Goldberg & Ors v Miltiadous & Ors

A partnership may be liable for a partner’s dishonest or negligent conduct where the conduct is sufficiently closely connected with authorised acts to be regarded as occurring in the ordinary course of the firm’s business. The inquiry is not confined to the partner’s actual authority.

Ostensible authority may arise where the firm, by words or conduct, represents that the partner has authority and a claimant relies on that representation. A partner’s undisclosed restriction on authority does not protect the firm where no limitation was communicated. The fact that money is paid to the partner personally or to a company connected with him does not, by itself, prevent liability for advice given in the course of the firm’s business.

The claimants alleged that an accountant, Mr Christou, induced them to invest substantial sums through fraudulent representations and negligent investment advice. Mr Christou did not defend the proceedings, and judgment had already been entered against him for damages to be assessed.

The remaining defendants were his partners in Foster Squires. They admitted that Mr Christou had made fraudulent representations but disputed liability on the basis that he lacked authority and was acting outside the ordinary business of the firm. The central issues were whether his conduct fell within the Partnership Act 1890 provision governing partnership liability, whether the firm had held him out as authorised, and whether the identity of the recipient of the funds affected liability.

1. Claims succeeded. The claims in deceit and negligence succeeded against all three defendants. The liability of Mr Miltiadous and Mr Brougham was limited to periods when they were partners with Mr Christou.
2. For partnership liability, the court applied the close-connection approach in Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 AC 366. The question was whether the wrongful acts were so closely connected with acts Mr Christou was authorised to do that they could fairly and properly be regarded as done in the ordinary course of the firm’s business.
3. The court held that expressing views about investment risk was ordinarily within an accountant’s business. Under the 2001 partnership agreement Mr Christou was authorised to give investment advice. Under the 2005 agreement he lacked actual authority to undertake regulated investment business, but no restriction was communicated to the claimants.
4. Applying the principles of ostensible authority summarised in Nayyar v Denton Wilde Sapte [2009] EWHC 3218 (QB), the firm, particularly Mr Miltiadous, held Mr Christou out as authorised. The firm’s stationery, website, seminars, offices and conduct supported that representation. Mr Miltiadous knew of and acquiesced in Mr Christou’s investment activities; Mr Brougham did not impose or communicate any effective limitation.
5. The court rejected the submission that payment to Mr Christou personally or to companies associated with him showed that the claimants were dealing with him privately. That circumstance demonstrated a conflict of interest but did not prevent the advice from being given on behalf of, or in the ordinary course of, the firm.
6. The claimants established deceit and negligence. Mr Christou’s assurances that the investments were safe were opinions he did not honestly hold, and the advice was plainly investment advice given in breach of duty.

The precise form of order was agreed or determined by rulings on 9 March 2010.