Broadhurst v Broadhurst

An oral partnership is governed by its objectively ascertained terms, including the partners’ fundamental obligation of complete good faith and the statutory obligations imposed by the Partnership Act 1890. An expectation that vehicles would sell within three months, or that advertising and storage costs would not exceed stated estimates, did not amount to contractual terms. A partner’s obligation to market partnership goods may require all reasonable steps, assessed in the commercial context and by reference to the partner’s experience and the venture’s secondary nature. Failure to achieve sales does not itself prove breach or loss. Liability still requires proof of breach and causation. Dishonesty does not justify substantial damages without recoverable loss.

The claimant and defendant, cousins, formed an oral partnership to import nearly-new vehicles from Japan for sale in the United Kingdom. The claimant funded vehicle purchases through Hartley Investments Limited, while the defendant was to arrange importation, registration and sale. The venture failed, the partnership was dissolved, and the claimant brought claims concerning the vehicles, VAT, failure to sell, accounting, secret profits and other breaches.

By an earlier order, the court was required to determine liability issues only. Quantum and the taking of the partnership account were reserved. The central questions were the terms of the oral partnership, whether the defendant had breached obligations concerning importation, registration, marketability and marketing, whether VAT had been misrepresented, and what matters required determination in the account.

1. Partnership terms. The oral partnership was subject to a fundamental obligation of complete good faith and to sections 28 and 29 of the Partnership Act 1890. The court rejected the alleged contractual warranty that every vehicle would be sold within three months. Estimates of advertising and storage costs did not become agreed caps.
2. Ownership and accounting. The vehicles were owned by Hartley Investments Limited, not by the partnership. Hartley authorised the partnership to sell them and pass good title, but the vehicles were not partnership assets. The defendant should have remitted the whole proceeds of each sale to the claimant in New Zealand, subject to repayment of Hartley’s purchase cost, the partners’ expenses and interest, followed by equal division of profit or loss.
3. Implied obligations. The defendant was required to import the vehicles into the United Kingdom within a reasonable time, keep them in marketable condition, register and modify them within a reasonable period, and take all reasonable steps to market them. The marketing obligation had to be assessed in light of the defendant’s amateur experience and the fact that the venture was not his primary occupation.
4. Breach and causation. Detaining vehicles in Rotterdam and failing to register them in reasonable time constituted breaches, but loss remained for the quantum hearing. The claimant failed to prove that the failure to sell the vehicles itself was a breach. Nor did he prove that communication failures, cleanliness, fuel or battery issues caused recoverable loss. Expert evidence was absent on the time in which such grey imports should have sold in the circumstances.
5. VAT and dishonesty. The alleged VAT representation was rejected. The partnership was properly liable for VAT on sales, and any penalties or interest caused by the defendant’s false invoices were his responsibility, but the partnership suffered no loss merely by paying VAT properly due. Following [2006] EWCA Civ 1133, the court cautioned that proven lies did not mean that all the defendant’s evidence was false. Dishonesty alone did not establish substantial damages.
6. Disposition. The court rejected the principal claims concerning failure to sell and VAT, found liability on several other issues, and directed that the remaining matters be resolved on the taking of the partnership account. The judgment was interim and did not finally determine the account.