Legal Practitioners

Overview

A partnership is not a separate legal entity. It consists of its members collectively. They can sue and be sued in the firm name under court rules. However, court orders are made by or against the partners personally and collectively.

Partners are ultimately jointly and severally liable for the liabilities of the partnership. In the first instance, they are entitled to have recourse taken against partnership assets. Ultimately, recourse may be had to their personal assets.

Partners are the agents of each other in entering partnership contracts. Partners may enter contracts on behalf of the partners as a whole, in relation to matters which are within the scope of the partnership. Where a partner appears to have authority in relation to a particular matter, an outsider is usually entitled to assume that he has that authority.

Some persons who are held out and labelled as partners, may, in fact, be employees. However, they may be deemed partners as against third parties who have no reason to know and who are not aware of their actual status and position. A partnership for a purpose forbidden by law will not be enforced.

A person may not sue or be sued by a firm of which he is a partner.  He may, however, sue his fellow partners in their personal capacity.  This may be done as part of a partnership action, in which the court directs a full account to be taken, of the partnership’s assets and liabilities.


Partner’s Interest

The partners’ interest in the partnership assets is not a direct interest in the assets themselves. During the course of the partnership, each partner is entitled to require that the partnership assets are used for the purpose of the partnership business. Ultimately, each partner is entitled to his share of the net partnership assets on winding up, after they have been realised, converted into money and all liabilities have been paid off.

The extent of a partner’s share depends on the partnership agreement or in its absence, the  Partnership Act. The Partnership Act declares that in the absence of an agreement to the contrary, whether specific or implied, all partners are entitled to share equally in the capital and profits of the business and must contribute equally towards losses.

The presumption of equality applies regardless of whether the partners have contributed capital equally or unequally or bring different skills, connections or effort/ work to the business. It may be possible to infer, that different treatment is intended to apply from the firm’s books, the circumstances or the customs of the trade.

The creditors of an individual partner cannot attach his individual interest in the partnership. No order can be made charging their interest. There is a special mechanism, by way of equitable execution, whereby a receiver may be appointed of a partner’s share of the profits. The creditor has no direct right to attach the partner’s shares.


Realisation of Share

On a dissolution of the firm, each partner is entitled to require that the partnership assets are sold and divided to pay the debts and liabilities and have the surplus if any distributed. Death, retirement, expulsion or any change in membership terminates the partnership and triggers a dissolution, in the absence of an agreement to the contrary.

Written partnership agreements usually provide for events that would otherwise trigger a dissolution. The agreement may provide the partnership continues so that a winding up is avoided. It is desirable to provide, for example, the partnership is not dissolved, on the departure of a partner, where two remain.

The outgoing partner would be entitled to have a proportionate share of the partnership assets, net of liabilities, distributed on a winding up. Accordingly, the partnership agreement should set out the manner in which the outgoing partner’s entitlements are accounted for and dealt with.

The partnership agreement may provide for the payment of the value of the outgoing partner’s share. More commonly it may provide that the value of the interest is credited or suspended so that there is no immediate right to payment.  The interest may be forfeited, in whole or in part, depending, for example on the partner’s length of service.

In the absence of agreement otherwise, a partner may apply to the court to have accounts taken and enquiries made, in order to fix the value. The outgoing partner may apply to the court to have the partnership wound up. If the remaining partners are content to continue the partnership, the court may require payment of a valued amount, and not require the winding up of the partnership. The outgoing partner may agree to a valuation of his share with the remaining partners.


Composition

Companies can be partners. A partnership can be made up of individuals or of individuals and a company (or companies).

Partnerships may exist between partnerships.  This commonly happens in international professional services firms.  In more recent times, such firms have used limited partnership vehicles established under the law of other jurisdictions.

The maximum number of partners is 20. In strict terms, a partnership with an excess number of partners is automatically dissolved. The limitation to 20 partners does not apply to firms of accountants and firms of solicitors.

The Interpretation Act provides that for the purpose of the interpretation of legislation references to a “person” are deemed to include a non-incorporated body including partners and partnership.


Capacity

The general principles that apply to contracts with minors apply in the context of partnerships. A minor (under 18 years) may be a partner. The minor may repudiate the agreement within a reasonable period after they reach the age of 18 years. He may relieve himself of liability on partnership contracts entered during his minority.

A partner or apparent partner who is under 18 years of age, is not liable for the obligations of the partnership.  The firm is bound by his actions. However, the minor himself will not incur a liability to the co-partners or third partners for the debts or actions of the partnership.

Mentally disabled persons may enter partnerships, provided that the other partners are unaware of the disorder at the time, entered the agreement in good faith and no court petition has issued to appoint someone to manage the person’s affairs.

