The defendants, Mr Cowling and Mr Lawrence, traded as a property consultancy partnership, MCL, which was instructed in relation to the marketing and sale of a property from about 2002 onwards. Mr Lawrence resigned from MCL with purported effect from 4 July 2005, but continued to act in relation to the property and introduced the ultimate buyer of the property. The buyer (without the knowledge of Mr Cowling or the seller) agreed:
- To pay Mr Lawrence one-third of any uplift it received on a subsequent sale of the property to a third party
- That Mr Lawrence would continue to act in relation to such onward sale of the property
On the day the sale completed, the buyer simultaneously sold the property to a third party for about GBP 2.75m more than it had paid. Northampton pursued a claim against both Mr Cowling and Mr Lawrence, arguing that the property had been sold at an undervalue.
At first instance the Court held that Mr Lawrence, whilst not negligent, had acted in a position of conflict and in breach of fiduciary duty, and was therefore liable to account to Northampton for the commission received (some GBP 740,000). MCL was also held not to have been negligent, and Mr Cowling’s conduct was held to have been both reasonable and non-negligent. Further, Mr Cowling was held not to be vicariously liable for Mr Lawrence’s breach of fiduciary duty, as his conduct was sufficiently divorced from the ordinary business of MCL that it should not be considered to have been in the ordinary course of the partnership business.
On appeal, the Court of Appeal unanimously found that Mr Cowling and Mr Lawrence were jointly and severally liable in respect of Mr Lawrence’s breach of fiduciary duty in accepting commission on the resale of the property. Although it was clear that Mr Cowling had not authorised the wrongful act, the relevant issue was not authority but the connection between the wrongful conduct and the acts that the defaulting partner was authorised to do. Here, Mr Lawrence had not been moonlighting, but was carrying out the work for which MCL had been retained, albeit in a misguided fashion. Mr Lawrence continued to act in the context of the firm’s retainer, and it was axiomatic that he remained bound to conduct himself so as to ensure that his duty and his personal interest did not conflict.
However, the Court of Appeal upheld the first instance determination that the defendants had not acted negligently. The property had been sold for the best price reasonably obtainable in the circumstances. The advisers were not at fault simply because the property had been resold at a vast profit.