Your World of Legal Intelligence
 United Kingdom | +44 (0) 20 7284 8080

Agency and Liability

Document Cited authorities 49 Cited in Related
Vincent
AuthorElspeth Berry
Pages81-101

Chapter 7


Agency and Liability

7.1 GENERAL PARTNERSHIPS
7.1.1 Agency

Extent of authority


The relationship of partner and partnership is one of principal and agent, and every partner is an agent of the partnership (s 5 of the Partnership Act).

A partner’s acts will bind the partnership and the partners if the partners have agreed, expressly or impliedly, that this should be so (s 6 of the Partnership Act; discussed further below) or, if no such actual authority has been granted, if the three conditions for apparent authority set out in s 5 are satisfied. Firstly, the acts must be for carrying on in the usual way business of the kind carried on by the partnership. Secondly, the third party must not know that the partner lacks actual authority. Thirdly, the third party must know or believe him to be a partner.

It is the first of these conditions which has caused most difficulty, both as to whether the activity relates to the firm’s kind of business, and as to whether it constitutes carrying on business in the usual way. The courts have established that it is within the usual way of partners in all businesses to:

• buy and sell goods in respect of that business;1

• receive money in payment of debts and give receipts;2

1Bond v Gibson & Jephson (1808) 1 Camp 185, 170 ER 923.

2Powell v Brodhurst [1901] 2 Ch 160.

82 Partnership and LLP Law
• employ people (but not to dismiss them since the employees are employees of all the partners3); and

• obtain information:
– in Hamlyn v John Houston & Co4(see also 7.1.3), a partner in a firm of grain merchants obtained information about another business by bribing one of that other business’s employees. The court held the partnership liable in damages, since it was within the partners’ authority to obtain information, and the means were irrelevant to the question of authority.

In addition, it is in the usual way of business for partners in trading partnerships to:

• bind the firm by negotiable instrument such as a cheque;5and
• borrow money on the firm’s credit.6

In Wheatley v Smithers,7the court distinguished between a trade and a business by holding that a trade required the buying or selling of goods. However, the courts have more recently indicated that borrowing money is likely to be usual for all partnerships, not just trading partnerships. In Kotak v Kotak and others,8the court held that s 5 of the Partnership Act applied so as to give the sole partner who signed the disputed loan agreements apparent authority to do so. In determining whether an act of a partner constituted the carrying on of a particular business in the usual way, the court must examine whether the conduct in question was usual to the type of business carried on by the partnership, both when viewed at a high level of generality and when examined in detail.9The question was not whether the conduct was carried out in the usual way of a business of a relevant kind, but whether a rational, competent, reasonable counterparty to the transaction at issue – so here, a reasonably prudent and competent lender – would so regard it. Since it was usual for a commercial property business to operate on borrowed money, the acts of borrowing at issue here were clearly usual for the kind of business carried on by the partnership. The court noted that although some older cases

3Drake v Beckham (1843) 11 M & W 315, 152 ER 823.

4Hamlyn v John Houston & Co [1903] 1 KB 81.

5Williamson v Johnson (1823) 1 B & C 146, 107 ER 55.

6Higgins v Beauchamp [1914] 3 KB 1192.

7Wheatley v Smithers [1906] 2 KB 321.

8Kotak v Kotak and others [2017] EWHC 1821 (Ch).

9JJ Coughlan Ltd v Ruparelia [2003] EWCA Civ 1057, [2004] Lloyds Rep PN 4, discussed further below.

Agency and Liability 83 suggested that borrowing money was only to be treated as falling within the usual way of carrying on business where the partnership was a trading partnership, it was outdated to suggest that the borrowing of money was not something that arose in the carrying on of many businesses in the usual way.

