Nationwide Building Society v Lewis

The court held that a claim based on estoppel by holding-out requires proof that the claimant acted on the faith of the representation. Reliance cannot be presumed as a matter of law from the mere fact of a name appearing on firm stationery. An employee who allows himself to be held out as a partner may be liable, but only where the claimant can establish that it relied on that representation in taking the relevant step giving rise to loss.

The plaintiff lender retained a firm of solicitors to act in a mortgage transaction. The firm was in truth a one‑man practice. The employee's name, however, appeared on the firm's notepaper as a ‘partner’. After loss on the mortgage, the lender sued both the sole principal and the employee, alleging he had been held out as a partner. The trial judge answered a preliminary issue in the lender's favour, finding a presumption of reliance. The defendant employee appealed the finding that he was liable by reason of holding‑out. The appeal raised whether reliance can be presumed and what evidence is required to establish estoppel by holding‑out.

1. Disposition: The appeal was allowed. The Court of Appeal set aside the trial judge's finding that the second defendant was liable on the basis that he was held out as a partner.
2. Reliance as an essential element: The court held that both s.14(1) of the Partnership Act 1890 and the common law require the claimant to show that it acted on the faith of the representation. Mere knowledge of a holding‑out is not in itself proof of reliance. (See discussion at [1998] EWCA Civ 337 pages [1186]–[1187].)
3. No automatic presumption: There is no legal presumption that a third party relied on a holding‑out simply because the representation was continuous or because the name appeared on firm stationery. Any presumption is factual and must be justified by the circumstances. (See [1998] EWCA Civ 337 pages [1186]–[1188].)
4. Inference of reliance: The court accepted that reliance may be inferred from the surrounding circumstances where the probability of inducement is plain. But the burden remains on the claimant to prove reliance by evidence or proper inference. (See page [1187].)
5. Application to the facts: On the facts the lender had not shown that it relied on the presence of the employee's name when it acted on the title report. The contract of retainer had been accepted by the sole principal. The mere fact that the report was signed on firm stationery did not establish reliance on the partner representation. The judge's finding to the contrary was set aside.
6. Practical guidance: An employee who permits himself to be held out as a partner incurs potential liability. Claimants must, however, prove reliance; absence of evidence of notice or of any dealings with the purported partner will normally defeat an estoppel claim.
7. Order: Appeal allowed; second preliminary issue answered in the negative; costs to the appellant.

• Court of Appeal (Civil Division): appeal from the Chancery Division. This judgment allows the appeal and sets aside that part of the High Court order finding liability on the basis of holding‑out.
• High Court (Chancery Division): Rimer J answered the second preliminary issue in the affirmative. Reported: [1997] 1 W.L.R. 1181.