Ward v Newalls Insulation Co Ltd

The measure of a plaintiff's loss from partnership profits is the plaintiff's real loss arising from his contribution, not the partners' internal or tax-driven apportionment. A tax allocation that makes a spouse a sleeping partner does not, without more, limit damages where the plaintiff's contribution plainly produced the profits. The existence of sleeping partners is legally recognised, but the apportionment of profits for tax is an internal, terminable arrangement and is not decisive in assessing compensatory damages.

The appellant suffered progressive lung disease from occupational asbestos exposure. He had previously worked in a two-person partnership with a co-partner and later, on accountants' advice, extended nominal partnership shares to their wives for tax purposes. The High Court assessed damages on the basis that the appellant was entitled to only a 25% share of partnership profits. The appellant appealed, challenging the reduction and seeking assessment on his actual contribution to profits. The central issue was whether a tax-driven apportionment that made spouses sleeping partners should limit the appellant's recoverable loss of earnings.

1. Disposition: Appeal allowed on the partnership issue. The Court held that the appellant's loss should be assessed by reference to his real contribution, not by the apportionment agreed for tax purposes.
2. The court accepted that sleeping partners are recognised in law and that partners may agree internal apportionments for tax convenience. See Pooley v Driver and statutory provisions in the Partnership Act 1890.
3. The tax-driven division of profits was an internal, terminable arrangement. It was not evidence of the true measure of the appellant's loss where it did not reflect the reality of contribution. The court relied on the principle that damages compensate the actual loss caused by the defendant's breach, following the reasoning in Lee v Sheard.
4. The court considered but distinguished Kent v The British Railways Board, observing that where both spouses are working partners the court must measure loss by real contribution; Kent did not conflict with allowing compensation measured by contribution where the wife's role was nominal.
5. The Court relied on supportive authority from New South Wales (Taroporewalla v Berkery) and other authorities showing that where the claimant effectively controls or supplies the profit-yielding effort, damages ought to reflect that reality rather than the tax allocation.
6. Practical guidance: where apportionment of profits is terminable and does not represent the true allocation of labour or capital, a court assessing damages should measure the claimant's loss by reference to his real contribution, allowing deduction only for any proven contribution by the spouse.
7. Consequences and order: the appeal was allowed on the partnership point. The parties were to recalculate quantum on the basis that the appellant's entitlement was a 50% share, subject to agreed adjustments. The court increased specific heads of loss and granted leave to amend. Leave to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): Appeal from the High Court (Queen's Bench Division, HHJ Fricker QC sitting as a deputy High Court judge). The Court of Appeal allowed the appeal in part and remitted recalculation on a 50% basis for the partnership share.
• High Court (Queen's Bench Division): First instance assessment of damages by His Honour Judge Fricker QC, 9 July 1996, which assessed the appellant on a 25% partnership share (challenged on appeal).