Conlon & Anor v Simms

Prospective partners owe one another a fiduciary duty of complete good faith. A partner negotiating entry into partnership must disclose material matters within his exclusive or superior knowledge, subject to the qualification that there is no duty to disclose what the other party already knows. Mere non-disclosure ordinarily does not support damages, but fraudulent non-disclosure in breach of a duty to speak may amount to fraudulent misrepresentation and found an action in deceit. A previous disciplinary decision may be relied on where preventing re-litigation is necessary to avoid manifest unfairness or disrepute to the administration of justice. The court must nevertheless reach its own view on facts properly proved.

The claimants entered into partnership arrangements with the defendant, a solicitor and former partner in their firm. After the defendant’s practice was investigated by the Law Society, he continued to conduct high-yield investment transactions and assured his partners that his transactions were bona fide. He did not disclose the scale and nature of his dishonest conduct.

The Law Society’s Solicitors Disciplinary Tribunal found the defendant dishonest and struck him from the Roll. The Divisional Court upheld that conclusion in Simms v Law Society, [2005] EWHC 408 (Admin). The claimants sought damages for misrepresentation and fraudulent non-disclosure. The central issues were the scope of the duty owed by prospective partners, the effect of the disciplinary findings, inducement and loss.

1. Duty of disclosure. Prospective partners owe a duty of complete good faith in negotiations concerning entry into partnership. Each must disclose material matters relating to the proposed partnership which are within his exclusive or superior knowledge. The duty does not require disclosure of matters already known to the other party. The principle follows from the fiduciary nature of partnership and applies before the partnership is formed.
2. Remedy for non-disclosure. Mere non-disclosure ordinarily does not found an action for deceit or damages. Where a duty to disclose exists and the withholding is fraudulent, however, the non-disclosure assumes the character of fraudulent concealment or fraudulent misrepresentation. Damages are then available. A contractual implied duty of good faith may also sound in damages where breached.
3. Disciplinary findings. The earlier judgment of David Richards J did not finally determine admissibility. The order of the Solicitors Disciplinary Tribunal was evidence that the defendant had been struck from the Roll for dishonesty, but the court was required to reach its own view on the underlying facts. It would have been manifestly unfair, and would bring the administration of justice into disrepute, to require the claimants to re-prove numerous transactions after the defendant had received a full hearing and appeal, in the absence of substantial fresh evidence.
4. Application. The defendant knew, but the claimants did not, the scale of his involvement in fraudulent schemes. His failure to disclose that dishonesty was fraudulent. His repeated assurances that the transactions were bona fide were also false. Those matters induced both claimants to enter the partnership agreements. The claim concerning the representation that Elite was substantial failed for lack of inducement, and the Charlton representation did not establish a viable misrepresentation claim.
5. Disposition. The claims based on fraudulent non-disclosure succeeded. Mr Conlon and Mr Harris were entitled to damages to be assessed. The defendant was liable for the consequences of Mr Harris entering the September 2000 partnership agreement.

The judgment records prior proceedings relevant to the issues but does not state an appeal from the present decision.

• Divisional Court dismissed the defendant’s disciplinary appeal and upheld the finding of dishonesty in Simms v Law Society, [2005] EWHC 408 (Admin) .
• Court of Appeal refused permission to appeal from the earlier partnership judgment in [2004] EWCA Civ 1006.