Hodson v Hodson & Ors

A partnership may exist where the parties carry on a business in common with a view to profit. The statutory conditions in section 1(1) of the Partnership Act 1890 are the essential requirements. Profit sharing, participation in management, personal benefit and active involvement are not additional prerequisites. A partnership deed may establish the relationship even where some provisions are waived or imperfectly performed. Its termination requires agreement, contractual termination or another legally sufficient basis; the disappearance of the original commercial purpose alone is insufficient. A partner’s unilateral breach, including admitting another partner without authority, does not itself terminate the existing partnership.

The claimant sought to enforce an earlier judgment against Julienne Rowlands on the basis that she had been a partner with Neil Cloutman in Tudor Rose. The underlying proceedings concerned losses arising from transactions handled by Tudor Rose. The issue was whether Mrs Rowlands was a partner from 1 August 2000 to 31 July 2003, or alternatively whether the relationship ended when a dispensation from the supervisory requirements of rule 13 of the Solicitors’ Practice Rules 1990 was obtained in December 2001.

The court considered the partnership deed, the parties’ conduct, financial and tax records, professional indemnity arrangements, banking documents and regulatory information.

1. Partnership requirements. The relationship satisfied the three conditions in section 1(1) of the Partnership Act 1890: there was a business, carried on by two or more persons in common, with a view of profit. An agreement to share profits is not an additional essential condition.
2. Effect of the deed and conduct. The deed expressly provided for a partnership and supported the conclusion that the parties intended to comply with rule 13 of the Solicitors’ Practice Rules 1990. The reasoning in M Young Legal Associates Ltd v Zahid, [2006] EWCA Civ 613, was a close parallel and supported that conclusion. Mrs Rowlands’ waiver of her one per cent profit entitlement did not prevent partnership. Nor did the absence of personal profit, active management or substantial involvement. A sleeping partner may remain a partner.
3. Continuation after December 2001. The grant of a supervisory dispensation removed the original reason for the arrangement but did not terminate it. There was no express termination and no termination under the deed. Mrs Rowlands continued to be held out as a partner, remained connected with the bank account, appeared in tax and accountants’ records, and continued to do some work.
4. Variation and admission of another partner. Section 19 of the Partnership Act 1890 permits variation of mutual rights and duties by consent, but the alleged change was in substance a cessation of the partnership. That could only have resulted from termination. Mr Cloutman had no authority under the deed or the Act to admit Ms Okafor unilaterally. His doing so was a breach of the deed, but it did not end his partnership with Mrs Rowlands.
5. Conclusion. Mrs Rowlands was a partner in Tudor Rose from 1 August 2000 to 31 July 2003, or at least until April 2003. Further argument on quantum and consequential matters was adjourned.

The judgment concerned a preliminary issue directed in the continuing proceedings. Patten J had previously entered judgment against the defendants in [2006] EWHC 2878 (Ch). The present court determined Mrs Rowlands’ partnership status and adjourned any further argument on quantum and related matters.