Section 14 of the Partnership Act 1890 provides for a person to be liable as a partner where:
First, the person in question has been held out as a partner in a firm; and,
Secondly, two further sub-elements have been complied with:
A the claimant must have “given credit” to the firm; and,
B such “credit” must have been “given” in reliance upon (“upon the faith of”) the representation that the defendant was a partner.
In Nationwide Building Society v Lewis [1998] the Court of Appeal said ‘given credit’ was not to be construed restrictively and could apply to ‘any transaction of the firm’.
There is no presumption of reliance in favour of a claimant. The claimant must prove, in every case, that in entering into the contract for legal services with the relevant firm, they had, in some way, relied upon the fact that the headed paper, or other representation, held the employee out as a partner of the firm.
As the High Court said in Sangster v Biddulph [2005] the claimant must satisfy the court that, on the balance of probabilities, the holding out or representation had a material influence on the claimant’s decision to proceed with the proposed transaction through those solicitors.
The holding out or reliance does not need to have had a decisive effect but it must have been a contributing causative factor in the claimant’s decision to use the firm.
In Walsh & Ors v Needleman Treon (A Firm) & Ors [2014] the claimants claimed against Mr N and Mr T, the equity partners of the firm, under an agreement whereby the firm was to act for the claimants in short term bridging finance transactions protected by legal charges over properties.
Thc claimants sought to establish liability, also, against a Mr Prior who resisted this on the basis that, as a “salaried partner”, he was an employee of the firm, albeit also the head of the firm’s property department and held out a “partner” on the firm’s letterhead.
The High Court said the claim did not begin to make out a case of material reliance by the claimants on any holding out of Mr Prior as a partner.
There had been nothing to suggest that any of the claimants would, or might, have done anything differently had Mr Prior not been held out as a partner.
Even when one of the claimants began to become concerned about the prospects of repayment, the most that could be said was that that claimant had felt reassured because of Mr Prior’s specialist skills and seniority- nothing necessarily to do with his status, or otherwise, as a partner.
This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.
Original article: Salaried partner not liable to property clients.