How are debts owed to family members dealt with in divorce proceedings?
The first question for the court to determine is whether the debts are legitimate, and this is a...
A decision of the Court of Appeal has highlighted the risk of personal liability faced by partners in an unlimited partnership, according to a leading corporate lawyer.
“Under English law, every partner in an unlimited partnership, not carried on through any form of corporate vehicle, is jointly and severally liable for any loss or damage arising from the wrongful actions of any partner done in the ordinary course of business or with the authority of the partners,” says Philip Round, a partner in the Corporate team at George Green LLP. “Acts done in the ordinary course of business can extend to breaches by a partner of his duty of good faith to the partnership.”
“A third party who has suffered loss can therefore choose whether to sue one or more of the partners separately or all of them together. Each partner risks losing his personal assets if the partnership faces a particularly large claim which exceeds the value of the partnership assets or the level of insurance cover.”
Mr Round continues, “this was emphasised in the recent case of The Northampton Regional Livestock Centre Company Ltd v Cowling and another. Mr Lawrence, a partner in a property consultancy, had agreed to receive a commission from a purchaser on the sale of a property by a client of the partnership. This was a clear conflict of interest. Whilst Mr Lawrence’s fellow partner, Mr Cowling, was unaware of the arrangement, the Court of Appeal held that Mr Cowling was jointly and severally liable in respect of Mr Lawrence’s breach of duty because Mr Lawrence was clearly carrying out work for which the partnership had been retained. The fact that Mr Lawrence had, during the course of such work, breached his duty to the partnership did not take his actions outside the ordinary course of the partnership’s business.”
According to Mr Round, the case demonstrates the need for partners to put in place effective quality control and internal monitoring procedures. “Whilst this might not avoid liability in all cases, regular file audits reduce the risk of a partner finding himself unexpectedly liable for the misconduct of a fellow partner.”
Mr Round concludes, “the case also explains why many professional partnerships have incorporated as limited liability partnerships. Generally speaking, LLP members will not be personally liable for contracts entered into by the LLP or jointly and severally liable for the LLP’s negligence. An LLP member may be personally liable for their own negligence if they have assumed a personal duty of care and have breached that duty. The LLP can, however, take steps to reduce exposure to personal claims, for example through incorporating liability limitation provisions into its engagement letter. In an increasingly litigious environment, it is therefore imperative to choose an appropriate business structure.”