Beware Of Your Continuing Liabilities

In the recent case of The Northampton Regional Livestock Centre Company Limited v Cowling & Another, the Court of Appeal found that a partner who had been unaware of the wrongful conduct of one of his partners was still jointly and severally liable for that partner’s liability to a third party.

In this case, Mr Cowling and Mr Lawrence operated a partnership called MCL Property Consultants (“MCL”) which provided property sales and marketing services.  MCL was instructed to sell a site owned by The Northampton Regional Livestock Centre Company Limited (“NRLC”).  Lawrence resigned from the partnership shortly afterwards but continued to act in relation to the sale of the property and introduced a buyer, Earlplace, to NRLC.  Contracts were exchanged.  Unknown to Cowling or to NLRC, Earlplace had agreed to pay Lawrence commission based on the purchase price of any subsequent sale. The property was sold by NRLC to Earlplace for £2.25m and it was then sold by Earlplace on the same day for £5m – an instant profit of £2.75m.  Lawrence received commission of £744,035.

NRLC brought proceedings against Cowling and Lawrence on the basis that the property had been sold at an undervalue.

At first instance, the High Court found that Lawrence was liable to account to NRLC for the commission which he had received through the abuse of his fiduciary relationship.  However, it found that MCL had not been negligent on the basis of its “defined and limited role”.  The Court concluded that Cowling’s conduct on the marketing and the sale of the property had been reasonable and that he had not been negligent.  In addition, it rejected claims that Cowling was vicariously liable for his partner’s breach of fiduciary duty, concluding that Lawrence’s conduct was sufficiently divorced from the ordinary business of MCL.  NRLC appealed against the decision.

The Court of Appeal unanimously held that Cowling and Lawrence were jointly and severally liable in respect of Lawrence’s breach of fiduciary duty even though he had left the partnership.  It dismissed NRLC’s appeal in relation to the negligence claim.  The Court sympathised with Cowling.  However, applying the provisions of the Partnership Act 1890 and established case law it decided that it had no alternative but to find that he was jointly and severally liable for the actions of his partner even in these circumstances.

This case provides useful guidance on the liability of partners in a partnership.  It illustrates that the fiduciary duties owed by a partner to other parties do not end simply because that partner has left the partnership.  If that partner is still perceived to be acting on behalf of the partnership by the outside world then that duty continues to exist.  Further, a partner will be held vicariously liable for losses caused by other partners if the wrongful act committed was within the ordinary course of the partnership business.

Picture of Luke Patel

Luke Patel

Luke Patel
Partner
Commercial Dispute Resolution Team
0113 227 9316
LPatel@LawBlacks.com
@LukeLawBlacks

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