Governor and Company of The Bank of Scotland and Henry Butcher & Company and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Munby,Lord Justice Chadwick,Lord Justice Aldous |
| Judgment Date | 13 February 2003 |
| Neutral Citation | [2003] EWCA Civ 67 |
| Docket Number | Case No: A3/2001/1208 |
| Court | Court of Appeal (Civil Division) |
| Date | 13 February 2003 |
[2003] EWCA Civ 67
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Michel KALLIPETIS QC (sitting as a Deputy Judge of the High Court)
Lord Justice Aldous
Lord Justice Chadwick and
Mr Justice Munby
Case No: A3/2001/1208
Mr Brian Hurst (instructed by Davies and Partners) for the Appellants (Defendants)
Mr Antony Zacaroli (instructed by Walker Morris) for the Respondent (Claimant)
This is an appeal from a decision of Mr Michel Kallipetis QC sitting as a Deputy Judge of the High Court in the Chancery Division on 21 May 200His judgment contains a long, careful and detailed statement of the facts and a lucid analysis of the arguments deployed before him by Mr Antony Zacaroli, who appeared before the judge, as he appeared before us, on behalf of the claimant, the Governor and Company of the Bank of Scotland ("the bank"), and Mr Brian Hurst, who appeared before the judge, as before us, on behalf of the defendants, Henry Butcher & Co ("HB&Co") and four of the thirteen partners in HB&Co, Mr Colin Morley, Mr Nicholas Schofield, Mr Harriman and Mr Derry.
The judgment of the learned judge is reported: Bank of Scotland v Henry Butcher & Co [2001] 2 All ER (Comm) 691. All the facts thus being readily accessible to anyone who is curious to study them in more detail I can be brief in summarising the essential background to this appeal.
In December 1994 the bank granted a customer, Mr David Hopkins, an overdraft for working capital purposes. By September 1995 the overdraft limit on Mr Hopkins's account had been increased to £50,000 and he entered into negotiations with HB&Co with a view to a possible joint venture. A consultancy agreement was drawn up by which it was agreed that HB&Co would receive a share of the profits on mutual business deals with Mr Hopkins, in return for which HB&Co would guarantee the overdraft on Mr Hopkins's account up to the level of £200,000.
The guarantee, dated 1 December 1995, was signed by Mr Morley, Mr Schofield, Mr Harriman and Mr Derry. It was expressed to be given by HB&Co and Mr Morley, Mr Schofield, Mr Harriman and Mr Derry "the individual Partners of the said Firm as Partners and as individuals" and was expressed to have been "executed and delivered as a deed". Following its execution the guarantee was altered in one respect, that alteration being initialled only by Mr Harriman and Mr Derry, and not by either Mr Morley or Mr Schofield.
The consultancy agreement was executed on 5 December 1995 by Mr Schofield "as a deed for and on behalf of" HB&Co. Mr Schofield wrote the same day to Mr Hopkins saying amongst other things:
"Following completion of the Consultancy Agreement earlier today I write to set out our intentions for the future potential between [HB&Co] and [you] … I personally am delighted that the Consultancy Agreement has been completed …"
The consultancy agreement was expressed as providing for "the provision to [Mr] Hopkins by [HB&Co] of consultancy services" – defined as meaning "the provision of valuation and surveying advice on plant and machinery and other equipment" and "advice on auctioning plant and machinery" – "in relation to [the business of surveyors, providing valuations and administrative services to the corporate recovery and financial sector carried on by Mr Hopkins] during the term of this Agreement". Clause 2 of the agreement provided that "[Mr] Hopkins hereby engages [HB&Co] to act as consultants to [Mr] Hopkins and [HB&Co] agree to accept such engagement upon the terms of this Agreement". Clause 3 provided that the agreement should be deemed to have commenced on 5 December 1995 and, subject to earlier termination in certain specified circumstances, should continue for a period of three years. Clause 8 provided that the partners in HB&Co "shall jointly and severally enter into a guarantee with [the bank] in a form acceptable to [HB&Co]" to guarantee the indebtedness to the bank of Mr Hopkins up to a maximum of £200,000".
