agents, by 11.24 generally 11.23 partners, by 11.25 renewal of partnership contracts 11.34 renewal of partnership leases 11.29 reversion of partnership leases 11.30 sale of purchase of partnership share, and confidentiality of information 11.46 consent of other partners, and 11.45

Duty of good faith – contd sale of purchase of partnership share, and – contd general duty 11.43 knowledge of other partners, and 11.45 no sale materialises, and 11.46 purchaser’s duty 11.44 vendor’s duty 11.44 secret benefit/profits, and 11.3 separate businesses, and 11.5 trustees, and 11.4 waiver 11.14 E EEIGs generally 2.52 Employees authority of partners, and 19.22 decision-making, and discrimination 12.15 indemnity 12.17 protection 12.15 tax advantages of status 12.16 discrimination, and 13.21 duty of good faith, and 11.10 existence of partnership, and 2.32– 2.33 generally 2.51 liability of partners for firm’s liabilities, and 20.41 winding of partnership, and generally 18.23 no transfer of undertakings 18.25 salaried partners 18.26 transfer of undertakings 18.24 End date duration of partnerships, and 7.5 Enduring powers of attorney partnership share, and 10.24 Enemy aliens capacity, and 3.18 illegality, and 4.8 Enforcement agreements to enter into partnership, and damages for breach 14.4–14.6 injunctions 14.2 introduction 14.1 part performance 14.3 rescission for misrepresentation 14.7–14.10 specific performance 14.2

1138

Index Enforcement – contd agreements to enter into partnership, and – contd duty of good faith, and introduction 11.1 third parties, against 11.15 indemnity from firm, and 12.33 English firms capacity, and 3.17 Equality and see Discrimination generally 13.1–13.26 limited liability partnerships, and 25.30 partnership share, and 10.2 Errors of fact or law challenges to settled accounts, and introduction 14.43 lesser errors 14.46 serious errors 14.45 Estate agents duty of good faith, and 11.11 Estate of dead partner duty of good faith, and 11.47 Estoppel debts existing at time of departure of partner, and 20.22 European economic interest groupings (EEIGs) generally 2.52 Exclusion clauses discrimination, and 13.26 Execution of deeds authority of partners, and 19.20 Execution of judgments appointment of receiver 21.45 assets of firm, against 21.41 bankruptcy proceedings 21.47 charging orders 21.46 firm, against 21.40–21.41 garnishee proceedings 21.49 limited liability partnerships, and 25.17 limited partnerships, and 24.50 non-partners, against 21.43 partner with permission, against 21.43–21.44 partner without permission, against 21.42 third party debt orders 21.49 winding up 21.48 Existence of partnership agents, and 2.32–2.33

Existence of partnership – contd carrying on business in common with view to profit ‘business … with view to profit’ 2.16–2.18 generally 2.15 ‘in common’ 2.19 joint ownership 2.19 landlord and tenant cases 2.17 mutual agency 2.19 ‘single adventure or undertaking’ 2.18 temporary activity 2.18 companies, and 2.25 continuation beyond scope 2.10 continuation of previous arrangements 2.14 deeds 2.9 domestic arrangements 2.26 draft agreements 2.8 employees, and 2.32–2.33 express agreement 2.1 family arrangements 2.26 house-building, and 2.21 implication 2.12–2.14 joint ventures, and generally 2.40 rights and liabilities 2.41 legatees, and 2.38 lenders, and capital repaid from profits 2.36 priorities 2.37 profit share in lieu of interest 2.35 management, and 2.34 non est factum, and 2.1 operation of law 2.4 options 2.6 oral agreements 2.9 preparation for business 2.7 proposals 2.7 purchasers of partnership share 2.29 representations to outsiders 2.2 rules for ascertaining 2.13 salaried partners 2.11 sham arrangements 2.5 sharing gross profits 2.30 sharing losses 2.31 sharing net profits enjoying commercial advantage 2.22 generally 2.20 house-building 2.21

1139

Index Existence of partnership – contd sharing profits but no partnership 2.23–2.29 gross profits 2.30 net profits 2.20–2.22 sharing property 2.39 ‘single adventure or undertaking’ 2.18 sleeping partners, and 2.1 temporary activity 2.18 vendors of business 2.28 written agreements 2.9 written disclaimer 2.3 Express agreement and see Partnership agreements existence of partnership, and 2.1 ownership of partnership property, and 8.20 implied agreement as to ownership date of use, from 8.26 discerned from firm’s accounts 8.22 generally 8.21 property bought from profits of partners’ land 8.25 property bought with money of a partner 8.24 property bought with partnership money 8.23 Express authority authority of partners, and 19.1 breach of trust, and 19.60 Express terms partnership agreements, and 7.1 Expulsion construction of express right 16.40 continuation of partnership, and 7.10 debts arising after departure of partner apparent members 20.27–20.30 generally 20.25 holding out 20.26 restricted liability 20.31 debts existing at time of departure of partner agreement to release 20.21 continuing liability 20.18 dead partner’s estate 20.23 election 20.22 estoppel 20.22 existing debts and obligations 20.19 guarantees 20.24 novation 20.25 statutory provisions 20.17

Expulsion – contd debts existing at time of departure of partner – contd variation of contractual relations 20.20 duty of good faith 16.42 exercise of right 16.42–16.44 express right 16.39 introduction 16.33–16.34 liability of partners for firm’s liabilities, and debts arising after departure of partner 20.25–20.31 debts existing at time of departure of partner 20.17–20.24 limited liability partnerships, and 25.40 natural justice, and 16.43 partnerships at will, and 16.41 procedure 16.44 purchase of departing partner’s share 16.34 right to hearing 16.43 statutory position 16.38 wrongful expulsion 16.45 Expulsion notices duty of good faith, and 11.7 repudiation, and 14.15 External relations authority of partners acquiescence 19.6–19.7 adoption of acts 19.5 apparent authority 19.3–19.4 express authority 19.1 firm’s knowledge 19.7 implied authority 19.2 implied ratification of acts 19.6 knowledge of lack of authority 19.4 matters within business of firm 19.8–19.43 ostensible authority 19.3 ratification of acts 19.5–19.7 breach of solicitors’ undertakings generally 19.72 pay money, to 19.73 breach of trust apparent authority, and 19.61 comparison of statutory provisions 19.59 express authority, and 19.60 general principles 19.58 implied authority, and 19.61

1140

Index External relations – contd breach of trust – contd partner acting outside authority 19.62–19.69 partner acting within authority 19.60–19.61 partners with notice 19.62 tracing claims 19.63–19.69 clients’ confidential information 19.75 conflicts of interest 19.75 liability of firm for partner’s wrongs and omissions accountability 19.53 breach of contract 19.49 change of partners, and 19.56 claims against partner and firm 19.46 constructive trusteeship 19.53 contempt of court 19.54 criminal offences 19.50 fraud 19.51 generally 19.44 harassment 19.54 limitation 19.47 misrepresentation 19.52 negligence 19.48 professional indemnity insurance 19.47 scope 19.45 successor practice, and 19.57 trespass 19.54 misappropriation apparent authority, and 19.61 comparison of statutory provisions 19.59 express authority, and 19.60 general principles 19.58 implied authority, and 19.61 partner acting outside authority 19.62–19.69 partner acting within authority 19.60–19.61 partners with notice 19.62 tracing claims 19.63–19.69 tracing acquiescence 19.69 defences to claim 19.68–19.69 delay 19.69 insurance claims 19.67 interests in property 19.71 methods 19.63 mixed funds 19.65

External relations – contd tracing – contd overdrawn accounts 19.66 property for which liable 19.70– 19.71 purchaser for value without notice 19.68 share of profits 19.71 traceable property 19.64–19.67 trustee-partner’s right to fees 19.74 F Family arrangements existence of partnership, and 2.26 Family partnerships generally 2.53 Fiduciary duty breach forfeiture of wrongdoing partner’s profit share 14.52 wrongdoing partner’s gain and firm’s loss 14.51 generally 11.2 Financial regulation illegality, and 4.13 Financial services partnerships insolvency, and grounds 22.79 petition 22.78 procedure 22.80 limited partnerships, and 24.38 Financial standing of partner disclosure of information, and 11.19 Firm meaning 1.1 Firm name Business Names Act 1985 application 8.61 breach of obligations 8.65 disclosure of partners’ names 8.63 firms of more than 20 partners 8.64 introduction 8.60 professional restrictions 8.66 prohibition of use of certain names 8.62 statutory regulation 8.61 generally 8.55 goodwill, and 8.59 holding out, and 8.58 meaning 8.55 lent or sold 8.59 limited partnerships, and 24.37 passing off, and 8.57

1141

Index Firm name – contd professional bodies, and 8.66– 8.67 restrictions 8.56–8.60 Fixed charges agricultural land, and 8.49–8.50 limited liability partnerships, and 25.87 Fixed term duration of partnerships, and 7.7 Floating charges agricultural land, and 8.49–8.50 limited liability partnerships, and 25.87 Foreign companies capacity, and 3.6 generally 1.10 Foreign diplomats capacity, and 3.4 Foreign enemies capacity, and 3.18 illegality, and 4.8 Foreign firms and partners civil procedure, and 1.15 limited partnerships, and 24.8 partnership actions, and 15.4 Foreign individuals capacity, and 3.5 Foreign partnerships civil procedure, and 1.15 generally 1.13 recognition in English courts 1.14 Foreign relations illegality, and 4.8 Forfeiture breach of fiduciary duty, and 14.52 duty of good faith, and 11.3 partnership agreements, and 7.16– 7.17 secret profits, of 11.3 wrongdoing partner’s profit share, of 14.52 Franchises generally 2.54 Fraud challenges to settled accounts, and 14.44 illegality, and 4.3 liability of firm for partner’s wrongs and omissions, and 19.51 limitation periods, and 15.60 Fraudulent non-disclosure generally 14.54

Fraudulent trading limited liability partnerships, and generally 25.98 recoupment from members 25.99 Friendly societies generally 2.55 Frustration dissolution, and 16.7 G Gambling illegality, and 4.7 Gardening leave decision-making, and 12.13 Garnishee proceedings execution of judgments, and 21.49 Gender reassignment discrimination and see Discrimination generally 13.3 Gifts ownership of partnership property, and 8.27 Girlfriend/boyfriend relationships generally 2.58 Good faith access to books and records accountants, by 11.24 agents, by 11.24 generally 11.23 partners, by 11.25 accountability for separate businesses, and 11.5 accounts, and generally 11.22 introduction 11.16 agent’s duties, and 11.11 appropriation of partnership business 11.33 books and records, and accountants, by 11.24 agents, by 11.24 generally 11.23 partners, by 11.25 bribes and commissions 11.37 business opportunities obtained as partner 11.35 company directors duties, and 11.10 competing with firm ‘consent of the other partners’ 11.39 introduction 11.38 ‘profit’ 11.42 profits of office 11.41

1142

Index Good faith – contd competing with firm – contd ‘same nature … and competing’ 11.40 conflicts of interest, and 11.8 consent to breach 11.14 contracts with partner 11.18 disclosure of information, to make contracts with partner, as to 11.18 disposal of partnership share, as to 11.20 financial standing of partner, as to 11.19 generally 11.17 introduction 11.16 obtained from outsiders, where 11.21 disposal of partnership share 11.20 dissolution, and generally 11.7 introduction 17.20 duration commencement 11.12 end 11.13 employees duties, and 11.10 enforcement introduction 11.1 third parties, against 11.15 estate agent’s duties, and 11.11 estate of dead partner, and 11.47 expulsion notices, and 11.7 extent 11.9 fiduciary duty 11.2 financial standing of partner 11.19 general duty extent 11.9 fiduciary duty 11.2 generally 11.1 limits 11.3–11.8 meaning 11.1 honesty 11.1 information obtained as partner 11.35 interest in contracts 11.28 joining partners, and confidentiality of information 11.46 consent of other partners, and 11.45 general duty 11.43 knowledge of other partners, and 11.45 no sale materialises, and 11.46

Good faith – contd joining partners, and – contd purchaser’s duty 11.44 vendor’s duty 11.44 keep accounts, to generally 11.22 introduction 11.16 limited liability partnerships, and 25.72–25.73 meaning 11.1 minority, and 11.1 non-competition, and 11.1 office-holding 11.31 openness 11.1 outside work 11.31 ownership of partnership share, and 11.6 partnership leases, and renewal 11.29 reversion 11.30 private capacity of partner, and 11.8 profiting from firm appropriation of business 11.33 benefit from transactions with firm 11.27 bribes and commissions 11.37 business opportunities obtained as partner 11.35 disclosure 11.36 generally 11.26 information obtained as partner 11.35 interest in contracts 11.28 office-holding 11.31 outside work 11.31 renewal of contracts 11.34 renewal of leases 11.29 reversion of leases 11.30 use of other partnership property 11.32–11.36 provision of information, to make contracts with partner, as to 11.18 disposal of partnership share, as to 11.20 financial standing of partner, as to 11.19 generally 11.17 introduction 11.16 obtained from outsiders, where 11.21 records, and accountants, by 11.24 agents, by 11.24

1143

Index Good faith – contd records, and – contd generally 11.23 partners, by 11.25 renewal of partnership contracts 11.34 renewal of partnership leases 11.29 reversion of partnership leases 11.30 sale of purchase of partnership share, and confidentiality of information 11.46 consent of other partners, and 11.45 general duty 11.43 knowledge of other partners, and 11.45 no sale materialises, and 11.46 purchaser’s duty 11.44 vendor’s duty 11.44 secret benefit/profits, and 11.3 separate businesses, and 11.5 trustees, and 11.4 waiver 11.14 Goodwill firm name, and 8.59 meaning 8.52 medical practice, of 8.54 non-competition covenants, and 18.66 partnership property, and 8.5 retirement, and 18.37 value 8.53 Group partnerships generally 6.6 Guarantees authority of partners, and 19.23 debts existing at time of departure of partner, and 20.24 firm as creditor, for 8.8 generally 8.6 liability of firm, for 8.7 H Harassment discrimination, and 13.12 liability of firm for partner’s wrongs and omissions, and 19.54 Heads of state capacity, and 3.4 HMRC sharing profits and losses, and 12.27

Holding out bankrupts 5.8 dead partners 5.8 extent of liability 5.7 firm name, and 8.58 introduction 5.1 liability between firm and person held out 5.10 liability of partners for firm’s liabilities, and 20.26 passing off, and 5.9 person to whom partner liable 5.6 representation himself, about 5.3 introduction 5.2 suffered by him 5.5 retired partners 5.8 shadow partner 5.4 transfer of property, and 8.29 Honesty duty of good faith, and 11.1 House-building existence of partnership, and 2.21 I Illegal behaviour authority of partners, and 19.24 Illegality abandonment of illegality 4.24 anti-competitive practice English law 4.9 EU law 4.10 champerty 4.4 claim for account, and 14.32 common law, at 4.1 corruption 4.5 disqualified professionals 4.11 dissolution, and generally 4.20 introduction 16.6 effect dissolution 4.20 generally 4.14–4.16 relations with third parties 4.17– 4.19 statutory illegality 4.15 enemy aliens 4.8 financial regulation, and 4.13 foreign relations, and 4.8 fraud 4.3 gambling 4.7 immorality 4.6 nature 4.14

1144

Index Illegality – contd number of partners, and 4.12 pleading 4.16 relations between partners, and claimant involved in illegality 4.21 claimant not involved in illegality 4.22 proprietary claims 4.23 relations with third parties, and innocent third party 4.17 knowing third party 4.18–4.19 statue, under effect 4.15 generally 4.2 unqualified professionals 4.11 Immorality illegality, and 4.6 Implication existence of partnership, and 2.12– 2.14 Implied agreement as to ownership of property date of use, from 8.26 discerned from firm’s accounts 8.22 generally 8.21 property bought from profits of partners’ land 8.25 property bought with money of a partner 8.24 property bought with partnership money 8.23 Implied authority authority of partners, and 19.2 breach of trust, and 19.61 Implied ratification of acts authority of partners, and 19.6 Implied terms partnership agreements, and 7.2 sub-partnerships, and 6.5 Incapacity application against incapable partner 17.13 application by incapable partner 17.14 court’s discretion 17.15 date of dissolution 17.9 generally 17.8 mental incapacity 17.10–17.12 Income profits and losses between continuing partners generally 18.8 management allowance 18.9– 18.10

Income profits and losses – contd where a partner has left firm dissolution for illegality, and 18.13 election between profits and interest 18.14 election for 5% interest 18.19 election to take profits 18.15 general 18.11 profit attributable to a share 18.15–18.18 ‘profits’ 18.16 ‘share’ 18.18 ‘share of profits’ 18.17 survivors not liable for profits and interest 18.12 where all partners continue active 18.7 where continuing partners exercise option to buy share of outgoing partner 18.20 Indemnity acts beyond partner’s authority 12.34 dissolution, and 12.33 enforcement 12.33 generally 12.33 introduction 14.57 limit agreed by partner 12.37 limited liability partnerships, and 25.31 limited partnerships, and 24.15 loss 12.33 necessity 12.35 negligence 12.36 release by partner 12.37 retirement, and generally 18.40 introduction 12.3 Injunctions agreements to enter into partnership, and 14.1 breach of duty of good faith, and 15.37 dissolution, and 15.35 generally 15.32 interim orders 15.36 mutuality of obligation 15.33 personal obligations of partner 15.34 restraint of misbehaviour by partner 15.32 undertakings 15.36 Insolvency administration of firm and see Administration creditor’s applications 22.42–22.53

1145

Index Insolvency – contd administration of firm – contd generally 22.41 members’ applications 22.55 administration of firm (creditor’s applications) and see Administration administrator as manager 22.50– 22.52 effect of order 22.49 effect of petition 22.43–22.46 generally 22.42 notification 22.47 replacement administrator 22.53 timing of order 22.48 bankruptcy of partner creditors’ petitions 22.13 dissolution, and 16.29 duties of insolvent partner after dissolution 22.17 duties of solvent partners after dissolution 22.18 effect 22.14–22.18 generally 22.10 introduction 22.1 joint applications by individual partners 22.67–22.71 members’ applications 22.11–22.12 powers of insolvent partner on dissolution 22.16 powers of solvent partners after dissolution 22.18 stipulations purporting to restrict insolvency laws 22.15 trustee in bankruptcy 22.14 basis of application 17.23 debts of insolvent firms adjustment of liabilities 23.43– 23.50 costs and expenses on proceedings 23.20–23.26 estate of dead partner 23.54–23.57 insolvent member of solvent firm 23.51–23.53 liens 23.18–23.19 postponement of claims 23.2–23.9 priority 23.1 relative priority of creditors 23.27– 23.42 secured creditors 23.14–23.17 set-off 23.10–23.13 dissolution, and corporate partner 16.30

Insolvency – contd dissolution, and – contd grounds 17.22 firm 16.31 partner 16.29 terminology 16.2 financial services partnerships grounds 22.79 petition 22.78 procedure 22.80 joint bankruptcy without winding up generally 22.67 jurisdiction 22.69 modifications to bankruptcy law 22.70 petition 22.68 trustee 22.71 limited liability partnerships, and 25.89 limited partnerships, and Article 11 petitions 24.55 bankruptcy of partners 24.51 statutory winding up 24.52–24.54 partnership agreements, and 7.14 partnership voluntary arrangements approval of proposal 22.73 generally 22.72 insolvency practitioner’s proposal 22.75 members’ proposal 22.74 statutory winding up of firm and see Statutory winding up court of its own motion, by 22.89 creditor’s applications 22.19–22.40 disqualification of partners 22.81– 22.87 dissolution, and 16.31 EU regulation 22.90 financial services partnerships 22.78–22.80 insolvency practitioner’s petition 22.77 introduction 22.1 members’ applications 22.54–22.66 public examination of ‘officers’ 22.76 public interest petitions 22.88 terminology 22.2–22.9 transfer of property, and 8.29 winding up of corporate partner 16.30 Insolvent partnerships and see Statutory winding up generally 22.1

1146

Index Instructing lawyers authority of partners, and 19.27 Insurance claims tracing, and 19.69 Insurance contracts winding of partnership, and 18.28 Intangible property partnership property, and 8.11 Intellectual property partnership assets and liabilities, and 8.72 Interest advances to firm 12.23 capital accounts 9.7, 12.22 current accounts 12.22 partnership actions, and equity, in 15.18 s 42 Partnership Act 1890, under 15.17 s 35A SCA 1981, under 15.16 Interest in contracts profiting from firm, and 11.28 Interest in net assets partnership share, and 10.1 Interested parties partnership actions, and 15.8 Interests of justice challenges to settled accounts, and 14.43 Interim payments partnership actions, and 15.6 Internal management accounts accounting conventions 12.21 generally 12.19 interest on advances to firm 12.23 interest on capital and current accounts 12.22 partnerships comprising only corporate partners 12.20 decision-making employees 12.15–12.16 exclusion from participation 12.13 gardening leave 12.13 generally 12.1 majority decision 12.6–12.10 management committee 12.12 non-employees 12.18 right of single partner to act 12.11 salaried partners 12.14 unanimous decisions 12.2–12.5 indemnity from firm acts beyond partner’s authority 12.34

Internal management – contd indemnity from firm – contd generally 21.33 limit agreed by partner 12.37 necessity 12.35 negligence 12.36 release by partner 12.37 remuneration agreement as to profit share 12.29 drawings 12.32 effect of HMRC requirements 12.27 generally 12.24 implied agreement 12.25 lock-step 12.30 loss sharing 12.31 no agreement as to profit share 12.28 overdrawings 12.32 profits and losses 12.26 variations 12.30 Inventions ownership of partnership property, and 8.27 Irish partnerships generally 1.11 Isle of Man generally 1.12 J Joining partners duty of good faith, and confidentiality of information 11.46 consent of other partners, and 11.45 general duty 11.43 knowledge of other partners, and 11.45 no sale materialises, and 11.46 purchaser’s duty 11.44 vendor’s duty 11.44 Joint and several liability agreement between creditor and debtor 20.3 breach of trust 20.6 contractual claims 20.4 costs orders 20.7 death of partner, and 20.12 debt claims 20.3 deeds 20.8 defences, and 20.10 election by creditor 20.2

1147

Index Joint and several liability – contd generally 20.1 merger of claim in judgment, and 20.11 misapplication of money claims 20.5 obligations under seal 20.8 release, and 20.9–20.11 tort claims 20.5 Joint bankruptcy without winding up generally 22.67 jurisdiction 22.69 limited partnerships, and 24.55 modifications to bankruptcy law 22.70 petition 22.68 trustee 22.71 Joint ventures generally 2.40 rights and liabilities 2.41 Judgments generally 21.38 limited partnerships, and 24.50 partnership actions, and actions in firm name 15.15 one partner against another 15.14 summary judgment 21.39 Jurisdiction claim for account, and 14.19 dissolution, and 17.2 partnership actions, and 15.1 Just and equitable dissolution breakdown in relations 17.26 fault of applicant 17.25 jurisdiction 17.24 K Knowledge authority of partners, and 19.7 liability of partners for firm’s liabilities, and breach of trust 20.37 constructive trustee 20.37 guilty partners 20.36 habitual acts in partnership 20.33 imputation from professional to client 20.35 imputed knowledge 20.32 matters relating to partnership affairs 20.34 notice will not be delivered 20.38 L Laches claim for account, and 14.38

