McHugh & Anor v Kerr & Anor

For partnership liability under section 10 of the Partnership Act 1890, the relevant question is whether the wrongful conduct is sufficiently connected with the class of acts in which the firm engages. It is unnecessary to show that the partner was authorised to commit the particular wrong. Occasional performance of an activity, even without a fee or benefit to the firm, may place that activity within the ordinary course of business. A third party’s failure to detect an intentional misrepresentation does not ordinarily break the chain of causation. The fraud is treated as the sole cause of the resulting loss where the partners are liable to the same extent as the fraudulent partner.

The appellants were partners in an accountancy firm. A senior partner forged a client’s signatures on stock transfer forms and sent them to the respondent stockbrokers, who confirmed the signatures before the shares were transferred. The stockbrokers became liable to Glaxo and sought recovery from the appellants as the fraudulent partner’s fellow partners.

Deputy Master Mark held that forwarding the transfers was in the ordinary course of the firm’s business and that the stockbrokers’ confirmation did not break causation. The appeal concerned whether the appellants had a real prospect of defending the claim on either issue.

1. Real prospect of defence. The appeal was against a summary judgment decision. The question was whether the appellants could show a real prospect of successfully defending the claim, applying Swain v Hillman [2001] 1 All ER 91.
2. Ordinary course of business. Under section 10 of the Partnership Act 1890, the issue was whether the fraud was so closely connected with acts which Mr Gordon was authorised to perform that it could fairly and properly be regarded as occurring in the ordinary course of the firm’s business. The firm had in fact undertaken some share transactions. The fact that such work was occasional, unpaid, performed for friends, or yielded no benefit to the firm did not take it outside the ordinary course of business. The transfers were also sent under cover of a letter on the firm’s letterhead. There was therefore no realistic defence on this issue.
3. Causation. The partners were liable under section 10 to the same extent as the fraudulent partner. The stockbrokers’ negligence in failing to discover the forged signatures did not break the chain of causation. A defendant cannot answer a claim in deceit or fraudulent misrepresentation by saying that the falsity could have been discovered through reasonable care and skill. The policy imposing wider liability for intentional wrongdoing, and excluding contributory negligence in deceit, supported treating the fraud as the sole cause of the loss. The appellants could not claim contribution in the circumstances described.
4. The appeal was dismissed.

High Court (Chancery Division): Appeal from the decision of Deputy Master Mark. The appeal was dismissed.