A bankrupt person can enter a partnership. However, he commits an offence if he obtains credit for the partnership without disclosing that he is bankrupt. He cannot conduct business other than in the name in which he was made bankrupt. In practice, this severely limits the freedom of a bankrupt person to carry on business in partnership.


Partnership Obligations

The law looks to the individual members of a partnership to enforce partnership obligations.  The partnership debts and obligations are payable by the partners personally, although they are primarily payable out of partnership income and assets.  Ultimately, if there are insufficient partnership assets, the individual partners may be obliged to make up the shortfall from their personal assets.

Each partner is an agent for his fellow partners. Partners may sign contracts in the firm name. Contracts made by a partner in the course of the partnership business are deemed to be made with the partners collectively.

It is necessary to identify who are the partners from time to time, in order to ascertain who is liable for the partnership liabilities and obligations. The Register of Business Names may assist in identifying the individual partners who constitute the firm name.

Because the firm is not a separate legal entity, the individual partners are not debtors and/or creditors of the firm.  Trading profits accrue to them automatically and may be the subject of drawings. Their rights are to an account of the net assets on a winding up.

Partners are not employees of the firm, as there is no separate entity.  They cannot be their own employer. Notwithstanding that that some of their income may be labelled as salary, it is not employment income, nor is it treated as such from a taxation perspective.


Identity

Partnerships are sometimes treated as if they were a separate entity from their members in everyday life.  A partnership may appear to continue to exist for many generations under a common name, while with the actual partners change over time.

The legal position is that there is a change in the identity of the partnership as its composition changes from time to time, as partners retire and new partners join.

In some isolated instances, the law treats the partners as an entity for some purposes.  The Rules of Courts allow partners to be sued in the firm name.  This does not mean that the partnership has a separate identity.  The Companies Act allows a partnership be wound up as an unregistered company.


Companies

An important consequence of the fact the partners are not a separate legal entity is that the individual members do not have legal limited liability.  This is in sharp contrast with the position with companies. The company is the entity which is liable on its obligations. The members of a limited liability company have no obligation to contribute to the company’s debts, beyond the obligation to pay unpaid calls, if any on their shares.

Company Law is a good deal more comprehensive and structured in relation to the default rules that apply.  The Companies Act provides in detail for the rights of shareholders, directors and for other matters. The legislation is modern and detailed. In contrast, partnership arrangements are largely a matter of agreement between the parties.

The Partnership Act dates from 1890 and provides the default partnership rules.  They are much less detailed than those provided by the Companies Act. A partnership agreement is desirable to establish governance structures and economic rights, other than in cases of simple partnerships with uniform rights and obligations.


Taxation Issues

From a practical economic perspective, companies are taxed twice. The company itself pays profit on its taxable profits.  The shareholders pay income tax on dividends or salary received.  In contrast, partners are taxed when the partnership income is earned or received. This may or may not coincide with the distribution of monies to the partners.

Partners are taxed on their share of partnership profits at their marginal rate. In contrast, companies are taxed at the much lower corporate tax rate. They need not be distributed and can be used for reinvestment, without having suffered tax.  Taxation rules require that one partner is treated as a precedent partner, in order to make a separate partnership taxation return.

The effective double taxation of a company relative to partners is potentially disadvantageous.  In Ireland, the disadvantage is substantially less, due to the low rate of corporation tax on company profits and the possibility of retaining earnings within the company itself. In this case, it will be subject to the relatively low rate of Corporation tax rate only. Accordingly, in many cases, companies will be more tax efficient.


Firm Contracts

The Partnership Act provides that persons who have entered into a partnership with one another, are called collectively “a firm”. The name under which the business is carried on is the firm name under the Act.  The firm name is simply another name for the partnership.  The firm name may continue, notwithstanding the change in the underlying partnership.

If a person enters a contract with a partnership, a change in the firm identity will not terminate the contract.  It will be presumed to be a contract with the persons who constitute the partnership from time to time.  However, this does not mean that retiring partners are simply excused from the contractual obligations.

Where a person enters a contract with specific individuals whose identity are part of the reason for contracting, the contract may not accrue for the benefit of successor partners, without his consent. It is will be a matter of the interpretation of the contract, whether the identity of the original partners was an important or critical factor to the contract.  This may occur where, for example, the existing partners have particular skill on which the external third party relies.

A partnership to do a criminal act or unlawful act is illegal and may constitute a criminal conspiracy. The illegality may relate to the manner in which the business is conducted or in relation to some other aspect of the business. For example, where a person requires certain qualifications to practise a particular business such as a solicitor, a partnership with a non-qualified person is void and of no effect.


Business Names I

Partners can carry on business under the firm name or their personal names. If they use a firm name, they must register it with the Companies Registration Office, under the Registration of Business Names Act. The particulars of the firm name and the partners’ particulars are entered in the Register of Business Names. The Register of Business Names is public and can be inspected.

The obligation to register a business name applies to every firm having a place of business in the State which carries on business under a name which does not consist or include the surnames of all partners or individuals and corporate names of all partners of all companies. A change in the identity of the partnership may need to be registered.

The failure to register a business name is an offence. Registration or non-registration may be significant evidence as to whether a person is in fact in partnership, although it is not conclusive.


Business Names II

The following details must be registered.

  • business name;
  • nature of business;
  • principal place of business,
  • names, nationalities and usual place of residence or business occupation of partners,
  • the corporate name of company partners;
  • names and date of adoption.

The relevant particulars must be registered within one month. If there are any changes, they must be registered within one month after the change. Registration may be refused for an undesirable name.There is no monopoly on a registered business name. The fact that a business name is already registered, does not preclude another person registering it. There may be other issues in terms of passing off and breach of trademark.


Other Name Issues

Using a name which is a company name or a breach of someone else’s trademark or goodwill can make the partnership subject to legal action for breach of trademark or for passing off.  The same issues apply to partners and partners’ names as apply in relation to a sole trader or a company which trades under a name other than its own.

Where a firm name is used (as with any use of a name other than the person’s actual name),  the following details must be put on all business letters, circulars and catalogues in which the business name appears which are sent by that person to any other person.
  • present Christian and surnames of partners;
  • former Christian names and surnames;
  • nationality if not Irish
  • name of the body corporate; and names of its directors.

It is an offence to not to comply.


References and Sources

Irish Sources

Partnership Act, 1890

Partnership Law 2000 Twomey M. Butterworths

 

UK Sources

Lindley & Banks on Partnership: (19th Revised edition) 2016  Banks, Roderick I’Anson

Partnership & Llp Law (8th edition) 2015  Morse, G.

Partnership Law (5th Revised edition) 2015  Blackett-Ord, Mark; Haren, Sarah;


Cases

In re A Debtor Summons.

[1929] 1 I.R.147

FitzGibbon J.      Supreme Court.

“In my opinion the order of Johnston J. was correct, and ought to be affirmed; but as we have no report of the reasons given by the learned Judge for his decision, and as the order has been attacked upon several grounds, I desire to state that upon which I think it should be sustained.

 The action, upon the judgment in which the debtor’s summons is founded, was brought against several defendants, of whom one was sued by the name of “Sealy, Bryers, and Walker.” An appearance was entered by one solicitor, or firm of solicitors, “for all the defendants.” This form of appearance was irregular, inasmuch as Or. XII, r. 9, enacts that: “If two or more defendants in the same action shall appear by the same solicitor and at the same time, the names of all the defendantsso appearing shall be inserted in one memorandum.” The memorandum did not contain the names of any of the defendants. The appearance also violated the provisions of Or. XLVIII A, r. 5, by which it is provided that: “Where persons are sued as partners in the name of their firm, they shall appear individually in their own names, but all subsequent proceedings shall, nevertheless, continue in the name of the firm.”

 As a matter of fact, there was not, at the date of the writ, or of the events which gave rise to the action, any firm or partnership in existence entitled “Sealy, Bryers, and Walker.”The old-established and well-known business carried on in that name had been acquired over thirty-five years ago by Alexander Thom & Co., Ltd., a company registered under the Companies Acts. To preserve the goodwill of the former firm, and for that purpose to represent it as still in existence, Thom & Co., Ltd., whom I shall call the company, carried on the business formerly carried on by Sealy, Bryers, and Walker under the old name, and it would seem in defiance, to a large extent, of the provisions of the Companies Acts, and possibly of other statutes. Whether the identity of the company with Sealy, Bryers, and Walker was or was not known to the plaintiff does not appear, and assuming that he believed that “Sealy, Bryers, and Walker”was an existing partnership or a business carried on by an individual in a name or style other than his own, let us see how far the plaintiff is responsible for the subsequent confusion.

Though the appearance did not state the names of the defendants, as it ought to have done under the rules, it might have been regarded by the plaintiff as equivalent to an appearance for the firm, “Sealy, Bryers, and Walker.” I do not see how he could be heard to contend that it represented anything else to him, upon the assumption which I have made in his favour, that he believed there was any such firm. But Or. XLVIII A, r. 5, provides that “where persons are sued as partners in the name of their firm, they shall appear individually in their own names”; and r. 11 provides that “any person carrying on business . . . in a name or style other than his ownmay be sued in such name or style as if it were a firm name; and, so far as the nature of the case will permit, all rules relating to proceedings against firms shall apply.” The final clause brings in r. 5, so that, if “Sealy, Bryers, and Walker” was a name or style used by an individual, that individual was bound to enter an appearance in his own name. The plaintiff could have set aside the appearance as irregular, or could have insisted upon the disclosure of the names or name of the persons or person carrying on the business; but he did none of these things. He elected to proceed to the end against a name only, when he could and ought to have ascertained at the inception of the proceedings that there was no such entity as “Sealy, Bryers, and Walker.” “In English law a firm as such has no existence; partners carry on business both as principals and as agents for each other within the scope of the partnership business; the firm name is a mere expression, not a legal entity, although for convenience under Or. XLVIII A it may be used for the sake of suing and being sued,” per Farwell L.J., in Sadler v. Whiteman (1).

Now, Or. XLVIII A relates only to persons carrying on business in partnership, or, in the case of r. 11, to a person carrying on business in a name other than his own. I agree with the opinion of Gibson J. in  Cullimore v. Savage South Africa Co. (1), that “‘persons’ here mean natural persons, not artificial persons, such as a limited company.” Even in the case of a limited company, such as Thom & Co., Ltd., carrying on business alone in the name of “Sealy, Bryers, and Walker,”I am of opinion that r. 11 would not apply. The incorporated or applied provisions of the former rules of the same Order indicate to my mind that the word “person” was intended by the framers of that rule to mean a natural person only. The Order forms a code of practice which may be adopted for litigation by or against partners from the title of the action down to the levying of execution upon a judgment, and does not relate to a limited company at all, except possibly in so far as such a company may lawfully act as or be a partner with one or more natural persons.

 If, therefore, the plaintiff had recovered judgment in the action, it would, in my opinion, have been impossible for him to execute the judgment so obtained. It was never suggested in Cullimore’s Case (1) that the appearance and defence of the managing director of Shows, Limited, the company which “ran”the show called and sued as “Savage South Africa,” could enable a judgment against either himself or Savage South Africa to be executed against “Shows, Limited,” and there are passages in some of the judgments which seem to imply that it could not. There being no firm or partnership in the present case, there was no “property of the partnership”(Or. XLVIII A, r. 8 (a)), no “person who had appeared in his own name . . . or who had admitted on the pleadings that he was, or who had been adjudged to be, a partner” (r. 8 (b)), and no “person who had been individually served, as a partner, with the writ of summons and had failed to appear” (r. 8 (c)). Nor, as there was no “firm,” could leave have been granted “to issue execution against any other person as being a member of the firm,” even if, after the proceedings, the plaintiff had discovered that Thom & Co., Ltd., were really the proprietors of the name of “Sealy, Bryers, and Walker.” “In my opinion,”to quote the words of Cozens-Hardy M.R. in  Simmons v. “Liberal Opinion,” Limited (2), “the proceedings in the action would have been futile.” A judgment against a name, which is not that of any existing firm, in an action in which no individual has been served as, has appeared as, has admitted that he is, or has been adjudged to be, a partner, is, in my opinion, absolutely null and void and unenforceable; and especially must this be the case where the party whose liability in such a case is alleged is a limited company which has never been connected as such with the proceedings. I know of no provision which enables a limited company to sue or be sued, or appear and  defend an action and recover a judgment, in anything but its registered name or in the name of some officer prescribed by statute.

 If the plaintiff’s neglect to enforce compliance with the rules and to secure the appearance of an answerable party in the proceedings would have made a judgment in his favour unenforceable, it appears to me that the active irregularity of the defendant, who has obtained a judgment for costs in such proceedings, puts him, if possible, in an even less meritorious position. It was the duty of Thom & Co., Ltd., to enter an appearance in their legal name if they were served with the writ; it was the duty of their solicitor, if they had authorised him to undertake to enter an appearance on their behalf, to enter an appearance in their proper name:  Simmons v. “Liberal Opinion,” Limited (1); and failure to do so may have conduced to the plaintiff’s neglect of his duty to bring a responsible defendant before the Court. In my opinion, Thom & Co., Ltd., had and have no right to allege that the judgment for costs in favour of “Sealy, Bryers, and Walker” confers upon them any enforceable right against the plaintiff. Whatever shadow of a case the plaintiff might have been able to make for amendment of the proceedings if he had succeeded in his action against “Sealy, Bryers, and Walker,” upon the ground that he had been deliberately misled by the company which was concealed behind that name, I am completely satisfied that no Court could or should extend any indulgence to Thom & Co., Ltd., for the purpose of enabling them to recover the costs of defending the proceedings, contrary to all the rules applicable to their case.

 In the view I take, that neither the non-existent “Sealy, Bryers, and Walker,” nor the limited company which published a newspaper under that name got a valid or enforceable judgment against the plaintiff, and accordingly that they were not joint judgment creditors with the other named defendants, and had no judgment debt capable of assignment at all, it becomes unnecessary for me to decide whether the assignment executed in the name of “Sealy, Bryers, and Walker” was valid or not; but I confess that I find it difficult to follow the contention the Thom & Co., Ltd., could obtain a valid judgment in an action in which they were not named and did not appear as parties in their corporate capacity, and yet would not be bound by estoppel from asserting that they had not validly assigned the debt by a writing executed by the authority of the company, as their managing director swears it was, which purported to assign the debt in the name in which it was obtained. In my opinion Thom & Co., Ltd., could not be heard as a company to deny that the debt was not in fact assigned to the petitioners. A company may be estopped from repudiating on technical grounds the acts of its agents. If by holding themselves out throughout an action as an unincorporated partnership they can obtain a valid judgment in the firm name, I fail to see how they could rely upon their incorporation as a defence against a claim by the co-defendants, to whom the judgment debt had been assigned in the name of the firm which the record showed to have recovered it; and if the assignment is good by estoppel against the company, the petitioners are now owners of the entire interest in the judgment debt. Thom & Co., Ltd., have admittedly carried on portion of their trade in the name of”Sealy, Bryers, and Walker” for nearly forty years, and two of their officials, one being a managing director, were deputed to carry on that trade in that name; and it appears to me that it would be contrary to established principles to permit the company to repudiate any transaction which might lawfully have been carried out by Thom & Co., Ltd., in its own name, but which was in fact carried out by its authorised agents in the name of “Sealy, Bryers, and Walker,” and in connection with the business carried on under that name.”


In re Boyle; Wallace v. Boyle and Sothern

[1947] I.R. 68

Overend J.         

The probate was extracted in Mr. Cyril Boyle’s name and all subsequent correspondence and proceedings were conducted in his name though in fact carried on by his father. The plaintiff’s solicitors were all along well aware of Mr. Cyril Boyle’s absence “on active service” and that the defendant, C. B. W. Boyle, was “carrying on this matter in his son’s name and on his behalf.” (See letter 4th July, 1945.) However, they raised no point or objection prior to receiving the bill of costs on the 6th July, 1945, and to the end addressed their letters to Cyril A. Boyle. They do not appear to have been fully apprised of the precise business arrangements between father and son and assumed they were partners until the true position was stated by the defendant in his affidavit, which is uncontroverted.

 In this case the arrangement has proved inconvenient and has led to an unfortunate unreality in the correspondence and entries, in the effort to give it full effect, e.g. “my father tells me that,” “I have advised my father,” etc., etc., when in fact no communication had been made one way or other. Fortunately this created no misapprehension on the part of the plaintiff’s solicitors.

 Having thus made the true position clear, I can refer to the “defendants’ solicitor,” which means Mr. Cyril Boyle acting by his father, the defendant, as his agent.

 About five weeks after the testator’s death the defendant, Sothern, furnished to the defendant’s solicitor a claim, dated 14th June, 1943, for £337 10s. 0d., for work and labour done, and services rendered to the testator, by his instructions, between the 5th January, 1939, and 5th May, 1943. [His Lordship read the claim.]

 It is to be noted that there is no suggestion that the testator ever did make any payment to this defendant for his services, or ever promised to pay a reasonable, or indeed any sum, beyond the statement that the work was done”on the testator’s instructions.” It is clear no figure was agreed, for the claimant says “I would consider 30s. per week a reasonable sum . . .”

 It is not suggested that the defendant ever asked the testator himself for any payment during this protracted period of almost four and a half years and it is to be noted that in January, 1942, after three of those years had expired, the testator bequeathed to Mr. Sothern a legacy of £50 free of duty “for his trouble in acting as executor,” but no other sum.

 On the 11th August, 1943, the defendants’ solicitor wrote to the plaintiff saying “Amongst the debts is a sum of £337 10s. 0d., due to Mr. Sothern for services rendered to the deceased from the 5th January, 1939, to the 6th May, 1943.”Then follows a resume of the claim and the letter concludes”My father, who is one of the executors, tells me that he knows Mr. Sothern gave all his time and attention, and sacrificed his evenings, summer and winter, looking after the deceased, and shortly before the deceased died he assisted the maid, and got outside help. I will be glad to hear from you that you approve of this debt being paid as I have advised my father that it is honestly due.”

 This letter indicates Mr. Charles Boyle’s attitude of mind at that time, viz., that he was aware of services rendered so extensive as to create an obligation to reward them. It does not appear that the testator considered Mr. Sothern’s name either as a beneficiary or creditor when making his will, in 1941, and the legacy given him by the codicil is expressly given for his trouble in acting as executor. It is clear, therefore, that so fas as the testator was concerned, these protracted services remained ……………………

 As Mr. Harris pointed out, the plaintiff’s solicitors at the  date of the summary summons were not clear as to the business relationship between Mr. C. B. W. Boyle and his son and were under the impression that a partnership existed. This is not surprising for the names of father and son both appear on the notepaper though when looked at carefully there is nothing which would indicate a partnership. Further the father annually renewed his son’s licence and did so as”Dublin Agent,” but in one year, 1944, the printed alternative description was entirely struck out and the word”Partner” inserted in writing, which is not Mr. Boyle’s and which he cannot identify, though “Dublin Agent” was always the prior and subsequent description.

 Mr. Boyle’s affidavit has now explained the true relationship and his statement has not been questioned. It seems to me a most natural thing that a father should endeavour to preserve the post-war interests of a son who, as a volunteer, was serving in that branch of the British Forces which bore the highest percentage of casualties in the last war.

 That, however, has nothing to do with the case. It is fair to the plaintiff to say that some months after the copy of the bill of costs was furnished to her solicitors, and shortly before the issue of the summons, an offer was made, and on its refusal she relied on her strict rights, whatever they might be, and that is the question I have to decide, a question which it appears is entirely novel, for no similar case has been cited, nor have I been able to find one.

 Mr. Cyril Boyle, the solicitor on record for the defendants, may not, and probably did not, know more of the case than its name, and that his father was conducting it for his benefit. His father has done the entire work personally at his own expense. He had told his son he would do all work personal to him gratuitously, as his agent, and he has done so with his son’s acquiescence and no doubt grateful consent.

 If Mr. Cyril Boyle had been here and had done the work himself no question could arise; he would be clearly entitled to the costs, subject to taxation, for his father does not participate directly or indirectly in the profits of his personal work. This is clear from the decision of Wood V.C. in  Clackv. Carlon (1). This is an even stronger case. On the other hand, if Mr. C. B. W. Boyle had acted as solicitor for the executors it is plain he could get no profit costs, for as executor he would be subject to the rule that he could make no profit from his position.

 What is the law when a principal, who can lawfully make a profit, employs an agent, who could not be allowed to make a profit, to do all the work?

In my opinion a principal who acts by an agent, who is under a disability, cannot claim to be in any better situation than his agent. So far as I know this is a new proposition and I propound it with some diffidence.

 I think, however, that it is involved in the statement of the law as laid down by Lord Cranworth in  Broughtonv. Broughton (1).

 He says (at p. 164):” “The rule applicable to the subject has been treated at the bar as if it were sufficiently enunciated by saying, that a trustee shall not be able to make a profit of his trust, but that is not stating it so widely as it ought to be stated. The rule really is, that no one who has a duty to perform shall place himself in a situation to have his interests conflicting with that duty; and a case for the application of the rule is that of a trustee himself doing acts which he might employ others to perform, and taking payment in some way for doing them. As the trustee might make the payment to others, this Court says he shall not make it to himself; and it says the same in the case of agents, where they may employ others under them. The good sense of the rule is obvious, because it is one of the duties of a trustee to take care that no improper charges are made by persons employed for the estate. It has been often argued that a sufficient check is afforded by the power of taxing the charges, but the answer to this is, that that check is not enough, and the creator of the trust has a right to have that, and also the check of the trustee. The result, therefore is, that no person in whom fiduciary duties are vested shall make a profit of them by employing himself, because in doing this he cannot perform one part of his trust, namely, that of seeing that no improper charges are made. The general rule applies to a solicitor acting as a trustee, and the only question is how far the circumstances of the present case take it out of this rule.”

 Now in the present case the will, which I assume was drafted by the defendant, Mr. C. B. W. Boyle, refrains from authorising the executor to act as solicitor and charge the usual professional charges, a clause frequently inserted, and while both will and codicil give legacies to the person appointed to be Mr. Boyle’s co-executor, there is no legacy to him for his trouble in acting. Yet he has proved the will and he has undertaken the burden of acting as executor without any benefit to himself, directly or indirectly. The case is not one in which there is a conflict of duty and interest such as Lord Cranworth referred to, but in my opinion it is a case where there is a conflict of duty and duty.

 His duty as agent to his son was to do all the work in connection with administration, which his son might have done if here to do the work personally; while his duty as executor was, as Lord Cranworth pointed out, to keep an additional check on professional charges. The correspondence and the bill of costs, as drawn, contain a number of illustrations of the difficulty created by Mr. Boyle’s dual capacities. Mr. Boyle, as executor, could not also act as solicitor and be entitled to profit costs, and I do not see that his son can be in any better position. In my opinion when Mr. Boyle became executor and proved the will be created in himself an inherent incapacity to earn profit costs in this administration either for himself or anyone else; therefore, when Mr. Cyril Boyle agreed that his father should act for him as agent, he was employing a person who, in this particular case, was under a disability peculiar to this case, viz., that he could earn no profit costs.

 It seems to me unfortunate that the plaintiff’s solicitors, who appear to have been under the impression that the father and son were in partnership, did not raise this point at an earlier stage when it would have been possible for Mr. Cyril Boyle to appoint another agent to act for him in this case and to participate to some extent in the legitimate profit costs of administration when taxed. However, that point may not have occurred to them although they were aware from the first of Mr. Cyril Boyle’s absence and that his father was doing the entire work, as they then assumed, as partner. That this does not amount to such acquiescence as would disentitle the plaintiff to raise the point is clear from  Broughton’s Case (1) in which the solicitor executor was originally employed to do the work by the testator himself, and continued to do it at the express request of the sole beneficiary, yet Lord Cranworth dismissed his appeal, but without costs ”  a precedent I am much disposed to follow. However, I shall reserve the question pending the enquiry directed.”


Bower v Hughes Hooker & Co Solicitors & Ors

[2003] UKEAT 1076

EMPLOYMENT APPEAL TRIBUNAL

THE HONOURABLE MR JUSTICE KEITH

“The argument that the Tribunal erred in its assessment of where the burden of proof lay is based on the decision of the Court of Appeal in Nationwide Building Society v Lewis [1998] 2 WLR 915, a case which was not referred to the Tribunal. The issue which the court had to decide was stated by Peter Gibson LJ at p.917C-D as follows:

“Can a salaried partner, who is in truth only an employee of a firm and allows his name to go on the firm’s notepaper in a way which does not differentiate between him and the true principal or partners and so is held out to be a partner in that firm, be held liable to another, who has dealt with that firm, for the negligence or breach of contract by it in the absence of direct evidence of actual reliance by that other on the holding-out?”

Peter Gibson LJ’s answer to that question was “yes”, but that did not mean that the burden of proving reliance was not on the person to whom the holding-out was made. At p.922H-923B Peter Gibson LJ said:

“[The plaintiff’s Counsel] submitted that it would make the doctrine of holding out wholly artificial and unworkable if a person claiming an estoppel had to prove that he actually relied on the holding out. I do not accept this. It does not seem to be to be impractical or unjust for the law to require a person claiming an estoppel to have to prove in a partnership context what he would have to prove in other contexts. Given that reliance is a necessary requirement, it is not obvious that there should be a presumption in favour of the person who claims reliance and is in a better position to know whether he did rely on the holding-out and who should therefore be able to prove it. The person held out, who is not in fact a partner, may well have difficulty in proving the negative, that the other person did not rely on the holding-out. Of course, there may be circumstances from which it would be appropriate for the court to infer that there was reliance on a holding-out. As is stated in Spencer Bower and Turner on Estoppel by Representation 3rd ed. (1977), pp. 114-115:

‘Though on questions of fact the onus will be upon the representee, it may happen that the probability of inducement from a given set of facts is so great, or in other words the materiality is so plain and palpable, as to justify a finding of the inducement itself merely from the circumstantial context;…but it must be remembered that the inference so made is one of fact and not of law’.”

We do not have to decide whether the Tribunal erred in law in relation to its second finding if we find that the Tribunal did not err in law in relation to its first finding; and it is therefore to its first finding that we now turn.

The December 1999 deed made Mr Bower what is generally called “a salaried partner”. Clause 6.2 of the deed provided that Mr Bower was to “be entitled to a fixed share up to a maximum of £60,000 drawn monthly in arrears.” But because the clause did not identify what he was to be entitled to a fixed share of, whether profits or fees or otherwise, the clause should be treated as the equivalent of a salary of £60,000 a year. That “salary” was not dependent on the size of the profits (or the losses) of the Firm. Clause 6.3 of the deed provided that Mr Bower was not to “be liable to contribute to the capital of the partnership,” and he was ultimately not liable for the Firm’s debts either, since by clause 2 of the deed Mr Bielecki agreed to indemnify him

“…against all costs, claims, damages, demands and expenses whatsoever and howsoever arising out of the conduct and management of [the Firm] incurred prior to and after the date of the commencement of the Partnership.”

In addition, Mr Bower did not own any of the Firm’s assets. Clause 5 of the deed provided that the fixed assets were owned by a limited company (in which only Mr Bielecki had an interest) and “cash, unpaid bills delivered and work-in-progress” were the sole property of Mr Bielecki.