Laches – contd limitation periods, and activity by defendants 15.62 generally 15.61 inactivity by claimant 15.63 Land beneficial interest 8.33 contracts for sale or purchase 8.35 conversion 8.37 generally 8.33–8.35 nature 8.36–8.38 partnership property, and 8.4 presumption in favour of tenancy in common 8.28 problems as asset 8.34 survivorship 8.38 transfer of property, and 8.30–8.31 vesting 8.36 Landlords winding of partnership, and 18.22 Landlords and tenants generally 2.56 Lasting powers of attorney partnership share, and 10.24 Law Commission reports generally 1.9 Leases agreements binding on firm 8.39 alienation 8.45 break clauses 8.47 covenants against assignment 8.45 duty of good faith, and renewal 11.29 reversion 11.30 firm as landlord 8.42 firm as tenant of partner landlord 8.43–8.44 parting with possession 8.45 periodic tenancies, and 8.46 surrender 8.47 unincorporated associations as tenants 8.41 vesting 8.40 Leave to surcharge and falsify challenges to settled accounts, and 14.49 Legal aid partnership actions, and 15.2 Legatees debts of insolvent firms, and 23.12 existence of partnership, and 2.38 Lenders existence of partnership, and capital repaid from profits 2.36

1148

Index Lenders – contd existence of partnership, and – contd priorities 2.37 profit share in lieu of interest 2.35 Lending authority of partners, and 19.25 Liability of firm for partner’s wrongs and omissions accountability 19.53 breach of contract 19.49 change of partners, and 19.56 claims against partner and firm 19.46 constructive trusteeship 19.53 contempt of court 19.54 criminal offences 19.50 fraud 19.51 generally 19.44 harassment 19.54 limited liability partnerships, and 25.69 limitation 19.47 litigation acknowledgment of service 21.32– 21.33 admissions 21.37 cause of action 21.12–21.16 costs 21.50–21.51 defences 21.17–21.19 disclosure 21.35–21.36 disclosure of partner’s names 21.33–21.34 execution of judgments 21.38– 21.49 judgments 21.38–21.38 procedure 21.20–21.37 scope of rules 21.20–21.25 service 21.26–21.31 misrepresentation 19.52 negligence 19.48 professional indemnity insurance 19.47 scope 19.45 successor practice, and 19.57 trespass 19.54 Liability of partners for firm’s liabilities apparent members 20.27–20.30 beginning of existing obligations 20.14 new partners 20.13 novation 20.15 professional indemnity insurance 20.16 unperformed contracts 20.14

Liability of partners for firm’s liabilities – contd death of partner 20.12 debts arising after departure of partner apparent members 20.27–20.30 generally 20.25 holding out 20.26 restricted liability 20.31 debts existing at time of departure of partner agreement to release 20.21 continuing liability 20.18 dead partner’s estate 20.23 election 20.22 estoppel 20.22 existing debts and obligations 20.19 guarantees 20.24 novation 20.25 statutory provisions 20.17 variation of contractual relations 20.20 defences 20.10 employees 20.41 end of debts arising after departure of partner 20.25–20.31 debts existing at time of departure of partner 20.17–20.24 exclusion by notice to outsider general power 20.39 nature of notice 20.40 expelled partners debts arising after departure of partner 20.25–20.31 debts existing at time of departure of partner 20.17–20.24 holding out 20.26 incoming partners existing obligations 20.14 new partners 20.13 novation 20.15 professional indemnity insurance 20.16 unperformed contracts 20.14 joint and several liability agreement between creditor and debtor 20.3 breach of trust 20.6 contractual claims 20.4 costs orders 20.7 death of partner, and 20.12

1149

Index Liability of partners for firm’s liabilities – contd joint and several liability – contd debt claims 20.3 deeds 20.8 defences, and 20.10 election by creditor 20.2 generally 20.1 merger of claim in judgment, and 20.11 misapplication of money claims 20.5 obligations under seal 20.8 release, and 20.9–20.11 tort claims 20.5 knowledge of partner breach of trust 20.37 constructive trustee 20.37 guilty partners 20.36 habitual acts in partnership 20.33 imputation from professional to client 20.35 imputed knowledge 20.32 matters relating to partnership affairs 20.34 notice will not be delivered 20.38 leaving partners debts arising after departure of partner 20.25–20.31 debts existing at time of departure of partner 20.17–20.24 limited liability partnerships, and actual authority 25.65 agency, and 25.64 generally 25.63 limits on authority 25.66 member, of 25.70 ostensible authority 25.67–25.68 undertakings to court 25.71 wrongs of member, for 25.69 litigation acknowledgment of service 21.32– 21.33 admissions 21.37 cause of action 21.12–21.16 costs 21.50–21.51 defences 21.17–21.19 disclosure 21.35–21.36 disclosure of partner’s names 21.33–21.34 execution of judgments 21.38– 21.49 judgments 21.38–21.38

Liability of partners for firm’s liabilities – contd litigation – contd procedure 21.20–21.37 scope of rules 21.20–21.25 service 21.26–21.31 merger of claim in judgment 20.11 novation 20.15 professional indemnity insurance 20.16 release from liability 20.9 retiring partners debts arising after departure of partner 20.25–20.31 debts existing at time of departure of partner 20.17–20.24 undertakings to court 25.71 Liens debts of insolvent firms, and priority 23.18 registration 23.19 dissolution, on 10.8 general 10.9 generally 10.6 meaning 10.6 rescission, on 10.7 Life assurance policies partnership property, and 8.9 Limitation periods abandonment, and 15.64 acknowledgment 15.57–15.58 acquiescence, and 15.64 authority of partners, and 19.26 claim between continuing partners 15.51 claim between firm and outgoing partner generally 15.52 length of the account 15.54 ‘outgoing’ partner 15.53 property coming into partnership after dissolution 15.55 claim for account, and 14.39 concealment 15.60 delay, and activity by defendants 15.62 generally 15.61 inactivity by claimant 15.63 extension acknowledgment 15.57–15.58 concealment 15.60 fraud 15.60 generally 15.56

1150

Index Limitation periods – contd extension – contd mistake 15.60 part payment 15.59 fraud 15.60 generally 15.50 laches, and activity by defendants 15.62 generally 15.61 inactivity by claimant 15.63 mistake 15.60 part payment 15.59 waiver, and 15.64 Limited companies capacity, and 3.2 existence of partnership, and 2.25 generally 2.49 introduction 1.7 Limited liability partnerships accounts Companies Act obligations 25.84 generally 25.86 information 25.37 actual authority generally 25.65 limits 25.66 administration 25.89 agency, and 25.64 annual return 25.88 application of statutory provisions 25.2 audit Companies Act obligations 25.84 generally 25.85 background 25.2 books and records 25.36 breach of contractual obligation 25.78 business with view to profit generally 25.18 legality 25.19–25.20 capital 25.59 certificate of registration 25.7 cesser of membership agreement with other members 25.80 breach of contractual obligation 25.78 effect 25.83 generally 25.77 repudiation 25.79 registration 25.82 retirement on notice 25.81

Limited liability partnerships – contd changes of name 25.15 charges 25.87 charges over property 25.22 characteristics 25.4 commencement of membership 25.76 competing business 25.38 confidentiality orders 25.50 default rules accounts and information 25.37 books and records 25.36 competing business 25.38 dispute resolution 25.35 equality 25.30 expulsion 25.40 generally 25.29 indemnity 25.31 management 25.32 new members 25.34 personal benefits 25.39 remuneration 25.33 delinquent members generally 25.98 recoupment from members 25.99 designated members appointment 25.53 duties 25.54 need 25.52 privileges 25.54 removal 25.53 discrimination generally 25.45 introduction 13.20 disqualification of partners effect 25.105 generally 25.100 grounds 25.104 insolvency applications, and 25.102 making order 25.101 public interest applications, and 25.103 dispute resolution 25.35 dissolution effect 25.91 generally 25.90 priority of creditors 25.93 striking off register 25.92 duty of good faith 25.72–25.73 equality 25.30 execution of documents 25.17 expulsion 25.40 fixed and floating charges 25.87

1151

Index Limited liability partnerships – contd fraudulent trading generally 25.98 recoupment from members 25.99 generally 25.1 incorporation document 25.7 indemnity 25.31 information 25.37 insolvency 25.89 introduction 2.50 investigation of affairs court order 25.95 discretion of Secretary of State 25.96 inspection 25.97 member’s request 25.94 legality of business generally 25.19 professionals 25.20 liability to outsiders actual authority 25.65 agency, and 25.64 generally 25.63 limits on authority 25.66 member, of 25.70 ostensible authority 25.67–25.68 undertakings to court 25.71 wrongs of member, for 25.69 litigation acknowledgment of service 25.25 generally 25.24 service 25.25 LLP agreement contents 25.27–25.28 default rules 25.29–25.40 discrimination 25.45 generally 25.26 introduction 21.20 member’s right to sue for wrong done 25.46 unfair prejudice to members 25.41– 25.44 management 25.32 member’s liability to contribute to assets contractual obligations 25.61– 25.62 generally 25.60 member’s right to sue for wrong done 25.46 member’s share assignment 25.58 losses 25.56

Limited liability partnerships – contd member’s share – contd nature 25.57 profit share 25.55 membership cesser 25.77–25.83 commencement 25.76 confidentiality orders 25.50 designated members 25.52–25.54 duty of good faith 25.72–25.73 employment by firm 25.75 liability 25.51 liability of LLP, and 25.63–25.71 liability to contribute 25.60–25.62 meaning 25.47 member’s share 25.55–25.59 number 25.49 persons entitled 25.48 registration 25.50 retirement 25.81 shadow members 25.51 member’s limited liability 25.5 misfeasance 25.98 name changes 25.15 documentation, on 25.16 execution of documents 25.17 generally 25.13 objectionable names 25.14 premises, on 25.16 registration 25.13 seal 25.17 nature 25.1 negligence of members generally 25.73 relief by court 25.73 new members 25.34 ostensible authority actual members, of 25.67 former members, of 25.68 overview 1.8 personal benefits 25.39 pre-incorporation contracts 25.12 priority of creditors 25.93 property charges 25.22 generally 25.21 records 25.36 registered office 25.11 registration certificate 25.7 default 25.10 incorporation document, of 25.7

1152

Index Limited liability partnerships – contd registration – contd public access to register 25.8 registered office 25.11 subsequent alteration 25.9 remuneration 25.33 repudiation of membership 25.79 registration of membership 25.82 retirement on notice 25.81 right to sue for wrong done 25.46 seal 25.17 sham arrangements 25.6 striking off register 25.92 taxation 25.23 transfer of assets CFAs 25.110 clients 25.111 existing leases, contracts and liabilities 25.107 executorships 25.108 generally 25.106 substitution of defendants 25.107 taxation 25.112 trusteeships 25.109 undertakings to court 25.71 unfair prejudice to members applicants 25.43 court’s powers 25.44 exclusion of right to claim 25.42 generally 25.41 view to profit generally 25.18 legality 25.19–25.20 voluntary arrangements 25.89 winding up effect 25.91 generally 25.90 priority of creditors 25.93 striking off register 25.92 wrongful trading generally 25.98 recoupment from members 25.99 Limited partnerships Article 11 petitions 24.55 assignment of partnership share 24.23 bankruptcy, and generally 24.46 petitions 24.51 breach of good faith 24.18 ‘business’ 24.5 change to composition advertisement 24.36 registration 24.33

Limited partnerships – contd charge of partnership share 24.23 charge over limited partner’s share, and 24.45 collective investment schemes generally 24.7 regulation 24.39 comparison with ordinary partnerships 24.3 conflict between limited and general partners breach of good faith 24.18 generally 24.17 liability of general partner for investment advice 24.20 rights of partners to legal advice 24.21 variation in partners’ obligations 24.19 corporate insolvency, and 24.46 death, and 24.46 discrimination, and generally 24.9 introduction 13.17 disqualification of partners 24.56 dissolution bankruptcy, on 24.46 charge over limited partner’s share, on 24.45 corporate insolvency, on 24.46 death, on 24.46 express provision, under 24.43 general partner or limited partner, of 24.46 mental incapacity, due to 24.48 notice, by 24.44 ‘winding up’ procedure 24.49 execution of judgments 24.50 financial services 24.38 firm name 24.37 foreign companies, and 1.10 foreign firms 24.8 generally 24.1 incoming partners assignment of share, by 24.23 generally 24.22 indemnity 24.15 insolvency Article 11 petitions 24.55 bankruptcy of partners 24.51 statutory winding up 24.52–24.54 judgments 24.50 legal professionals 24.42

1153

Index Limited partnerships – contd liability of general partner for investment advice 24.20 limited partner’s capital ordinary limited partnership 24.25 private fund limited partnership 24.26 limited partner’s involvement conflict with general partners 24.17–24.21 effect 24.14 general partner, where also 24.13 generally 24.11 indemnity 24.15 prohibited interference 24.12 litigation 24.16 management conflict between limited and general partners 24.17–24.21 general partners, by 24.10 limited partners, by 24.11–24.15 mental incapacity, and 24.48 name 24.37 nature 24.1 notice of dissolution, and 24.44 number of partners 24.24 ordinary partnerships, and 24.3 partner’s financial position 24.6 place of business 24.33 priority of limited partner’s claims 24.57 private equity funds 24.7 private fund limited partnerships capital 24.26 regulation 24.40 reform proposals 24.2 registration advertisement of changes 24.36 certificate 24.30 changes 24.33 effect of default 24.31 firm name 24.37 general requirement 24.27–24.28 particulars 24.32 place of business 24.33 register and index 24.34–24.35 timing 24.29 regulation of business collective investment schemes 24.39 financial services 24.38 legal professionals 24.42 private fund limited partnerships 24.40 successor partnerships 24.41

Limited partnerships – contd rights of partners to legal advice 24.21 sham arrangements 24.4 solicitors 24.42 statutory basis 1.5 statutory winding up creditor’s petitions 24.53 generally 24.52 member’s petitions 24.54 successor partnerships 24.41 trust of partnership share 24.23 variation in partners’ obligations 24.19 venture capital funds 24.7 ‘winding up’ procedure 24.49 Litigation acknowledgment of service limited liability partnerships, and 25.25 method 21.30 persons disputes liability as partner 21.32 time 21.31 actions against firm cause of action 21.12–21.16 defences 21.17–21.19 procedure 21.20–21.37 actions by firm cause of action 21.1–21.6 partners entitled to authorise 21.7–21.9 set-off 21.10–21.11 admissions 21.37 appointment of receiver 21.45 authority of partners, and 19.27 bankruptcy proceedings 21.47 ‘carrying on business within the jurisdiction’ 21.23 cause of action actions against firm 21.12–21.16 actions by firm 21.1–21.6 charging orders 21.46 costs firm as litigant in person 21.51 generally 21.50 counterclaims 21.25 disclosure generally 21.35 privilege 21.36 disclosure of partner’s names actions against firm 21.34 actions by firm 21.33

1154

Index Litigation – contd execution of judgments appointment of receiver 21.45 assets of firm, against 21.41 bankruptcy proceedings 21.47 charging orders 21.46 firm, against 21.40–21.41 garnishee proceedings 21.49 non-partners, against 21.43 partner with permission, against 21.43–21.44 partner without permission, against 21.42 third party debt orders 21.49 winding up 21.48 garnishee proceedings 21.49 judgment generally 21.38 summary judgment 21.39 limited liability partnerships, and acknowledgment of service 25.25 generally 25.24 service 25.25 limited partnerships, and 24.16 partners entitled to authorise action by firm as against defendant 21.7 as between firm and own solicitors 21.8 as between partners 21.9 partners under disability 21.22 privilege 21.36 procedure acknowledgment of service 21.30– 21.32 admissions 21.37 counterclaims 21.25 disclosure 21.35 disclosure of partner’s names 21.33–21.34 privilege 21.36 scope of rules 21.20–21.25 service 21.26–21.29 trading name 21.21 receiver 21.45 scope of rules ‘carrying on business within the jurisdiction’ 21.23 counterclaims 21.25 generally 21.20 ‘name under which carried on business’ 21.24 no partnership 21.21

Litigation – contd scope of rules – contd partners under disability 21.22 trading name 21.21 service acceptance 21.29 generally 21.26 limited liability partnerships, and 25.25 outside jurisdiction 21.28 within jurisdiction 21.27 set-off exceptions to rule 21.11 general rule 21.10 summary judgment 21.39 third party debt orders 21.49 trading name 21.21 winding up proceedings 21.48 Local authorities capacity, and 3.7 Lock-step sharing profits and losses, and 12.30 Losses and see Sharing losses meaning 12.26 M Majority decisions generally 12.6 oppression of minority 12.10 ordinary matters connected with business business 12.8 generally 12.7 ordinary matters 12.9 Management existence of partnership, and 2.34 limited partnerships, and general partners, by 24.10 limited partners, by 24.11–24.15 Management committee decision-making, and 12.12 Marriage discrimination, and and see Discrimination generally 13.5 introduction 13.3 generally 2.58 Married women capacity, and 3.10 Maternity discrimination and see Discrimination generally 13.3

1155

Index Mediation generally 15.24 introduction 15.21 Medical practices goodwill, and 8.54 Members’ applications administration, and 22.43 Members’ clubs generally 2.47 Mental incapacity generally 17.10 jurisdiction of courts 17.12 limited partnerships, and 24.48 practice 17.11 Mental patients capacity, and commencement of partnership, at 3.25 Court of Protection 3.26 loss during course of partnership 3.27 Merger of claim in judgment liability of partners for firm’s liabilities, and 20.11 Mergers variation of partnership agreements, and 7.26 Mining companies generally 2.59 Minority partners duty of good faith, and 11.1 Minors affirmation 3.23 generally 3.22 judgment and execution 3.24 Misapplication of money joint and several liability, and 20.5 Misappropriation apparent authority, and 19.61 comparison of statutory provisions 19.59 express authority, and 19.60 general principles 19.58 implied authority, and 19.61 partner acting outside authority 19.62–19.69 partner acting within authority 19.60–19.61 partners with notice 19.62 tracing claims 19.63–19.69 Misconduct adultery 17.19 breach of partnership agreement 17.20

Misconduct – contd dishonesty 17.18 duty of good faith, and 17.20 generally 17.16 negligence 17.20 single partner, of 17.17 Misfeasance limited liability partnerships, and 25.98 Misrepresentation challenges to settled accounts, and 14.44 damages, and 14.10 liability of firm for partner’s wrongs and omissions, and 19.52 partnership agreements, and 7.20 rescission, and consequences 14.9 damages 14.10 generally 14.7 nature 14.8 settled accounts, and 14.44 Mistake limitation periods, and 15.60 Mixed funds tracing, and 19.65 Mortgages assets and liabilities of partnership, and 8.51 Mortgaging authority of partners, and 19.28 Mutual agreement dissolution, and 16.15 Mutual benefit associations generally 2.57 N Name of firm Business Names Act 1985 application 8.61 breach of obligations 8.65 disclosure of partners’ names 8.63 firms of more than 20 partners 8.64 introduction 8.60 professional restrictions 8.66 prohibition of use of certain names 8.62 statutory regulation 8.61 generally 8.55 goodwill, and 8.59 holding out, and 8.58 limited liability partnerships, and changes 25.15

1156

Index Name of firm – contd limited liability partnerships, and – contd documentation, on 25.16 execution of documents 25.17 generally 25.13 objectionable names 25.14 premises, on 25.16 registration 25.13 seal 25.17 meaning 8.55 lent or sold 8.59 passing off, and 8.57 professional bodies, and 8.66–8.67 restrictions 8.56–8.60 Necessity indemnity from firm, and 12.35 Negligence dissolution, and 17.20 generally 14.53 indemnity from firm, and 12.36 joint and several liability, and 20.5 liability of firm for partner’s wrongs and omissions, and 19.48 limited liability partnerships, and generally 25.73 relief by court 25.73 Non-competition covenants and see Competing with firm client-related restrictions 18.74 costs 18.69 damages 18.68 duration 18.73 duty of good faith, and 11.1 employee-related restrictions 18.74 enforceability 18.67 general right to compete 18.63 geographical extent 18.73 inducing breach of contract 18.71 NHS practitioners, and 18.77 passing off, and 18.64 persons entitled to enforce 18.70 ‘reasonable’ client-related restrictions 18.74 duration 18.73 employee-related restrictions 18.74 geographical extent 18.73 introduction 18.72 NHS practitioners, and 18.77 solicitor-client relations, and 18.76 whole agreement, and 18.75 restrictions on general right passing off 18.64

Non-competition covenants – contd restrictions on general right – contd sale of goodwill 18.66 winding up 18.65 sale of goodwill, and 18.66 solicitor-client relations, and 18.76 whole agreement, and 18.75 winding up, and 18.65 Non est factum existence of partnership, and 2.1 partnership agreements, and 7.20 Non-joinder of all parties claim for account, and 14.40 Non-profit making organisations generally 2.46 Notice of dissolution consequences 16.27 effective date 16.26 generally 16.22 method 16.24 partnerships at will, of 16.23 service 16.25 Notice to quit authority of partners, and 19.29 Novation liability of partners for firm’s liabilities, and debts existing at time of departure of partner 20.25 incoming partners 20.15 winding of partnership, and 18.32 Number of partners illegality, and 4.12 limited partnerships, and 24.24 O Office-holding profiting from firm, and 11.31 Offices partnership property, and 8.11 Openness duty of good faith, and 11.1 Operation of law existence of partnership, and 2.4 Options authority of partners, and 19.30 existence of partnership, and 2.6 variation of partnership agreements, and 7.25 Oral agreements existence of partnership, and 2.9 variation of partnership agreements, and 7.22

1157

Index Ordinary business authority of partners, and 19.9 Ordinary matters connected with business business 12.8 generally 12.7 ordinary matters 12.9 Ostensible authority generally 19.3 limited liability partnerships, and actual members, of 25.67 former members, of 25.68 Overdrawings sharing profits and losses, and 12.32 Overdrawn accounts tracing, and 19.66 Overriding objective partnership actions, and 15.3 P Parallel partnerships generally 6.7 Part payment limitation periods, and 15.59 Part performance agreements to enter into partnership, and 14.3 Parting with possession partnership leases, and 8.45 Partition of land winding of partnership, and 18.45 Partner meaning 1.1 Partner’s lien debts of insolvent firms, and priority 23.18 registration 23.19 dissolution, on 10.8 general 10.9 generally 10.6 meaning 10.6 rescission, on 10.7 Partners’ property claims by partnership 8.18 introduction 8.14 monies owed by partnership 8.17 mortgage debts 8.19 non-proprietary rights 8.16–8.19 proprietary rights 8.16–8.19 Partners under disability litigation, and 21.22 Partnership Channels Islands, in 1.12

Partnership – contd definition 1.1 entities akin agents 2.42 barristers’ chambers 2.43 boyfriend/girlfriend relationships 2.58 civil partnership 2.45, 2.58 clubs 2.46–2.48 commercial agents 2.44 companies 2.49 constructive trusts 2.50 EEIGs 2.52 employment 2.51 family partnerships 2.53 franchises 2.54 friendly societies 2.55 landlords and tenants 2.56 LLPs 2.49 marriage 2.58 mining companies 2.59 mutual benefit associations 2.57 public-private partnerships 2.60 quasi-partnerships 2.61 share farmers 2.62 Sharia law 2.63 societies 2.46–2.48 existence and see Existence of partnership carrying on business in common with view to profit 2.15–2.19 express agreement 2.1–2.11 implication 2.12–2.14 joint ventures 2.40–2.41 sharing profits 2.20–2.38 sharing property 2.39 historical background Bovill’s Act 1.3 Commonwealth countries, and 1.6 current law 1.4 limited partnerships 1.5 origins 1.2 Ireland, in 1.11 Isle of Man, in 1.12 Law Commission reports 1.9 limited companies, and 1.7 limited liability partnerships, and 1.8 nature 1.1 Scotland, in 1.11 Partnership actions account account stated, for 14.23 arbitration, and 14.33

