The Northampton Regional Livestock Centre Company Ltd v Cowling & Anor

A fiduciary who continues to perform an outstanding retainer remains bound by loyalty, even if released to compete generally. Acting for the principal and purchaser is permissible only if it does not create a conflict; an undisclosed profit-sharing arrangement requires the fiduciary to account and may support a proprietary remedy. Under the Partnership Act 1890 s 10, a firm’s liability for a partner’s wrong depends on the connection between the wrong and acts the partner was authorised to perform, not on authority to commit the wrong. A partner remains within the ordinary course where he performs the firm’s task while pursuing the firm’s and principal’s business, although by improper means or purpose. Liability does not arise for a wholly personal frolic. Negligent marketing must be assessed against the actual instructions and the price realistically obtainable in the circumstances, rather than a theoretical value based on hindsight.

The Appellant, assignee of Northamptonshire Auctions PLC’s claims, sued its former property consultants, Mr Cowling and Mr Lawrence, after the market site was sold to Earlplace for £2.25 million.

The High Court, Green J, rejected the negligence claims, found Mr Lawrence in breach of fiduciary duty for acting for both vendor and purchaser and accepting a profit share, and ordered him to account for the commission. It held that Mr Cowling was not vicariously liable. The Company appealed on negligence and partnership liability. Mr Lawrence cross-appealed on the continuation of his fiduciary duty, estoppel and confidential information. The central issues concerned the standard applicable to the marketing, the scope of partnership liability under the Partnership Act 1890, and the resulting remedies and costs.

1. Disposition. The Company’s appeal was allowed in part. Mr Cowling was held jointly and severally liable with Mr Lawrence for the accounting liability. A proprietary remedy against Mr Lawrence was permitted. The Company’s remaining grounds and Mr Lawrence’s cross-appeal were dismissed, subject to further consideration of compound interest.
2. Negligence. The marketing had to be assessed by reference to the instructions given by the Company. Mr Cowling’s decision to market on the existing-use basis was accepted as properly made in the Company’s interests, and there was no challenge to the finding that he had properly discharged his duties as director. MCL was not negligent for failing to give planning, valuation or development advice outside its retainer. In any event, a theoretical market value did not establish loss: the relevant question was the best price realistically obtainable in the Company’s financial and planning circumstances.
3. Fiduciary duty and estoppel. Mr Lawrence remained subject to the duty of loyalty while continuing to perform MCL’s outstanding task of marketing the site. His freedom to compete generally did not permit conduct placing his personal interest in conflict with the Company. His agreement to receive one-third of any resale uplift created such a conflict and required him to account, irrespective of proof that the sale was at an undervalue. An estoppel based on the Company’s knowledge that he acted for Earlplace could not validate an undisclosed commission. The court distinguished Rossetti Marketing Limited v Diamond Sofa Co Limited [2013] 1 All ER (Comm) 308 and applied the requirement of unconscionability identified in The Vistafjord [1988] 2 Lloyds Rep 343. The court declined to infer a separate breach based on confidential information because the information was not precisely identified and much of it was information which MCL was required to disclose to purchasers.
4. Partnership liability. Under s 10 of the Partnership Act 1890, authority to commit the wrongful act is not the touchstone. The question is whether the wrongful conduct was sufficiently connected with acts the partner was authorised to perform to be regarded as occurring in the ordinary course of the partnership business. Applying Dubai Aluminium Co Limited v Salaam & Ors [2003] 2 A.C. 366 and Hamlyn v John Houston & Co [1903] 1 KB 81, the court held that Mr Lawrence was carrying out MCL’s authorised task of finding a purchaser. His personal interest did not make the conduct a frolic of his own. MCL therefore bore vicarious liability for the commission and the related Carter Jonas fee.
5. Remedy, interest and costs. In light of FHR European Ventures LLP v Cedar Capital Partners LLC [2014] 3 W.L.R. 535, the commission of £744,035.02 was held on trust for the Company and was subject to a proprietary remedy. The question of compound interest was deferred pending consideration of tracing and the proprietary remedy. The costs order below was set aside. The Company was awarded 50% of its action and appeal costs, payable jointly and severally by the defendants.

• Court of Appeal (Civil Division): In [2015] EWCA Civ 651, the Company’s appeal was allowed in part, Mr Cowling was held jointly and severally liable, and the Company’s remaining grounds and Mr Lawrence’s cross-appeal were dismissed, subject to the deferred interest issue.
• High Court of Justice, Queen’s Bench Division: Green J, in [2014] EWHC 30 (QB), rejected the negligence claims, found Mr Lawrence liable to account for an undisclosed commission, but held that Mr Cowling was not jointly and severally liable.