Frontiers Capital I Limited Partnership v Thomas Flohr

After dissolution of a limited partnership, a cause of action accruing before dissolution remains a partnership asset until pursued, realised or assigned. Section 38 of the Partnership Act 1890 permits the general partner to commence proceedings where doing so is reasonably required to get in and wind up that asset. The test does not depend on whether the claim is a simple debt or speculative litigation. The court may refuse to permit proceedings where, for example, recovery is hopeless, the claim is known to be hopeless, or a collateral purpose is shown. The objection bears the burden of establishing such circumstances. The question whether the partnership agreement authorised the general partner to act remained for determination, but the standing challenge was not suitable for summary judgment.

Frontiers Capital I Limited Partnership claimed that Thomas Flohr was liable for profits, damages or equitable compensation arising from alleged breaches of contract and fiduciary duty. The alleged conduct occurred between 2002 and 2005. The partnership’s business ceased and it was apparently dissolved in 2010; its general partner was later dissolved and restored to the Guernsey register in 2021.

The defendant applied to strike out the claim or obtain summary judgment, arguing that the general partner lacked contractual authority or standing after dissolution and that section 38 of the Partnership Act 1890 did not authorise the proceedings. The claimant sought permission to amend its particulars of claim, but the hearing was confined to authority and standing.

1. Summary judgment. The claimant had to show a realistic, rather than fanciful, prospect of establishing that the partnership was dissolved by an Investors’ Special Consent or by the consent of all limited partners. Although the existing evidence was unsatisfactory and probably insufficient if no further evidence became available, there were realistic prospects of obtaining relevant documents or evidence from professional advisers and institutional limited partners. Summary judgment was therefore inappropriate.
2. Contractual authority. The court did not finally determine whether clause 13.5.3 of the limited partnership agreement applied. The issue whether the general partner had withdrawn, or whether the partnership had been dissolved by consent, remained to be decided.
3. Section 38. Section 38 applied to limited partnerships, read as preserving the authority of the general partner rather than each partner. The power extends to proceedings brought to realise a partnership cause of action accruing before dissolution. The appropriate test is whether proceedings are reasonably required to get in and wind up the partnership’s affairs. A distinction between simple debt claims and speculative claims was rejected.
4. The power will not necessarily apply where the defendant is insolvent and recovery is impossible, the claim is hopeless for a particular reason, or the objecting defendant establishes a collateral purpose. A cause of action which has not been pursued, realised or assigned remains a partnership asset even after the partners believe that winding up is complete and capital has been returned.
5. The defendant’s applications for strike-out or summary judgment based on lack of standing were refused. The standing issue was to be addressed further, potentially before or alongside the remaining applications.