1158

Index Partnership actions – contd account – contd challenge to settled account 14.42– 14.49 compromise, and 14.33 debarred defendants 14.41 discretion, and 14.39 defences 14.31–14.41 delay 14.38 general right 14.18 illegality of partnership, and 14.32 laches 14.38 liability for firm’s loss only 14.37 limit on right to query accounts 14.36 limitation 14.39 meaning 14.20 non-existent partnership, and 14.32 non-joinder of all parties 14.40 obligation to account for particular liability 14.21 partner against firm, by 14.22 procedure 14.19 production of financial statements 14.23 releases 14.35 settled account 14.34 summary order to produce 14.25 taking accounts 14.25–14.30 actionable claims 14.56 agreements to enter into partnership damages for breach 14.4–14.6 injunctions 14.2 introduction 14.1 part performance 14.3 rescission 14.2 rescission for misrepresentation 14.7–14.10 specific performance 14.2 alternative dispute resolution generally 15.24 introduction 15.21 appointment of receiver agreement, by 15.39 applicants to court 15.40 appointees 15.41 county court procedure 15.45 generally 15.38 grounds before dissolution 15.42 grounds in dissolution 15.43 High Court procedure 15.44 management of business, and 15.47 powers 15.48

Partnership actions – contd appointment of receiver – contd remuneration 15.46 restrictions on creditors 15.49 status 15.48 arbitration appeals 15.30 applications to court 15.25 arbitration clauses 15.23 arbitrator’s powers 15.28 costs 15.29 disadvantages 15.22 enforcement of awards 15.26 generally 15.22 introduction 15.21 powers of arbitrator 15.28 stay of court proceedings, and 15.27 books and records 15.11 breach of contract 14.50 breach of fiduciary duty forfeiture of wrongdoing partner’s profit share 14.52 wrongdoing partner’s gain and firm’s loss 14.51 challenges to settled accounts errors of fact or law 14.43 fraud 14.44 generally 14.42 grounds 14.43–14.46 interests of justice 14.43 leave to surcharge and falsify 14.49 lesser errors of fact or law 14.46 manifest errors 14.43 misrepresentation 14.44 orders available 14.47–14.49 re-opening 14.48 serious errors of fact or law 14.45 undue influence 14.44 CLS funding 15.2 communication with legal advisers 15.13 compensation distinction from other remedies 14.63 generally 14.62 contribution claims distinction from other remedies 14.63 enforcement 14.57–14.59 equity, in 14.61 generally 14.59 statute, under 14.60

1159

Index Partnership actions – contd costs of action 15.19 damages claims 15.5 damages for breach of agreement to enter into partnership generally 14.4 refusal of incomer to work 14.6 rejection of incomer 14.5 debt claims 15.5 derivative actions 15.10 disclosure existence of partnership disputed 15.12 partnership books and records 15.11 duty of care 14.53 foreign firms and partners 15.4 forfeiture of wrongdoing partner’s profit share 14.52 fraudulent non-disclosure 14.54 indemnity from firm acts beyond partner’s authority 12.34 dissolution, and 12.33 distinction from other remedies 14.63 enforcement 12.33 generally 12.33 introduction 14.57 limit agreed by partner 12.37 loss 12.33 necessity 12.35 negligence 12.36 release by partner 12.37 retirement, and 12.33 injunctions agreements to enter into partnership, and 14.1 breach of duty of good faith, and 15.37 dissolution, and 15.35 generally 15.32 interim orders 15.36 mutuality of obligation 15.33 personal obligations of partner 15.34 restraint of misbehaviour by partner 15.32 undertakings 15.36 interest equity, in 15.18 s 42 Partnership Act 1890, under 15.17 s 35A SCA 1981, under 15.16

Partnership actions – contd interested parties 15.8 interim payments 15.6 judgments actions in firm name 15.15 one partner against another 15.14 jurisdiction 15.1 legal aid 15.2 limitation periods abandonment, and 15.64 acknowledgment 15.57–15.58 acquiescence, and 15.64 claims between continuing partners 15.51 claim between firm and outgoing partner 15.52–15.55 concealment 15.60 delay, and 15.61–15.63 extension 15.56–15.60 fraud 15.60 generally 15.50 laches, and 15.61–15.63 mistake 15.60 part payment 15.59 waiver, and 15.64 mediation generally 15.24 introduction 15.21 negligence 14.53 overriding objective 15.3 parties to action derivative actions 15.10 firms name 15.9 interested parties 15.8 partners 15.7 representative parties 15.10 partner’s gain and firm’s loss 14.51 partnership agreements enforcement 14.1–14.10 repudiation by breach 14.11–14.17 partnership books and records 15.11 privilege 15.13 proportionality 15.3 receiver agreement, by 15.39 applicants to court 15.40 appointees 15.41 county court procedure 15.45 generally 15.38 grounds before dissolution 15.42 grounds in dissolution 15.43 High Court procedure 15.44 management of business, and 15.47

1160

Index Partnership actions – contd receiver – contd powers 15.48 remuneration 15.46 restrictions on creditors 15.49 status 15.48 receiver and manager generally 15.47 powers 15.48 representative parties 15.10 repudiation by breach of partnership agreement application of doctrine 14.11– 14.13 damages following 14.17 effect 14.16 meaning 14.14 mistaken expulsion notices 14.15 rescission for misrepresentation consequences 14.9 damages 14.10 generally 14.7 introduction 14.2 nature 14.8 return of premiums 14.58 set-off 14.64 setting transactions aside 14.55 specific performance 14.2 suing in firm name 15.9 taking accounts allowances 14.28 payment into court 14.30 practice 14.27 presumptions against accountable partner 14.29 procedural rules 14.26 summary order to produce 14.25 title to action 15.9 wrongdoing partner’s gain and firm’s loss 14.51 wrongdoing partner’s profit share 14.52 Partnership agreements cesser of business 7.5 commencement date 7.4 consideration 7.3 construction foreign law 7.12 generally 7.11 continuation implicit partnership at will 7.8 surviving terms 7.10

Partnership agreements – contd dissolution, and end of agreed venture 16.11 generally 16.9 happening of some other event 16.12 lives of certain persons 16.9 terms of years 16.10 waiver of conditions 16.13 duration agreed period 7.6 commencement date 7.4 termination date 7.5 will, at 7.7 end date 7.5 express terms 7.1 forfeiture, and 7.16 implied terms 7.2 insolvency, and 7.14 misrepresentation, and 7.20 non est factum, and 7.20 penalties 7.15 public policy, and 7.13 relief from forfeiture, and 7.17 termination date 7.5 unconscionability, and 7.19 undue influence, and 7.18 variation express 7.21–7.22 generally 7.21 implied 7.21–7.22 mergers 7.26 new partner joining the firm 7.23–7.25 oral 7.22 Partnership assets and liabilities agricultural land agricultural credits 8.49–8.50 sham arrangements 8.48 statutory protection of tenants 8.48 business name application 8.61 breach of obligations 8.65 disclosure of partners’ names 8.63 firms of more than 20 partners 8.64 introduction 8.60 professional restrictions 8.66 prohibition of use of certain names 8.62 statutory regulation 8.61 confidential information client information 8.69 firm’s information 8.68 loyalty of client 8.70

1161

Index Partnership assets and liabilities – contd confidential information – contd privilege 8.71 copyright 8.72 design rights 8.72 firm name Business Names Act 1985, and 8.61–8.67 generally 8.55 goodwill, and 8.59 holding out, and 8.58 meaning 8.55 lent or sold 8.59 passing off, and 8.57 restrictions 8.56–8.60 statutory regulation 8.60–8.67 goodwill meaning 8.52 medical practice, of 8.54 partnership property, and 8.5 value 8.53 guarantees firm as creditor, for 8.8 generally 8.6 liability of firm, for 8.7 implied agreement as to ownership date of use, from 8.26 discerned from firm’s accounts 8.22 generally 8.21 property bought from profits of partners’ land 8.25 property bought with money of a partner 8.24 property bought with partnership money 8.23 individual partners’ property ascertaining ownership by more than one partner 8.20–8.27 non-proprietary rights 8.16–8.19 proprietary rights 8.16–8.19 intangible property 8.11 intellectual property 8.72 land beneficial interest 8.33 contracts for sale or purchase 8.35 conversion 8.37 generally 8.33–8.35 nature 8.36–8.38 presumption in favour of tenancy in common 8.28 problems as asset 8.34 survivorship 8.38 vesting 8.36

Partnership assets and liabilities – contd leases agreements binding on firm 8.39 alienation 8.45 break clauses 8.47 covenants against assignment 8.45 firm as landlord 8.42 firm as tenant of partner landlord 8.43–8.44 parting with possession 8.45 periodic tenancies, and 8.46 surrender 8.47 unincorporated associations as tenants 8.41 vesting 8.40 life assurance policies 8.9 name of firm business name 8.61–8.67 generally 8.55–8.60 partners’ property claims by partnership 8.18 monies owed by partnership 8.17 mortgage debts 8.19 non-proprietary rights 8.16–8.19 proprietary rights 8.16–8.19 partnership property, and 8.14 rules for ascertaining ownership 8.20–8.27 partnership capital 8.13 partnership land beneficial interest 8.33 contracts for sale or purchase 8.35 conversion 8.37 generally 8.33–8.35 nature 8.36–8.38 presumption in favour of tenancy in common 8.28 problems as asset 8.34 survivorship 8.38 vesting 8.36 partnership leases agreements binding on firm 8.39 alienation 8.45 break clauses 8.47 covenants against assignment 8.45 firm as landlord 8.42 firm as tenant of partner landlord 8.43–8.44 parting with possession 8.45 periodic tenancies, and 8.46 surrender 8.47 unincorporated associations as tenants 8.41

1162

Index Partnership assets and liabilities – contd partnership leases – contd vesting 8.40 partnership property agency, and 8.1 capital, and 8.13 categories 8.3–8.11 contracts 8.11 definition 8.1 goodwill 8.5 guarantees 8.6–8.8 intangible property 8.11 introduction 8.1–8.2 land 8.4 life assurance policies 8.9 offices 8.11 partners’ property, and 8.14 partnership capital, and 8.13 patents 8.11 relationship with other property 8.12–8.15 rules for ascertaining ownership 8.20–8.27 survivorship 8.2 unsaleable property 8.11 work in progress 8.10 patents 8.11 property used but not owned by partnership 8.15 reversions 8.39–8.47 rules for ascertaining ownership express agreement 8.20 gifts 8.27 implied agreement 8.21–8.26 inventions 8.27 windfalls 8.27 tenancies 8.39–8.47 theft by partner, and 8.1 transfer of property agreements between firm and members 8.28 creditors 8.29 evidence 8.43 requirement of writing 8.30–8.31 unsaleable property 8.11 work in progress 8.10 Partnership at will generally 7.7 implication, by 7.8 Partnership capital accounting treatment 9.4 background 9.1 capital accounts

Partnership capital – contd blending 9.6 generally 9.4 interest 9.7 variation 9.6 capital contributions 9.8 current accounts blending 9.6 generally 9.5 variation 9.6 meaning 9.2 ownership 9.9 partners’ capital 9.3 partnership property, and 8.13 repayment 9.9 Partnership debts authority of partners, and 19.12 Partnership land beneficial interest 8.33 contracts for sale or purchase 8.35 conversion 8.37 generally 8.33–8.35 introduction 8.4 nature 8.36–8.38 presumption in favour of tenancy in common 8.28 problems as asset 8.34 survivorship 8.38 transfer of property, and 8.30–8.31 vesting 8.36 Partnership leases agreements binding on firm 8.39 alienation 8.45 break clauses 8.47 covenants against assignment 8.45 duty of good faith, and renewal 11.29 reversion 11.30 firm as landlord 8.42 firm as tenant of partner landlord 8.43–8.44 parting with possession 8.45 periodic tenancies, and 8.46 surrender 8.47 unincorporated associations as tenants 8.41 vesting 8.40 Partnership options existence of partnership, and 2.6 variation of partnership agreements, and 7.25 Partnership property agency, and 8.1

