HLB Kidsons (Formerly Kidsons Impey) v Lloyd's Underwriters Subscribing Policy No. 621/PK1D00101 & Ors

Section 38 of the Partnership Act 1890 preserves partners’ authority after a general dissolution only so far as necessary to wind up the partnership’s affairs or complete unfinished transactions. It does not ordinarily apply where a partnership continues its business after a technical change in membership under an agreed partnership structure.

A claim against insurers is not necessarily part of winding up. Continuing partners may pursue a joint claim and join non-consenting jointly entitled partners as defendants under Civil Procedure Rules 1998, rule 19.3. Authority in a partnership deed to conduct litigation in the firm’s name does not, without express agreement, authorise proceedings in the name of former partners after retirement.

HLB Kidsons brought satellite proceedings concerning the authority to commence insurance coverage litigation on behalf of partners who had formerly belonged to Kidsons and had retired after its merger with Baker Tilly.

The principal questions were whether the merger dissolved the Kidsons partnership for the purposes of section 38 of the Partnership Act 1890, whether commencing the coverage action was necessary to wind up its affairs, and whether the National Managing Partner had statutory or contractual authority to sue for the retired partners.

The court also considered the effect of the Kidsons Deed and the Merger Deed, and the procedural alternative under Civil Procedure Rules 1998, rule 19.3.

1. The application succeeded for the Kidsons Former Partners. The merger produced a technical dissolution, but section 38 of the Partnership Act 1890 was directed to a more general dissolution involving the winding up of the firm. The partnership deeds contemplated continuity of the business despite changes in membership. Applying section 38 whenever a partner retired would produce an impractical result inconsistent with that agreed structure (paras [8]–[17]).
2. Even if section 38 had applied, commencing the coverage action was not necessary to wind up the partnership’s affairs. The continuing partners could pursue the claim and join any jointly entitled person who did not agree to be a claimant as a defendant under Civil Procedure Rules 1998, rule 19.3 (paras [18]–[19]).
3. The National Managing Partner’s powers under clauses E4.2.3 and E4.2.4 of the Kidsons Deed authorised litigation in the name of the National Firm. They did not authorise proceedings in the name of persons who were no longer members of that firm. Such a significant power required express agreement. It could not be implied merely because central management would be convenient or because the deed did not expressly terminate the power on retirement (paras [20]–[24]).
4. The same conclusion applied under the Merger Deed. No agreement in that deed or elsewhere gave the National Managing Partner authority to sue on behalf of the retired partners. The position also necessarily excluded partners who had retired before the merger and were not subject to the Merger Deed (paras [25]–[27]).
5. The court declined to determine the narrower question concerning three partners who had retired before the merger, since it arose only if the conclusions on the first two issues were wrong and had not been fully argued (para [20]).

The judgment records that preliminary issues in the wider insurance action had been decided by Mrs Justice Gloster, with an appeal pending. This judgment determined the separate partnership-authority application at first instance.