Liability of partner unaware of fiduciary breach by another partner
The Court of Appeal’s recent ruling in Northampton Regional Livestock Centre Company Ltd v Cowling and anor  EWCA Civ 651 has made a significant and, perhaps, far-fetched clarification on the application of vicarious liability in partnership.
In this case, Mr. Cowling and Mr. Lawrence (“Respondents”) owned a partnership called MLC back in 2002, where the partnership mainly provided services for marketing property sales and searching for suitable purchasers. In late 2004, MLC was instructed to sell the site owned by the Northampton Regional Livestock Centre Company Ltd (“Appellant”) due to a downturn in the appellant’s business. At the material time, both respondents remained as partners of MLC. In February 2005, Lawrence told Cowling that he would like to resign from the partnership with effect from 4 July 2005 as agreed. The dissolution was not complete until 13 September 2005, on which the sale of MLC was completed. However, since 4 July 2005, Lawrence had actively been giving Earlplace, the subsequent purchaser of the appellant’s site, during which he had given substantial confidential information to Earlplace. This has led to the current litigation on Lawrence’s breach of fiduciary duties.
It is trite law that an agent cannot act for the two parties in the same transaction. This was not very much disputed throughout all litigations of this case. The court found that Lawrence still owed a fiduciary duty to the respondent even though he said that he would resign from the company. However, the crux of the dispute is whether Cowling, having given no authorization to Lawrence to disclose any information, should be held vicariously liable for Lawrence’s breach.
Regarding the dispute, Cowling relied on the argument that he had never given any authorization for Lawrence to do anything that would be in breach of the fiduciary duties he owed to the appellant. However, the court contended the otherwise. When Lawrence talked about his resignation, he had clearly mentioned that he would act for Earlplace afterwards, where Cowling gave no objection to it. The court then relied on two cases, Dubai Aluminium Co Limited v Salaam & Ors and Hamlyn v John Houston & Co, to establish that authorization had never been a key to establish vicarious liability under s.10 of the Partnership Act 1890. The court contended that MCL, by authorizing Lawrence as the agent for the deal, had “introduced the risk of Mr Lawrence ‘exceeding his authority in matters incidental to the doing of the acts the performance of which had been delegated to him.’”. Besides, the completion of deal would also bring MCL a considerable amount of commission, which was beneficial to the business. This is why the court eventually held Cowling vicariously liable for what Lawrence did.
The case has given a very clear guideline on the liability of partners belonging to the same partnership. First, the fiduciary duties owed by a partner to other parties would not cease simply because he/she would want to retire. As long as the partner is still acting on behalf of the business as perceived by a bystander, the duty still exists. Second, a partner would be held vicariously liable for losses caused by other partners as long as the alleged act was within the “ordinary course of employment”, a term to be construed more flexibly and widely.
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