Tann v Herrington
| Jurisdiction | England & Wales |
| Judgment Date | 10 March 2009 |
| Neutral Citation | [2009] EWHC 445 (Ch) |
| Court | Chancery Division |
| Date | 10 March 2009 |
| Docket Number | Claim No. HC 07C00733 |
[2009] EWHC 445 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: (sitting as a Judge of the Chancery Division)
Claim No. HC 07C00733
Miss Amanda Tipples, instructed by Messrs Kidd Rapinet of Maidenhead, for the claimant.
Mr Mark Blackett-Ord, instructed by Messrs Oughton Graeme, for the defendant.
From 1991 until 31 st March 2001 Mr Tann and Mr Herrington carried on business in partnership under the name “Herrington & Associates” (“Herringtons”). Following the dissolution of their partnership they are in dispute as to their final account and Master Teverson has directed the trial of two substantive issues in this court.
The first is whether the partnership was dissolved on 31 st March 2001 or whether Mr Tann retired from the partnership on that date and if so on what terms as to the division of the partnership assets.
The second is whether a liability in damages to a client, for which the firm's professional indemnity insurer has refused indemnity, is a liability of the partnership or whether Mr Herrington must bear the liability (and the partnership's legal costs) personally because it was he who was responsible for notifying the insurers that a claim had been made and his delay in doing so caused the refusal of indemnity.
The Background in Brief:
Mr Tann is an architect and Mr Herrington a chartered surveyor. Mr Tann first worked with him in 1981, doing work experience while in training. After qualification, he went to work in the same firm as Mr Herrington and, when Mr Herrington set up his own business in 1989, Mr Tann joined him and a short while later became his partner. Initially he took a profit share of 15%, which increased by annual increments over 5 years to a share of 45%.
At some time between 1991 and 1993 Mr Herrington circulated a draft deed of partnership. The document was not in fact ever executed, though it is admitted by Mr Tann that the terms set out in the draft were accepted by both as binding. I shall therefore refer to it as the Partnership Agreement.
The Partnership Agreement contained many of the usual provisions in standard form. The term which will concern us is the one providing for “retirement”, which I will set out a little later in this judgment. [1]
It appears that Mr Tann applied himself to his work diligently but did not involve himself in the business affairs of the firm. At a later time he would regret this and Mr Herrington would use it to criticise him; at the time however the arrangement suited them both, especially Mr Herrington who seems to me to have been quite happy to keep control of affairs. In particular, it was Mr Herrington who was responsible for dealing with all aspects of the firm's professional indemnity insurance; that is to say, he dealt with the firm's brokers, made the necessary proposals and renewals in December of each year, in which of course he had to declare whether there had been a claim made during the year; he had to arrange for payment of the premium and annually received the policy and certificate of insurance and had to check and verify whether the terms of the policy were correct. He accepted that he knew he had a duty to give notice to insurers of a claim made against the partnership as soon as was possible and that, if he did not do so, it could cause serious consequences for the firm as the firm might have to pay the claim itself and its own costs.
The firm grew on the surveying side and Mr Herrington recruited assistant surveyors, one of whom was a man called Andrew Robertson whom he proposed to introduce into the partnership. He discussed the matter with Mr Tann and put his proposal to him in a letter dated 3 rd January 2001. As regards remuneration, Mr Herrington proposed that he would receive annually a fixed salary of £55,000, Mr Robertson £35,000 and Mr Tann £30,000; the remaining profit would then be apportioned as to 65% to Mr Herrington, 25% to Mr Robertson and 10% to Mr Tann.
Mr Tann was unhappy about the proposals and, after frank discussions, responded on 6 th February 2001 saying:
“I acknowledge that Andy's efforts need to be recognised but I cannot agree to the proposal you have put forward. I therefore feel my only sensible option at this point in time is to advise you of my intention to leave the partnership, subject to your agreement, and I therefore give you two months written notice of my intention to leave”. [Emphasis supplied]
Mr Herrington replied on 9 th February 2001 stating inter alia:
“I am sorry that we have not been able to see the matter in the same way as one another. The Partnership will therefore be dissolved on 31 st March 2001. …”. [Emphasis supplied]
On 19 February Mr Tann sent Mr Herrington a document entitled “Partnership Dissolution Proposals” in which Mr Tann made proposals as to how they should resolve the legal, accountancy, premises, and operational and other issues necessary to draw up appropriate dissolution accounts. It is possible to see from this document that Mr Tann's proposals reflected some of the headings in the Partnership Agreement. Mr Herrington responded to the proposals four days later. There was very little if any disagreement on the main proposals and such disagreement as there was appeared to have been largely resolved over the following weeks.
