The Court of Appeal’s decision in The Northampton Regional Livestock Centre Company Ltd v Cowling & Anor  EWCA Civ 651 is a reminder of the potential liability of partners of a general partnership. In this case, a partner (partner A) was held jointly and severally liable for his partner’s (partner B) breach of fiduciary duty pursuant to s.10 of the Partnership Act 1890 (Section 10). The Court of Appeal, overturning the first instance decision, was clear that although partner A’s conduct was reasonable and he had neither acted negligently nor authorised partner B’s breach of duty, the principle of joint and several liability applied.
The Northampton Regional Livestock Centre Company Ltd (NRLCC) had hired a commercial property partnership (the Partnership) to assist it in selling a piece of land (the Property). The Property was sold to a third party buyer who immediately sold it on at a significant profit. Prior to the sale, partner B resigned from the Partnership to pursue independent opportunities, although he was not authorised to pursue any that would put him in a position of conflict with the Partnership including the Partnership’s continuing mandate to market the Property. Partner B, in his individual capacity, in fact acted as an adviser to the buyer and following the onward sale of the Property received a substantial commission from the buyer as well as his share of a fee paid by NRLCC to the Partnership.
At first instance, partner B was required to account to NRLCC for the commission and fee he had received, on the basis that by acting for both the buyer and the seller he had been in breach of his fiduciary duties. On appeal, NRLCC argued that partner A should also be found jointly and severally liable for partner B’s breach of duty. The Court of Appeal agreed. It held that the applicable test in Section 10 clearly provides that where any partner acting in the ordinary course of the business of the firm causes loss to another party, the partnership is liable to the same extent as the partner directly responsible for the loss.
The court considered previous case law when considering whether this situation was, as held by the judge at first instance, one where partner B had been “engaged solely in pursuing his own interests: on a ‘frolic of his own’” and therefore fell outside Section 10. It held that partner B was not “moonlighting” but carrying out the Partnership’s business. Despite partner B’s resignation it was clear that he was still a partner and acting for NRLCC when heads of terms for the sale of the Property were agreed. On principle and authority the court held that the Partnership was therefore vicariously liable for partner B’s wrongdoing and partner A was jointly and severally liable to account for partner B’s commission and share of the fee received by partner B from NRLCC.
Impact – the case is a clear reminder that the legal policy underlying partners’ vicarious liability does not depend on whether the wrongdoing was authorised, but whether the wrongful conduct may fairly and properly be regarded as done by the partner while acting in the ordinary course of the business of the partnership.