Analysis
The appellant was a firm of solicitors. The respondents were, respectively, the Bishop and Diocesan Board of Finance of the Diocese of Leeds, into which had been absorbed the Diocese of Wakefield, which in turn had been a client of the appellant firm. The firm had acted for the Diocese in a number of conveyancing transactions during the course of their instructions. It was subsequently discovered by one of the firm’s three partners that another partner, Mrs Box, had over the course of many years made unauthorised payments from the firm’s client account, and had misappropriated millions of pounds from that account, which had been held on behalf of, among other clients, the Diocese. No other partner had had any involvement in this fraud, nor had any knowledge of it prior to its eventual discovery, at which time Mrs Box was promptly expelled from the partnership, and was reported to the police and to the Solicitors’ Regulation Authority.
The remaining partners were then subject to claims by the Diocese seeking compensation for their loss of the misappropriated funds, for which they were said to be liable to account as trustees of the funds held in the client accounts. The remaining partners defended these claims on the basis that they arose more than six years prior to the issue of the claim, and were hence statute barred. The Diocese sought to defeat this defence by alleging that, although not party to it, the continuing partners were ‘party or privy’ to the fraud of Mrs Box, by virtue of ss10 and 11 of the Partnership Act 1890, which, respectively, makes the other partners or the firm liable for wrongful acts of any individual partner in certain specific circumstances. As such, they contended, the claims fell within the exception to the limitation period otherwise applicable, provided for by s21(1) of the Limitation Act 1980.
At first instance, the judge gave summary judgment for the Diocese, concluding that the partnership relationship makes partners liable as party or privy to the fraudulent breaches of trust of their dishonest partners committed within the ordinary course of partnership business. The partners appealed.
Held:
The appeal was allowed. There was nothing in the Partnership Act 1980 to support the view that innocent partners are to be treated not merely as liable for, but moreover as party or privy to, the fraudulent acts of their dishonest partners, nor did anything in the authorities support that position. In fact, the authority of Thorne v Heard [1895], although not directly in point because arising outside of the partnership context, emphasised the distinction between being liable for another’s wrongs and being party or privy to them, and established that in order for the latter to apply to a person, that person had to be shown to have been implicated in the frauds in some way.
Moreover it would seem surprising if a limitation defence were not available to innocent partners where a fraud is committed in the ordinary course of a partnership business by another partner through the misappropriation of money held in a current account, given that it had been the purpose of the Trustee Act 1888 (of which the current Limitation Act provision is a successor) to avail trustees having committed an innocent breach of trust of precisely just such a limitation defence. It would be all the more surprising for this to be an effect of the Partnership Act, or the partnership relationship for which it provides, given that the 1890 Act was passed only two years after the 1888 Act, and that it says nothing at all on the point.
JUDGMENT SIR TIMOTHY LLOYD: Introduction [1] This appeal is from an order of HHJ Saffman sitting in the High Court in Leeds, made on 1 December 2020. The proceedings are brought by former clients against solicitors who acted for them in the past. One of the partners stole money held in the firm’s client account …Continue reading "Dixon Coles & Gill v Baines & anr [2021] WTLR 1247"