However, the status of a “salaried partner” was considered by Megarry J (as he then was) in Stekel v Ellice [1973] 1 WLR 191 at p.199G-H. He said:

“It seems to me impossible to say that as a matter of law a salaried partner is or is not necessarily a partner in the true sense. He may or not be a partner, depending on the facts. What must be done, I think, is to look at the substance of the relationship between the parties; and there is ample authority for saying that the question whether or not there is a partnership depends on what the true relationship is, and not on any mere label attached to that relationship. A relationship that is plainly not a partnership is no more made into a partnership by calling it one than a relationship which is plainly a partnership is prevented from being one by a clause negativing partnership: see, for example, Lindley on Partnership, 13th ed. (1971), p.66.”

Having examined that relationship, Megarry J concluded that the plaintiff in that case had entered a partnership with the defendants, even though he was described as a “salaried partner”.

… the Tribunal referred to Stekel v Ellice and said that the case related to whether:

“…a partnership existed between two individuals in dispute as to the nature of their business relationship after it broke down. The case examines factors determining whether a ‘salaried partner’ necessarily was or was not a partner ‘in the true sense’. The judgment in any event rules that the answer to that question requires analysis of the substance of the relationship between the parties, dependant on the facts of the relationship rather than the label attached to it.”

……………We turn to the effective date of the termination of the employment of Mrs Stevens and Mr Marc. It was common ground that the effective date of termination was 30 March 2001 when the Firm closed down, unless the consequence in law of the events of 6 March 2001 caused their employment to end on that date. What happened on 6 March 2001 was that the Solicitors Disciplinary Tribunal ordered that Mr Bielecki be struck off the roll of solicitors. That raises two questions. First, did that result in the partnership between Mr Bielecki and Mr Bower being dissolved on 6 March 2001? Secondly, if so, did the dissolution of the partnership on 6 March 2001 mean that that was the effective date of the termination of Mrs Stevens’ and Mr Marc’s contracts of employment?

Section 34 of the Partnership Act 1890 provides:

“Dissolution by illegality of partnership

A partnership is in every case dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it on in partnership.”

In Hudgell Yeates & Co v Watson [1978] QB 451, a partner in a firm of solicitors accidentally failed to renew his practicing certificate, thus rendering himself unqualified. Since a partnership between a solicitor and an unqualified person was, as the law then stood, prohibited by section 39 of the Solicitors Act 1974, the partnership was held by the Court of Appeal to have become illegal and to have been automatically dissolved. Such a partnership would still be illegal now because, although section 39 of the Solicitors Act 1974 has been repealed, rule 7(6)(a) of the Solicitors Practice Rules 1990 (“the 1990 Rules”) prohibits a solicitor from entering into partnership with any person other than a solicitor, a registered foreign lawyer or a recognised body. Mr Bielecki did not come within any of these categories. Since the 1990 Rules have the force of subordinate legislation (see Mohammed v Alaga & Co [2000] 1 WLR 1815), it follows that the striking off of Mr Bielecki from the roll of solicitors on 6 March 2001 meant that his partnership with Mr Bower after 6 March 2001 would have been illegal, and it was therefore dissolved by the operation of section 34 of the Partnership Act 1890 on that date.

…………No difficulty arises if the change in the partnership is such that a partnership still exists. But what if the change in the partnership is such that a partnership no longer exists, as will happen when a partner in a two-partner firm leaves the partnership through retirement, death or otherwise? Here the cases have not spoken with one voice. In Harold Fielding Ltd  v Mansi [1974] ICR 347, the National Industrial Relations Court had to decide whether the applicant could bring himself within the predecessor of section 218(5), namely paragraph 9(5) of the Schedule to the Contracts of Employment Act 1972, which was in virtually identical terms to section 218(5). At p.351E, Sir John Donaldson said:

“In our judgment he cannot do so for two reasons. The first is that where one of two partners leaves the partnership, there are no partners, only a sole proprietor, after the change. Paragraph 9(5) does not cover this situation although perhaps it should.”

……………For our part, we prefer the approach in Elster to that of Mansi. It gives effect to the rationale underlying section 218(5) which is to preserve continuity of employment where the membership of a partnership changes. We do not think that Parliament intended that the consequence of partnership changes should be any different if a partnership of two persons becomes a sole proprietorship, simply because one of the two partners left. Since the continuity of the employment of Mrs Stevens and Mr Marc by Mr Bower, albeit under different contracts of employment, was preserved, it follows that the effective date of termination, for the purpose of their statutory rights, was 30 March 2001.

For these reasons, therefore, we conclude that the Tribunal did not err in the findings which it made on the two preliminary issues which it had to decide, and accordingly this appeal must be dismissed.