1163

Index Partnership property – contd capital, and 8.13 categories contracts 8.11 goodwill 8.5 guarantees 8.6–8.8 intangible property 8.11 introduction 8.3 land 8.4 life assurance policies 8.9 offices 8.11 patents 8.11 unsaleable property 8.11 work in progress 8.10 contracts 8.11 definition 8.1 goodwill 8.5 guarantees firm as creditor, for 8.8 generally 8.6 liability of firm, for 8.7 intangible property 8.11 introduction 8.1–8.2 land 8.4 life assurance policies 8.9 offices 8.11 partners’ property, and 8.14 partnership capital, and 8.13 patents 8.11 property used but not owned by partnership 8.15 relationship with other property introduction 8.12 partners’ property, and 8.14 partnership capital, and 8.13 used but not owned by partnership 8.15 survivorship 8.2 unsaleable property 8.11 work in progress 8.10 Partnership share appointment of receiver consequences 10.16 judgment creditor’s claim 10.15 assignees’ liability 10.13 assignees’ rights after dissolution 10.12 before dissolution 10.11 generally 10.10 assignment assignees’ liability 10.13 assignees’ rights 10.10–10.12 assignors’ continuing liability 10.14

Partnership share – contd assignment – contd generally 10.4 attorneys 10.24 charges chargees’ rights 10.10–10.12 generally 10.4 charging orders consequences 10.16 judgment creditor’s claim 10.15 duty of good faith, and enduring powers of attorney 10.24 equality, and 10.2 interest in net assets 10.1 lasting powers of attorney 10.24 lien dissolution, on 10.8 general 10.9 generally 10.6 meaning 10.6 rescission, on 10.7 meaning 10.1 partner’s lien dissolution, on 10.8 general 10.9 generally 10.6 meaning 10.6 rescission, on 10.7 personal representatives death dissolves partnership 10.18 death doesn’t dissolve partnership 10.19 general position 10.17 presumption of equality 10.2 survivorship 10.3 trust, on beneficiaries’ rights 10.21 nominees 10.22 trustee-partner’s rights and liabilities 10.20 will bequests 10.23 value 10.5 will trusts 10.23 Partnership voluntary arrangements (PVAs) approval of proposal 22.73 generally 22.72 insolvency practitioner’s proposal 22.75 limited liability partnerships, and 25.89 members’ proposal 22.74 Passing off firm name, and 8.57

1164

Index Passing off – contd holding out, and 5.9 non-competition covenants, and 18.64 Patents partnership property, and 8.11 Patients capacity, and commencement of partnership, at 3.25 Court of Protection 3.26 loss during course of partnership 3.27 Penalties partnership agreements, and 7.15 Periodic tenancies partnership leases, and 8.46 Personal representatives capacity, and 3.9 partnership share, and death dissolves partnership 10.18 death doesn’t dissolve partnership 10.19 general position 10.17 Place of business limited partnerships, and 24.33 Pleadings illegality, and 4.16 Positive action discrimination, and 13.14 Postponed creditors lenders 23.4 partners 23.2 partner’s spouse 23.3 person advanced money by way of loan 23.7 person entitled to share in gross returns 23.8 person with interest in profit share 23.4–23.8 set-off, and 23.9 vendor of goodwill 23.6 Powers of attorney authority of partners, and 19.32 Pre-emption continuation of partnership, and 7.10 Pre-incorporation contracts limited liability partnerships, and 25.12 Pregnancy discrimination and see Discrimination generally 13.3 Preparation for business existence of partnership, and 2.7

Priority of debts of insolvent firms adjustment of liabilities claimant partner ceased to be in competition with creditors 23.47 debt arisen as result of fraud 23.48 debt arisen in ordinary course of business 23.49 insolvent partner’s estate seeks contribution from solvent partner, where 23.50 liquidator’s powers 23.44 partners are solvent, where 23.43 partner’s rights 23.45–23.49 statutory winding up, in 23.44 costs and expenses in proceedings bankruptcy of partner 23.20 dissolution of firm 23.21 statutory winding up of firm 23.22–23.23 statutory winding up of firm and partner 23.24–23.26 creditors where IPO 1994 applies Article 11 petitions made, where 23.32 concurrent petition not presented, where 23.28–23.30 concurrent petition presented, where 23.31 liquidator 23.28 members as contributories 23.29 partner’s creditors 23.30 creditors where IPO 1994 not apply agreement with creditor 23.36 debt owed by firm and partner 23.37 distinct trade 23.40 exceptions to rule 23.34 firm represents itself as single trader 23.38 fraudulent conversion of property 23.39 general rule 23.33 no joint estate 23.42 petitioning creditor, and 23.41 statutory winding up, and 23.35 estate of dead partner effect 23.55 generally 23.54 personal representatives’ position 23.57 priorities in insolvent estate 23.56 generally 23.1

1165

Index Priority of debts of insolvent firms – contd insolvent member of solvent firm dissolution effected, where 23.53 dissolution not effected, where 23.52 generally 23.51 joint and several liability, and agreement between creditor and debtor 20.3 breach of trust 20.6 contractual claims 20.4 costs orders 20.7 death of partner, and 20.12 debt claims 20.3 deeds 20.8 defences, and 20.10 election by creditor 20.2 generally 20.1 merger of claim in judgment, and 20.11 misapplication of money claims 20.5 obligations under seal 20.8 release, and 20.9–20.11 tort claims 20.5 legatees, and 23.12 limited liability partnerships, and 25.93 limited partnerships, and 24.57 partner’s lien priority 23.18 registration 23.19 postponed creditors lenders 23.4 partners 23.2 partner’s spouse 23.3 person advanced money by way of loan 23.7 person entitled to share in gross returns 23.8 person with interest in profit share 23.4–23.8 set-off, and 23.9 vendor of goodwill 23.6 relative priority of creditors generally 23.27 IPO 1994 applies, where 23.28–23.32 IPO 1994 not apply, where 23.33– 23.42 secured creditors generally 23.14 joint estate of firm 23.15–23.16 reality of security 23.16 separate estate of partners 23.15– 23.17

Priority of debts of insolvent firms – contd set-off generally 23.10 joint debts of firm 23.11–23.13 legatees 23.12 postponed creditors, and 23.9 separate debts of partners 23.11– 23.13 statutory winding up, and 23.1 Prisoners capacity, and 3.3 Private capacity of partner duty of good faith, and 11.8 Private equity funds limited partnerships, and 24.7 Private fund limited partnerships capital 24.26 generally 24.7 regulation 24.40 Privilege confidential information, and 8.71 litigation, and 21.36 partnership actions, and 15.13 Production of financial statements claim for account, and 14.23 Professional bodies firm name, and 8.66–8.67 Professional indemnity insurance liability of firm for partner’s wrongs and omissions, and 19.47 liability of partners for firm’s liabilities, and 20.16 Profit and loss account sharing profits and losses, and 12.27 Profiting from firm appropriation of business 11.33 benefit from transactions with firm 11.27 bribes and commissions 11.37 business opportunities obtained as partner 11.35 disclosure 11.36 generally 11.26 information obtained as partner 11.35 interest in contracts 11.28 office-holding 11.31 outside work 11.31 renewal of contracts 11.34 renewal of leases 11.29 reversion of leases 11.30 use of other partnership property 11.32–11.36

1166

Index Profits and losses accounting standards 12.27 agreement as to profit share 12.29 drawings 12.32 generally 12.24 HMRC requirements 12.27 implied agreement 12.25 lock-step 12.30 ‘losses’ 12.26 no agreement as to profit share 12.28 overdrawings 12.32 profit and loss account 12.27 ‘profits’ 12.26 sharing losses 12.31 sharing profits accounting standards 12.27 agreement 12.29 lock-step 12.30 no agreement 12.28 variations 12.30 winding of partnership, and capital profits and losses 18.6 income profits and losses 18.7–18.19 Profits of office competing with firm, and 11.41 Property agency, and 8.1 capital, and 8.13 categories contracts 8.11 goodwill 8.5 guarantees 8.6–8.8 intangible property 8.11 introduction 8.3 land 8.4 life assurance policies 8.9 offices 8.11 patents 8.11 unsaleable property 8.11 work in progress 8.10 contracts 8.11 definition 8.1 goodwill 8.5 guarantees firm as creditor, for 8.8 generally 8.6 liability of firm, for 8.7 intangible property 8.11 introduction 8.1–8.2 land 8.4 life assurance policies 8.9 limited liability partnerships, and charges 25.22

Property – contd limited liability partnerships, and – contd generally 25.21 offices 8.11 partners’ property, and 8.14 partnership capital, and 8.13 patents 8.11 property used but not owned by partnership 8.15 relationship with other property introduction 8.12 partners’ property, and 8.14 partnership capital, and 8.13 used but not owned by partnership 8.15 survivorship 8.2 unsaleable property 8.11 work in progress 8.10 Proportionality partnership actions, and 15.3 Proposals existence of partnership, and 2.7 Proprietary claims illegality, and relations between partners, and 4.23 relations with third parties, and 4.18 Proprietary clubs generally 2.48 Provision of information contracts with partner, as to 11.18 disposal of partnership share, as to 11.20 financial standing of partner, as to 11.19 generally 11.17 introduction 11.16 obtained from outsiders, where 11.21 Public examination of partners applications by liquidator 22.76 concurrent petitions presented, where 22.34 generally 22.26 Public interest petitions generally 22.88 Public policy partnership agreements, and 7.13 Public-private partnerships generally 2.60 Publication of notices dissolution, and 16.21

1167

Index Purchaser for value without notice tracing, and 19.68 Purchasers of partnership share existence of partnership, and 2.29 Q Quasi-partnerships generally 2.61 R Racial discrimination and see Discrimination generally 13.6 introduction 13.3 Ratification of acts firm’s knowledge 19.7 generally 19.5 implied 19.6 Receipt of payment authority of partners, and 19.34 Receiver agreement, by 15.39 applicants to court 15.40 appointees 15.41 county court procedure 15.45 generally 15.38 grounds before dissolution 15.42 grounds in dissolution 15.43 High Court procedure 15.44 execution of judgments, and 21.45 management of business, and 15.47 powers 15.48 remuneration 15.46 restrictions on creditors 15.49 status 15.48 Receiver and manager generally 15.47 powers 15.48 Records accountants 11.24 agents 11.24 generally 11.23 limited liability partnerships, and 25.36 partners 11.25 Release authority of partners, and 19.19 Release of liability liability of partners for firm’s liabilities, and 20.9 winding of partnership, and 18.32 Releases claim for account, and 14.35

Relief from forfeiture partnership agreements, and 7.17 Religion or belief discrimination and see Discrimination generally 13.7 introduction 13.3 Remedies and claims between partners account account stated, for 14.23 arbitration, and 14.33 challenge to settled account 14.42– 14.49 compromise, and 14.33 debarred defendants 14.41 discretion, and 14.39 defences 14.31–14.41 delay 14.38 general right 14.18 illegality of partnership, and 14.32 laches 14.38 liability for firm’s loss only 14.37 limit on right to query accounts 14.36 limitation 14.39 meaning 14.20 non-existent partnership, and 14.32 non-joinder of all parties 14.40 obligation to account for particular liability 14.21 partner against firm, by 14.22 procedure 14.19 production of financial statements 14.23 releases 14.35 settled account 14.34 summary order to produce 14.25 taking accounts 14.25–14.30 actionable claims 14.56 agreements to enter into partnership damages for breach 14.4–14.6 injunctions 14.2 introduction 14.1 part performance 14.3 rescission 14.2 rescission for misrepresentation 14.7–14.10 specific performance 14.2 alternative dispute resolution generally 15.24 introduction 15.21 appointment of receiver agreement, by 15.39 applicants to court 15.40