It is to be noted that clause 14(c) of HB&Co's partnership deed dated 28 March 1977 provided that "No partner shall without the consent of the other partners … give any guarantee on behalf of the partnership".
Mr Hopkins failed to fulfil commitments made to the bank for the reduction of the overdraft. The bank called in the overdraft and commenced proceedings for recovery of the outstanding borrowings plus interest under the guarantee. The defendants sought to defend the proceedings on the basis that neither HB&Co nor the individual partners who had signed it were bound by the guarantee. The judge rejected all the defendants' arguments and gave judgment for the bank.
In paragraph [16] of his judgment the judge identified the seven issues he had to decide. In the event, as I have said, he decided all of them in favour of the bank. The appellants do not challenge his determination in relation to four of the issues. The remaining three, which are the subject of challenge in this court, were correctly identified by the judge as follows:
i) Is HB&Co bound by the guarantee?
ii) If HB&Co is not bound, are the individual partners who actually signed it nevertheless bound by the guarantee?
iii) Does the alteration of the guarantee after execution invalidate it?
I shall deal with each of these issues in turn. But I make clear at the outset that in relation to every one of these issues (as in relation to the other four issues) the judge, in my judgment, plainly came to the right conclusions. I am tempted to say that agreeing fully, as I do, not merely with the judge's conclusions but also with his reasoning, I have nothing to add. But one at least of the points raised by Mr Hurst, although devoid of merit, is of some general importance and justifies careful consideration by this court.
Is HB&Co bound by the guarantee?
The bank's primary contention was that the partners in HB&Co had in fact given their consent to the execution of the guarantee in such a manner as to satisfy the requirements of clause 14(c) of the partnership deed. The judge, having carefully analysed the evidence, agreed. His conclusion on this part of the case, at paragraph [43] of his judgment, was that:
"it is a reasonable inference that the partners entering into both the consultancy agreement with Hopkins as well as the bank guarantee did so with the consent of all the partners. Alternatively, by reason of the way in which decisions were take by the partners, it is clear that they acquiesced in the giving of the guarantee because there is no minute of any dissent at all."
Those conclusions have been challenged before us by Mr Hurst. I am unpersuaded that there is any substance in his complaints. It seems to me that the judge was entitled to conclude as he did. Be that as it may, however, there is, in my judgment, and in this I fully agree with the learned judge, another and conclusive answer to HB&Co's case. Accordingly I say no more about this part of Mr Hurst's case.
As an alternative to actual authority, founded on consent, the bank argued before us, as it had before the judge, that the guarantee was given in the course of the partnership business and, therefore, the signature of the four partners was sufficient to bind HB&Co by virtue of the provisions of section 5 of the Partnership Act 1890. The judge agreed with the bank. So do I.
Section 5 of the Act provides as follows:
"Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner."
I mention at once, in order to get the point out of the way, that before the judge Mr Hurst argued that the proviso applied because, he submitted, the bank knew that the partners who signed the guarantee did not have authority. The judge, having carefully considered the evidence, correctly rejected that argument. HB&Co cannot, in my judgment, rely upon the proviso.
Mr Hurst referred us to four authorities for the proposition that a partner, at least in a professional partnership, does not have implied or ostensible authority to give a guarantee: Duncan v Lowndes and Bateman (1813) 3 Camp 478, Sandilands v Marsh (1819) 2 B & Ald 673, Hasleham v Young (1844) 5 QB 833 and Brettel v Williams (1849) 4 Ex 623.
Thus in Duncan v Lowndes, a case involving Liverpool merchants, Lord Ellenborough CJ said that:
"It is not incidental to the general power of a partner to bind his co-partners by such an instrument."
In Hasleham v Young and Young, a case of a guarantee given by an attorney, Patteson J, with whom both Lord Denman CJ and Wightman J agreed, said:
"Certainly such a transaction is not in the usual course of the business of attorneys."
Both those authorities were followed in Brettel v Williams.
Now this is all very well but as is pointed out in Blackett-Ord on Partnership (ed 1997) p 358, old decisions are to be regarded with caution today when they lay down that it is not within the ordinary authority of a partner to give a guarantee. Indeed I note that the...
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