As regards the partnership premises, 28 Easton Street, it was agreed that a valuation would be carried out by an agreed independent surveyor or be the average of two valuations and that payment of any capital sum due in relation to it would be paid over 2 years by lump sum.
It is not entirely clear why the affairs were not resolved in short order but there did appear, during the following weeks, some difficulties over some of the expenses claimed by Mr Herrington and about a proposed division of certain of the firm's property. In the result, an initial flurry of activity diminished, became sporadic and faded out.
On 28 th April 2005 Mr Tann renewed contact in the following terms:
“Hope all is well.
As you are aware, little progress has been possible on finalising the accounts due to lack of coherent, detailed information. To help overcome this impasse, I believe it would be a good idea for us to meet informally to discuss the principles of how we can reach agreement on the accounts and perhaps more importantly, what we do with 28 Easton Street [the partnership property].
I look forward to hearing from you in due course.”
It was not until 10 th August 2006 that the two men met again by arrangement at the Polecat Public House in Prestwood near Great Missenden, Berkshire. It is clear that they discussed how they should apportion the value attributable to 28 Easton Street, whose value had by now increased substantially from what it had been in 2001. They also discussed what provision ought to be made for payment to Mr Tann in respect of the continuing occupation of the premises by the continuing business.
Following the meeting correspondence continued on the matters remaining in issue between them, when out of the blue came a letter from the accountants for the partnership bringing new and important information. The letter in question was dated 30 th November 2006 and informed Mr Tann of terms of settlement which had been reached with Mr and Mrs Carter, clients of the firm between 1999 and 2001, of a claim by them for professional negligence. The overall liability amounted to £226,000 made up of a payment of £185,000 to the Carters, the further sum of £40,000 for the legal costs of defending the action and the (generous) sum of £1,000 for the accountancy costs of reflecting the above change to the accounts. Mr Tann insists he knew nothing about the claim until that moment. Although this is disputed by Mr Herrington, it is my judgment that Mr Tann is correct in this.
It was and is Mr Herrington's contention that the liability was a liability of the partnership and he sought to debit Mr Tann's account with 45% of the liability to the Carters and the legal costs of the firm. Mr Tann refuses to accept this. He contends that the loss was caused by Mr Herrington's breach of his duty of care to the firm and he should therefore bear it on his own; alternatively that it was caused by a breach of his duty to make full disclosure of partnership assets and liabilities.
I propose now to deal with each issue in turn.
The Dissolution/Retirement Issue:
This issue arises largely because of the likely increase in the market value of 28 Easton Street, between March 2001 when Mr Tann left the partnership (when the property was said to be worth in the region of £290,000, though this is in issue) and now. If the accounts are to be drawn up to reflect the position at the date when the parties ceased to be partners then obviously a lower figure, representing the value in March 2001, will be the one brought into account; if they are to be drawn up as at the present date, then a much higher value will be brought into account to the substantial benefit of Mr Tann.
At the time the issue was formulated it was perceived that, if the partnership came to an end by dissolution, the accounts would be settled as on a dissolution pursuant to the Partnership Act 1890 and this would be at current date and values; whereas if the partnership came to an end by the retirement of Mr Tann, pursuant to the Partnership Agreement, the account would be drawn up as at 31 st March 2001.
The starting point of an examination of this issue should be the Partnership Agreement. Clause 16 is headed “OUTGOING PARTNER” and so far as material stated as follows:
“A. In this Clause the expression “an event” shall mean:
1. The death of a partner
2. The retirement of a partner by agreement
3. The expulsion of a partner in accordance with the provisions...
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