Beyond these established scenarios, the existence of authority in a particular case will turn on the facts. In Mercantile Credit v Garrod,10the agreement of a partnership which let garages and repaired cars expressly excluded the buying and selling of cars. One partner sold a car which he had no right to sell and the buyer sued the firm. The court held that the firm was liable. It looked at ‘what was apparent to the outside world in general’ and concluded that the partner had done an act which was of the kind done in a garage business. In United Bank of Kuwait v Hammoud,11a solicitor gave an undertaking to a bank to transfer money on behalf of Hammoud to the bank. In reliance on this, the bank lent money to Hammoud. The Court of Appeal held that, since it would appear to a reasonably prudent and competent third party that there was an underlying transaction between the client and the solicitor of a kind forming part of the solicitor’s business, and that the undertaking was an act for the carrying on of such business, the firm was liable on the undertaking. In contrast, in JJ Coughlan v Ruparelia,12the Court of Appeal held that a solicitor who had been involved in a particularly far-fetched investment scheme (involving a risk-free investment with a return of 6,000%) had acted outside the ordinary course of business of a solicitor. In Niemann v Niemann,13

the court held that a partner’s acceptance of company shares in payment of a debt by a third party to the partnership did not bind the partnership because it was not a usual method of debt repayment. In Hirst v Etherington,14

Etherington, a partner in a firm of solicitors, guaranteed payment on behalf of a client, and told the solicitor acting for the other party that this would be binding on the other partner in Etherington’s firm. The Court of Appeal held that the mere assertion by a solicitor that it was within the ordinary business of the firm to guarantee repayment of a loan to a client was insufficient to bring such a guarantee, which was not part of the usual business of a solicitor, within s 5. An agent could not simply hold himself out as having authority.

10Mercantile Credit v Garrod [1962] 3 All ER 1103.

11United Bank of Kuwait v Hammoud [1988] 1 WLR 1051.

12JJ Coughlan v Ruparelia [2003] EWCA Civ 1057, [2004] Lloyds Rep PN 4.

13Niemann v Niemann (1890) 43 Ch D 198.

14Hirst v Etherington [1999] Lloyds Rep PN 938.

There are certain things which a partner can never have apparent authority to do, and therefore will only have authority to do if actually authorised. These include:

• making the firm liable on a deed (since an agent who is to make contracts by deed must be appointed as such by deed15);

• giving a guarantee on which the firm will be liable;16

• accepting payment of a debt by a lesser amount or something which is not money;17

• agreeing to go to arbitration;18

• conveying partnership land (since s 34 of the Law of Property Act 1925 provides that land is held by up to four partners on trust for the all the partners (see 4.1.1)); and

• consenting to judgment against the firm.19

Section 6 of the Partnership Act, which deals with actual authority, provides that acts relating to the business of the firm done in the firm name or otherwise showing an intention to bind the firm will bind it if the person is authorised. The person need not be a partner and the authority need not be express; it can arise from, for example, a person’s status as a partner.20In R (on the application of De Silva and another) v Commissioners for HMRC,21HMRC

had challenged claims for loss relief by a number of film partnerships in which the appellants were limited partners, and a settlement agreement was reached between HMRC and each of the partnerships. The Court of Appeal held (and this was not challenged in a subsequent appeal to the Supreme Court) that the effect of s 6 was that the appellant partners were parties to the settlement agreement. It related to the business of the firm, was done or executed in the firm name, showed an intention to bind the firm, and was executed by the general partner who was clearly authorised to do so. It expressly conferred benefits on the partners individually by providing for the quantum of reliefs that they could claim and providing that they were not to have penalties levied against them. It was therefore contractually binding on the appellants.

15Steiglitz v Egginton (1815) Holt NP 141, 71 ER 193.

16Brettel v Williams [1843–60] All ER Rep 702.

17Niemann v Niemann (1890) LR 43 Ch D 198.

18Stead v Salt (1825) 3 Bing 101, 130 ER 452.

19Hambridge v De la Crouee (1846) 3 CB 742, 136 ER 297.

20Re Briggs & Co [1906] 2 KB 209.

21R (on the application of De Silva and another) v Commissioners for HMRC [2016] EWCA Civ
40, [2016] STC 1333.

The Partnership Act provides a number of other rules affecting the authority of a partner. Section 7 provides that the partnership is not bound if a partner pledges the credit of the firm for a purpose not apparently connected with the firm’s business unless he is actually authorised to do so. Section 8 provides that the partnership is not bound by any act which contravenes agreed restrictions on the authority of a partner, if the third party has notice of the agreement.

In addition, s 15 of the Partnership Act provides that any admission or representation by a partner in respect of partnership affairs and in the ordinary course of business is evidence against the partnership, while s 16 provides that notice to any partner who habitually acts in the partnership business of any matter relating to the partnership constitutes notice to the partnership unless the partner commits or consents to a fraud on the...

To continue reading

Request your trial
Navigation index

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT