Alexander Hamilton v Mark Barrow & Ors

A partnership is determined objectively from the parties’ conduct and the whole circumstances. Labels, separate sections, informal arrangements and the absence of documentation are not conclusive. A common interest is necessary but does not itself establish a partnership.

Investors are not partners merely because they invest with a view to profit. They must carry on a business in common. A partner is liable for a co-partner’s wrongful act where it is done in the ordinary course of the partnership business or with authority. Fraudulent descriptions of investment arrangements made to obtain new business may fall within that scope.

Where a knowing or reckless misrepresentation is proved, only a small causal influence may be required to establish reliance.

Mr Hamilton claimed the return of US$698,888 invested in the Currency Club, an unregulated foreign exchange enterprise. He alleged that Mr Welsh fraudulently misrepresented the account in which his funds would be held, the extent of control retained over them, and the operation of the investment scheme. He also claimed breach of contract and unlawful-means conspiracy against Mr Welsh and Mr and Mrs Barrow.

The court had to determine the legal relationship between the Currency Club leaders and investors, whether Mr and Mrs Barrow and Mr Welsh were partners, whether the representations were made and relied upon, whether the defendants were jointly liable, and whether a contract existed and what its terms were.

1. Partnership. The Currency Club leaders carried on a business in common with a view to profit. The division into sections was substantially administrative. Their collective decision-making, common banking arrangements, communications, commission arrangements and mutual rights and obligations established a partnership under the Partnership Act 1890. Mrs Barrow was also a partner. Individual investors, including Mr Hamilton, were clients of the main partnership, not partners or sub-partners, because they did not carry on a business in common.
2. Misrepresentation and reliance. Mr Welsh misrepresented the nature of the account through which the funds would be invested and the control retained over them. Mr Hamilton was led to believe that his money would be held in an FXPro PAMM account, with access by DA limited to trading, whereas control was in fact relinquished. He was also unaware that incoming funds might be used to meet withdrawals and commission payments. The misrepresentations materially induced the investments. Had the true position been disclosed, he would not have invested.
3. Liability. Mr Welsh acted in the ordinary course of the partnership business when recruiting investors, receiving funds and explaining the security arrangements. The partnership was therefore liable for his wrongful acts under sections 5 and 10 of the Partnership Act 1890. The defendants were jointly and severally liable for damages for misrepresentation and breach of contract.
4. Contract. An oral contract existed between Mr Hamilton and the Currency Club partnership. Its established terms were that the funds would be held in an FXPro PAMM account for trading purposes, that 15 per cent commission would be deducted from successful trades, and that Mr Welsh would exercise reasonable skill and care in administering and reporting on the investments. No definite term requiring repayment on notice was proved.
5. Conspiracy and trust. The evidence did not establish an unlawful conspiracy to mislead investors to the required standard. The alleged illegality of the netting-off process was neither pleaded nor established. The trust claim was withdrawn.
6. Order. Liability was established against all defendants. The court indicated that damages would ordinarily comprise the capital invested with interest at 1 per cent above US LIBOR, subject to a short opportunity for further submissions on quantum.