1168

Index Remedies and claims between partners – contd appointment of receiver – contd appointees 15.41 county court procedure 15.45 generally 15.38 grounds before dissolution 15.42 grounds in dissolution 15.43 High Court procedure 15.44 management of business, and 15.47 powers 15.48 remuneration 15.46 restrictions on creditors 15.49 status 15.48 arbitration appeals 15.30 applications to court 15.25 arbitration clauses 15.23 arbitrator’s powers 15.28 costs 15.29 disadvantages 15.22 enforcement of awards 15.26 generally 15.22 introduction 15.21 powers of arbitrator 15.28 stay of court proceedings, and 15.27 books and records 15.11 breach of contract 14.50 breach of fiduciary duty forfeiture of wrongdoing partner’s profit share 14.52 wrongdoing partner’s gain and firm’s loss 14.51 challenges to settled accounts errors of fact or law 14.43 fraud 14.44 generally 14.42 grounds 14.43–14.46 interests of justice 14.43 leave to surcharge and falsify 14.49 lesser errors of fact or law 14.46 manifest errors 14.43 misrepresentation 14.44 orders available 14.47–14.49 re-opening 14.48 serious errors of fact or law 14.45 undue influence 14.44 CLS funding 15.2 communication with legal advisers 15.13 compensation distinction from other remedies 14.63 generally 14.62

Remedies and claims between partners – contd contribution claims distinction from other remedies 14.63 enforcement 14.57–14.59 equity, in 14.61 generally 14.59 statute, under 14.60 costs of action 15.19 damages claims agreements to enter into partnership, and 14.4–14.6 generally 15.5 damages for breach of agreement to enter into partnership generally 14.4 refusal of incomer to work 14.6 rejection of incomer 14.5 debt claims 15.5 derivative actions 15.10 disclosure existence of partnership disputed 15.12 partnership books and records 15.11 duty of care 14.53 foreign firms and partners 15.4 forfeiture of wrongdoing partner’s profit share 14.52 fraudulent non-disclosure 14.54 indemnity from firm acts beyond partner’s authority 12.34 dissolution, and 12.33 distinction from other remedies 14.63 enforcement 12.33 generally 12.33 introduction 14.57 limit agreed by partner 12.37 loss 12.33 necessity 12.35 negligence 12.36 release by partner 12.37 retirement, and 12.33 injunctions agreements to enter into partnership, and 14.1 breach of duty of good faith, and 15.37 dissolution, and 15.35 generally 15.32 interim orders 15.36

1169

Index Remedies and claims between partners – contd injunctions – contd mutuality of obligation 15.33 personal obligations of partner 15.34 restraint of misbehaviour by partner 15.32 undertakings 15.36 interest equity, in 15.18 s 42 Partnership Act 1890, under 15.17 s 35A SCA 1981, under 15.16 interested parties 15.8 judgments actions in firm name 15.15 one partner against another 15.14 jurisdiction 15.1 legal aid 15.2 limitation periods abandonment, and 15.64 acknowledgment 15.57–15.58 acquiescence, and 15.64 claims between continuing partners 15.51 claim between firm and outgoing partner 15.52–15.55 concealment 15.60 delay, and 15.61–15.63 extension 15.56–15.60 fraud 15.60 generally 15.50 laches, and 15.61–15.63 mistake 15.60 part payment 15.59 waiver, and 15.64 mediation generally 15.24 introduction 15.21 negligence 14.53 overriding objective 15.3 part performance 14.3 parties to action derivative actions 15.10 firms name 15.9 interested parties 15.8 partners 15.7 representative parties 15.10 partner’s gain and firm’s loss 14.51 partnership agreements enforcement 14.1–14.10 repudiation by breach 14.11–14.17

Remedies and claims between partners – contd partnership books and records 15.11 privilege 15.13 proportionality 15.3 receiver agreement, by 15.39 applicants to court 15.40 appointees 15.41 county court procedure 15.45 generally 15.38 grounds before dissolution 15.42 grounds in dissolution 15.43 High Court procedure 15.44 management of business, and 15.47 powers 15.48 remuneration 15.46 restrictions on creditors 15.49 status 15.48 receiver and manager generally 15.47 powers 15.48 representative parties 15.10 repudiation by breach of partnership agreement application of doctrine 14.11–14.13 damages following 14.17 effect 14.16 meaning 14.14 mistaken expulsion notices 14.15 rescission for misrepresentation consequences 14.9 damages 14.10 generally 14.7 introduction 14.2 nature 14.8 return of premiums 14.58 set-off 14.64 setting transactions aside 14.55 specific performance 14.2 suing in firm name 15.9 taking accounts allowances 14.28 payment into court 14.30 practice 14.27 presumptions against accountable partner 14.29 procedural rules 14.26 summary order to produce 14.25 title to action 15.9 wrongdoing partner’s profit share 14.52 wrongdoing partner’s gain and firm’s loss 14.51

1170

Index Remuneration accounting standards 12.27 agreement as to profit share 12.29 drawings 12.32 generally 12.24 HMRC requirements 12.27 implied agreement 12.25 limited liability partnerships, and 25.33 lock-step 12.30 loss sharing 12.31 ‘losses’ 12.26 no agreement as to profit share 12.28 overdrawings 12.32 profit and loss account 12.27 ‘profits’ 12.26 sharing losses 12.31 sharing profits accounting standards 12.27 agreement 12.29 lock-step 12.30 no agreement 12.28 variations 12.30 Renewal of partnership contracts profiting from firm, and 11.34 Renewal of partnership leases duty of good faith, and 11.29 Re-opening accounts challenges to settled accounts, and 14.48 Representations existence of partnership, and 2.2 holding out, and himself, about 5.3 introduction 5.2 suffered by him 5.5 Representative parties partnership actions, and 15.10 Repudiation application of doctrine current approach 14.13 partnership agreements, to 14.12 partnerships, to 14.11 damages following 14.17 dissolution, and 16.7 effect 14.16 limited liability partnerships, and 25.79 meaning 14.14 mistaken expulsion notices 14.15 Rescission consequences 14.9 damages 14.10

Rescission – contd dissolution, and 16.8 generally 14.7 introduction 14.2 nature 14.8 Restraint of competition and see Competing with firm client-related restrictions 18.74 costs 18.69 damages 18.68 duration 18.73 duty of good faith, and 11.1 employee-related restrictions 18.74 enforceability 18.67 general right to compete 18.63 geographical extent 18.73 inducing breach of contract 18.71 NHS practitioners, and 18.77 passing off, and 18.64 persons entitled to enforce 18.70 ‘reasonable’ client-related restrictions 18.74 duration 18.73 employee-related restrictions 18.74 geographical extent 18.73 introduction 18.72 NHS practitioners, and 18.77 solicitor-client relations, and 18.76 whole agreement, and 18.75 restrictions on general right passing off 18.64 sale of goodwill 18.66 winding up 18.65 sale of goodwill, and 18.66 solicitor-client relations, and 18.76 whole agreement, and 18.75 winding up, and 18.65 Retired partners holding out, and 5.8 Retirement agreement requirement 16.36 debts arising after departure of partner apparent members 20.27–20.30 generally 20.25 holding out 20.26 restricted liability 20.31 debts existing at time of departure of partner agreement to release 20.21 continuing liability 20.18 election 20.22 estoppel 20.22

1171

Index Retirement – contd debts existing at time of departure of partner – contd existing debts and obligations 20.19 guarantees 20.24 novation 20.25 statutory provisions 20.17 variation of contractual relations 20.20 generally 16.35 implied terms 16.37 indemnity from firm, and generally 18.40 introduction 12.3 introduction 16.33–16.34 liability of partners for firm’s liabilities debts arising after departure of partner 20.25–20.31 debts existing at time of departure of partner 20.17–20.24 non-competition covenants client-related restrictions 18.74 costs 18.69 damages 18.68 duration 18.73 employee-related restrictions 18.74 enforceability 18.67 general right to compete 18.63 geographical extent 18.73 inducing breach of contract 18.71 NHS practitioners, and 18.77 passing off, and 18.64 persons entitled to enforce 18.70 ‘reasonable’ 18.72–18.77 restrictions on general right 18.64– 18.66 sale of goodwill, and 18.66 solicitor-client relations, and 18.76 whole agreement, and 18.75 winding up, and 18.65 notice requirement 16.36 rights of partners 18.34–18.40 purchase of departing partner’s share 16.34 rights of parties basis of valuation 18.39 generally 18.34 goodwill 18.37 valuation of the share 18.35–18.36 work in progress 18.38 sale of retiring partner’s share 16.37

Return of premiums generally 14.58 winding of partnership, and 18.62 Reversion of partnership leases duty of good faith, and 11.30 S Salaried partners decision-making, and 12.14 existence of partnership, and 2.11 winding of partnership, and 18.26 Sale of assets general right 18.42 manner 18.43 partner’s right to bid or buy 18.44 Sale of partnership share confidentiality of information 11.46 consent of other partners, and 11.45 general duty 11.43 knowledge of other partners, and 11.45 no sale materialises, and 11.46 purchaser’s duty 11.44 vendor’s duty 11.44 Scottish firms capacity, and 3.8 Scottish partnerships generally 1.11 Seals and see Execution of deeds limited liability partnerships, and 25.17 Secret benefit/profits duty of good faith, and 11.3 Secured creditors generally 23.14 joint estate of firm 23.15–23.16 reality of security 23.16 separate estate of partners 23.15– 23.17 Self-employed persons decision-making, and 12.18 Service acceptance 21.29 generally 21.26 limited liability partnerships, and 25.25 outside jurisdiction 21.28 within jurisdiction 21.27 Set-off authority of partners, and 19.35 debts and credits exceptions to rule 21.11 general rule 21.10

1172

Index Set-off – contd debts of insolvent firms, and generally 23.10 joint debts of firm 23.11–23.13 legatees 23.12 postponed creditors, and 23.9 separate debts of partners 23.11– 23.13 generally 14.64 Setting transactions aside generally 14.55 Settled account challenges to errors of fact or law 14.43 fraud 14.44 generally 14.42 grounds 14.43–14.46 interests of justice 14.43 leave to surcharge and falsify 14.49 lesser errors of fact or law 14.46 manifest errors 14.43 misrepresentation 14.44 orders available 14.47–14.49 re-opening 14.48 serious errors of fact or law 14.45 undue influence 14.44 generally 14.34 Sex discrimination and see Discrimination generally 13.3 Sexual orientation discrimination and see Discrimination generally 13.3 Shadow partners holding out, and 5.4 Sham arrangements agricultural land, and 8.48 existence of partnership, and 2.5 limited liability partnerships, and 25.6 limited partnerships, and 24.4 Share farmers generally 2.62 Share of profits and losses decision-making, and 12.5 Sharia law generally 2.63 Sharing gross profits existence of partnership, and 2.30 Sharing losses existence of partnership, and 2.31 generally 12.31 ‘losses’ 12.26

Sharing profits accounting standards 12.27 agreement 12.29 drawings 12.32 generally 12.24 HMRC requirements 12.27 implied agreement 12.25 lock-step 12.30 net profits, and enjoying commercial advantage 2.22 generally 2.20 house-building 2.21 no agreement as to profit share 12.28 overdrawings 12.32 profit and loss account 12.27 ‘profits’ 12.26 tracing, and 19.71 variations 12.30 Sharing property existence of partnership, and 2.39 ‘Single adventure or undertaking’ existence of partnership, and 2.18 duration of partnerships, and 7.7 Sleeping partners existence of partnership, and 2.1 Societies and clubs members’ clubs 2.47 non-profit making organisations 2.46 proprietary clubs 2.48 Solicitors capacity, and 3.30 limited partnerships, and 24.42 Specific performance agreements to enter into partnership, and 14.2 State immunity capacity, and 3.4 Statutory winding up court of its own motion, by 22.89 creditor’s applications and see Statutory winding up (creditor’s applications) cessation of business 22.29 concurrent petitions not presented, where 22.28–22.30 concurrent petitions presented, where 22.31–22.40 dissolution of business 22.29 effect of petition 22.25–22.26 failure to indemnify member 22.30 grounds 22.22–22.24 jurisdiction of courts 22.21

