Kotak v Kotak

A partnership loan may bind the partnership when accepted or signed by one partner if that partner has actual or ostensible authority. Contractual provisions allowing signatures by all partners do not, without more, prescribe signature by every partner as the exclusive mode of acceptance. The document must be construed objectively in its commercial and legal context.

A banking mandate authorising one signatory to act for all other purposes may extend beyond payments to loan agreements forming part of the ordinary banking relationship. A representation concerning the terms of particular loans does not ordinarily amount to an assurance about future lending, and estoppel requires reliance.

The judgment determined preliminary issues in third-party proceedings brought by Jagdish Kotak against Royal Bank of Scotland plc concerning loan agreements entered into in the name of a partnership operated by Jagdish and Dinesh Kotak. The issues concerned the effect of a one-signature banking mandate, whether the loan agreements required both partners to sign, and whether RBS was estopped from relying on one signature.

The court also considered an application to amend the third-party claim to raise arguments under sections 5 and 7 of the Partnership Act 1890, and arguments concerning refinancing agreements.

1. The third-party claim was dismissed. The relevant loan agreements bound the partnership and both partners, irrespective of the alleged forgery of Jagdish’s signature or Dinesh’s actual authority.

2. The loan agreements were offers of lending to the partnership. Their signature provisions were not a prescription that both partners had to sign as principals before any contract could arise. A signed agreement was a precondition to drawdown, but not a precondition to the existence of the loan contract. The agreements, construed objectively against the partnership and banking-law context, permitted acceptance by one partner acting with authority under section 5 of the Partnership Act 1890 or the mandate.

3. The 1997 mandate authorised either named partner to give written instructions for all other purposes on behalf of the firm. Read with the liability section, those words extended the mandate to matters forming part of the ordinary banking relationship, including loan agreements. The mandate was not limited to the partnership’s initial account. There was no ambiguity requiring application of contra proferentem.

4. No estoppel arose. The terms of two earlier loan transactions did not represent that RBS would impose the same signature requirement for all future borrowing. In any event, the evidence did not establish reliance by Jagdish.

5. As an alternative view, the proposed amendments concerning section 5 would have had no realistic prospect of success. Whether conduct is usual is assessed by reference to the type or kind of business carried on, viewed through the eyes of a reasonable and competent counterparty. Borrowing is ordinarily integral to a modern property business. The proposed section 7 case likewise disclosed no realistic basis for saying that the borrowings were apparently unconnected with the partnership’s ordinary business.

6. The proposed amendments concerning refinancing also lacked a realistic prospect on the pleaded case. The refinancing provisions stated the purpose of the loans and provided contractual consequences, including an event of default, if the purpose was not fulfilled. They did not make existing indebtedness a condition of contract formation. A total failure of consideration might, in an appropriate case, support restitutionary relief, but the issue did not arise on the facts found.

7. The application to amend was dismissed, subject only to retrospective amendments reflecting the issues determined at trial.