Patel & Anor v Barlows Solicitors (a firm) & Ors

A property joint venture may constitute a partnership even where the parties use the label “joint venture”, the arrangement is partly oral, the venture is a single commercial undertaking, or the property is acquired in one participant’s name. The court must examine the substance of the relationship against sections 1 and 2 of the Partnership Act 1890.

Money paid to solicitors for a defined acquisition purpose may be held on a Quistclose resulting trust. If the purpose fails, the money remains beneficially owned by the payer and is not available to the payer’s trustee in bankruptcy merely because the solicitor paid it away and a negligence claim later produced settlement proceeds.

The Berkeley Applegate costs jurisdiction is discretionary and sparingly exercised. It is generally inappropriate where the applicant claims an interest in the fund or acted without sufficient investigation or cooperation.

The claim concerned sums advanced by the Claimants towards the proposed purchase and resale of three properties by the Bankrupt, the First Claimant and the Third Defendant. The properties were to be acquired in the Bankrupt’s name. The purchase of two properties failed after solicitors paid the purchase monies onward without securing good and marketable title.

The Second Defendants, trustees in bankruptcy, later recovered £275,000 from the solicitors in a negligence claim. The First Claimant sought declarations that the venture was a partnership, that it had been dissolved, an account, and payment of the advance from the settlement fund. Alternatively, he claimed that the advance and settlement proceeds were held on trust for him.

The Second Defendants sought payment of their costs and remuneration from the fund under the Berkeley Applegate jurisdiction. The central issues were whether a partnership existed, whether the settlement fund was held on trust, and whether the trustees should receive costs from it.

1. Partnership. The Joint Venture satisfied section 1(1) of the Partnership Act 1890: it involved a business, carried on by the Joint Venturers in common, with a view of profit. A property acquisition and resale venture could constitute a business. The absence of formal documentation, the use of “joint venture” terminology, and the fact that the properties were held in the Bankrupt’s name were not decisive. The relevant question was the substance of the parties’ relationship, assessed against sections 1 and 2 of the Act.
2. The Joint Venturers acted for their common benefit, had agreed roles, and intended to share profits equally. The partnership subsisted between the First Claimant, the Bankrupt and the Third Defendant when the relevant purchases were attempted. It was dissolved when the purchase failed, alternatively when the Bankrupt was made bankrupt. The partnership’s affairs were to be wound up and accounts taken.
3. Trust. The Claimants’ Advance was paid to solicitors solely to acquire the First and Second Properties with good and marketable title. The solicitors knew the source and purpose of the money. The money was therefore held on a Quistclose resulting trust. The absence of a formal undertaking did not prevent the trust arising. The failed purpose meant that the money was returnable to the First Claimant.
4. The settlement obtained from the solicitors represented or included the Claimants’ Advance. Its character was not altered by the negligence claim, the Tomlin settlement, the payment to the trustees, or the fact that the original monies had been dissipated. The trustees acquired no better right than the Bankrupt had. The First Claimant was entitled to payment of the advance and appropriate interest from the settlement fund.
5. Relief from sanctions. Relief was granted under the three-stage approach in [2013] EWCA Civ 1537 and [2014] EWCA Civ 906. The breaches were significant and the explanations were inadequate, but there was little prejudice, no adjournment, and the evidence was important to a fair determination.
6. Trustees’ costs. The Berkeley Applegate discretion was to be exercised sparingly. Relevant factors included prompt notice, complete evidence, the applicant’s interest in the fund, cooperation with beneficiaries, available recourse to other assets, the size of the fund, and whether the work was necessary or officious. The trustees had ample time to investigate the Claimants’ asserted interest, failed to cooperate, provided materially inaccurate costs information, and claimed an interest adverse to the beneficiaries. The Expenses Application was dismissed.
7. The court declared that the Joint Venture was a partnership and dissolved, ordered its affairs to be wound up and accounts taken, and proposed payment of the Claimants’ Advance to the First Claimant before the account.