1173

Index Statutory winding up – contd creditor’s applications – contd just and equitable 22.24 liquidator’s powers 22.27 public examination of partners 22.26 territorial jurisdiction 22.20 unable to pay its debts 22.23 winding up petition 22.19 definitions ‘contributory’ 22.3 ‘dissolution’ 22.5 ‘insolvent member’ 22.6 ‘insolvent partnership’ 22.7 introduction 22.2 ‘joint estate’ 22.8 ‘member’ 22.9 ‘separate estate’ 22.8 ‘the court’ 22.4 ‘winding up’ 22.5 disqualification of partners applications 22.84 effect 22.87 grounds 22.86 introduction 22.81 making of order 22.83–22.86 public interest applications 22.85 statutory basis 22.82 dissolution, and 16.31 EU regulation 22.90 financial services partnerships 22.78– 22.80 insolvency practitioner’s petition 22.77 introduction 22.1 limited partnerships, and creditor’s petitions 24.53 generally 24.52 member’s petitions 24.54 members’ applications and see Statutory winding up (members’ applications) concurrent petition not presented, where 22.56–22.58 concurrent petition presented, where 22.59–22.66 generally 22.54 public examination of ‘officers’ 22.76 public interest petitions 22.88 terminology 22.2–22.9 Statutory winding up (creditor’s applications) cessation of business 22.29

Statutory winding up (creditor’s applications) – contd concurrent petitions not presented, where dissolution of business 22.29 failure to indemnify member 22.30 generally 22.28 grounds 22.29–22.30 concurrent petitions presented, where contributory, against 22.40 corporate members, against 22.37 grounds 22.36 hearing of petitions 22.33 individual partner, against 22.38 introduction 22.31 jurisdiction of courts 22.32 limited partners, against 22.39 public examination of partners 22.34 trusteeship 22.34–22.35 unable to pay its debts 22.36–22.38 dissolution of business 22.29 effect of petition generally 22.25 public examination of partners 22.26 failure to indemnify member 22.30 grounds generally 22.22 just and equitable 22.24 unable to pay its debts 22.23 jurisdiction of courts 22.21 just and equitable 22.24 liquidator’s powers 22.27 public examination of partners 22.26 territorial jurisdiction 22.20 unable to pay its debts 22.23 winding up petition 22.19 Statutory winding up (members’ applications) concurrent petition not presented, where generally 22.56 grounds 22.58 hearings 22.64 jurisdiction of courts 22.57 concurrent petition presented, where generally 22.59 grounds 22.62 hearings 22.63 jurisdiction of courts 22.61 limited partners, and 22.65 member as contributory, and 22.66 petitioners 22.60 generally 22.54

1174

Index Sub-partnerships another firm being itself a partner 6.3 generally 6.1 implied terms 6.5 partnership of partnership share 6.2 sub-group within larger entity 6.4 types 6.1 Subscribing for shares authority of partners, and 19.36 Successor practice liability of firm for partner’s wrongs and omissions, and 19.57 Suing in firm name partnership actions, and 15.9 Summary judgment litigation, and 21.39 Summary order to produce claim for account, and 14.25 Surcharge and falsify challenges to settled accounts, and 14.49 Suretyship continuation of partnership, and 7.10 Surrender partnership leases, and 8.47 Survivorship partnership land, and 8.38 partnership property, and 8.2 partnership share, and 10.3 Syers v Syers order buying out, and 18.46 T Taking accounts ‘account’ account stated 14.23 claim by partner against firm 14.22 generally 14.20 obligation to account for particular liability 14.21 production of financial statements 14.23 account stated 14.23 allowances 14.28 arbitration, and 14.33 compromise, and 14.33 debarred defendants 14.41 defences to claim arbitration 14.33 compromise 14.33 debarred defendants 14.41 delay 14.38 discretion 14.39

Taking accounts – contd defences to claim – contd illegality of partnership 14.32 introduction 14.31 laches 14.38 liability for firm’s loss only 14.37 limit on right to query accounts 14.36 limitation 14.39 non-existent partnership 14.32 non-joinder of all parties 14.40 releases 14.35 settled account 14.34 delay 14.38 discretion, and 14.39 general right 14.18 illegality of partnership, and 14.32 jurisdiction of courts 14.19 laches 14.38 liability for firm’s loss only 14.37 limit on right to query accounts 14.36 limitation 14.39 non-existent partnership, and 14.32 non-joinder of all parties 14.40 obligation to account for particular liability 14.21 partner against firm, by 14.22 payment into court 14.30 practice 14.27 presumptions against accountable partner 14.29 procedural rules 14.26 production of financial statements 14.23 releases 14.35 settled account 14.34 summary order to produce 14.25 Taxation limited liability partnerships, and 25.23 winding of partnership, and 18.33 ‘Technical dissolution’ and see Dissolution generally 16.1 Temporary activity existence of partnership, and 2.18 Tenancy in common partnership land, and 8.28 Tenants generally 2.56 Tender authority of partners, and 19.37 Termination of partnership and see Dissolution generally 16.1

1175

Index Terms of partnership agreement decision-making, and 12.5 Terms of years dissolution, and 16.10 Third party debt orders execution of judgments, and 21.49 Third party relationships innocent third party 4.17 knowing third party non-proprietary claims 4.19 property claims 4.18 Title to action partnership actions, and 15.9 Tort claims joint and several liability, and 20.5 Tracing acquiescence 19.69 defences to claim 19.68–19.69 delay 19.69 insurance claims 19.67 interests in property 19.71 methods 19.63 mixed funds 19.65 overdrawn accounts 19.66 property for which liable 19.70– 19.71 purchaser for value without notice 19.68 share of profits 19.71 traceable property 19.64–19.67 Trading name litigation, and 21.21 Trading relationships authority of partners, and 19.13 Transfer of assets limited liability partnerships, and CFAs 25.110 clients 25.111 existing leases, contracts and liabilities 25.107 executorships 25.108 generally 25.106 substitution of defendants 25.107 taxation 25.112 trusteeships 25.109 Transfer of business dissolution, and 16.18 Transfer of property agreements between firm and members 8.28 creditors 8.29 evidence 8.43 requirement of writing 8.30–8.31

Trespass liability of firm for partner’s wrongs and omissions, and 19.54 Trivial matters dissolution, and 17.21 Trustee-partners right to fees 19.74 Trustees capacity, and 3.9 duty of good faith, and 11.4 Trusteeships authority of partners, and 19.38 Trusts of partnership share beneficiaries’ rights 10.21 limited partnerships, and 24.23 nominees 10.22 trustee-partner’s rights and liabilities 10.20 will trusts 10.23 U Unanimous decisions admission of new partner 12.4 change in the business 12.3 generally 12.2 non-ordinary matters 12.5 Unconscionability partnership agreements, and 7.19 Undertakings authority of partners, and 19.39 Undue influence challenges to settled accounts, and 14.44 partnership agreements, and 7.18 Unfair prejudice to members applicants 25.43 court’s powers 25.44 exclusion of right to claim 25.42 generally 25.41 Unincorporated associations partnership leases, and 8.41 Unlimited companies generally 2.49 Unperformed contracts liability of partners for firm’s liabilities, and 20.14 Unqualified professionals illegality, and 4.11 Unreasonable behaviour authority of partners, and 19.24 Unsaleable property partnership property, and 8.11

1176

Index V Valuation of partnership share retirement, and 18.35–18.36 Variation of contracts authority of partners, and 19.40 debts existing at time of departure of partner, and 20.2 Variation of partnership agreements express 7.21–7.22 generally 7.21 implied 7.21–7.22 mergers 7.26 new partner joining the firm 7.23–7.25 oral 7.22 Vendors of business existence of partnership, and 2.28 Venture capital funds limited partnerships, and 24.7 Vesting partnership land, and 8.36 partnership leases, and 8.40 Victimisation discrimination, and 13.13 Voluntary arrangements (PVAs) approval of proposal 22.73 generally 22.72 insolvency practitioner’s proposal 22.75 limited liability partnerships, and 25.89 members’ proposal 22.74 W Waiver dissolution, and 16.13 duty of good faith, and 11.14 limitation periods, and 15.64 Warranties authority of partners, and 19.41 Will trusts partnership share, and 10.23 Windfalls ownership of partnership property, and 8.27 Winding up and see Statutory winding up corporate partners 16.30 generally 22.1 limited liability partnerships, and effect 25.91 generally 25.90 priority of creditors 25.93 striking off register 25.92

‘Winding up’ of partnership and see Dissolution allowance for management generally 18.9 personal representatives 18.10 announcement of dissolution 18.3 application of partnership property 18.41 bankrupts, and 18.5 banks, and 18.27 buying out asset cannot be easily sold 18.50 delay on part of seller 18.49 nature of asset such that sale would damage value 18.48 offer by other partners 18.46–18.49 partners agreed on division or valuation 18.51 share of partner selling is small 18.47 Syers v Syers order 18.46 capital profits and losses 18.6 continuing contracts, and 18.30– 18.32 creditors, and 18.29 discharge of liabilities and losses default by partner 18.61 partners share shortfall 18.60 distribution of net assets accounting 18.52 claim for an account 18.53 costs 18.58 generally 18.54 interest 18.57 repayment of partner’s capital 18.56 ultimate residue 18.59 effect on outsiders banks 18.27 continuing contracts 18.30–18.32 creditors 18.29 employees 18.23–18.25 general 18.21 insurance contracts 18.28 landlords 18.22 novation 18.32 salaried partners 18.26 taxation 18.33 employees generally 18.23 no transfer of undertakings 18.25 salaried partners 18.26 transfer of undertakings 18.24

1177

Index ‘Winding up’ of partnership – contd generally 16.4 income profits and losses between continuing partners generally 18.8 management allowance 18.9–18.10 income profits and losses where a partner has left firm dissolution for illegality, and 18.13 election between profits and interest 18.14 election for 5% interest 18.19 election to take profits 18.15 general 18.11 profit attributable to a share 18.15–18.18 ‘profits’ 18.16 ‘share’ 18.18 ‘share of profits’ 18.17 survivors not liable for profits and interest 18.12 income profits and losses where all partners continue active 18.7 insurance contracts, and 18.28 introduction 18.1 landlords, and 18.22 limited partnerships, and 24.49 non-competition covenants, and 18.65 novation, and 18.32 outsiders, and banks 18.27 continuing contracts 18.30–18.32 creditors 18.29 employees 18.23–18.25 general 18.21 insurance contracts 18.28 landlords 18.22 novation 18.32 salaried partners 18.26 taxation 18.33 partition of land 18.45

‘Winding up’ of partnership – contd position of partners between themselves 18.4 powers and duties of partners 18.2 profits and losses capital profits and losses 18.6 income profits and losses 18.7– 18.19 profits where continuing partners exercise option to buy share of outgoing partner 18.20 release of liability 18.32 return of premiums 18.62 rights of partners application of partnership property 18.41 discharge of liabilities and losses 18.60–18.61 distribution of net assets 18.52–18.59 return of premiums 18.62 sale 18.42–18.51 salaried partners, and 18.26 sale of assets general right 18.42 manner 18.43 partner’s right to bid or buy 18.44 Syers v Syers order 18.46 taxation, and 18.33 Winding up proceedings execution of judgments, and 21.48 Women capacity, and 3.10 Work in progress partnership property, and 8.10 retirement, and 18.38 Written agreements authority of partners, and 19.42 existence of partnership, and 2.9 Wrongful trading limited liability partnerships, and 25.6 generally 25.98 recoupment from members 25.9

1178