Thomas Flohr v Frontiers Capital I Limited Partnership

Dissolution and apparent completion of a partnership’s accounts do not, by themselves, extinguish the limited authority preserved by section 38 of the Partnership Act 1890. If a cause of action which accrued before dissolution remains a partnership asset and has not been pursued, realised, assigned or become time-barred, the winding up remains incomplete.

The general partner may therefore pursue the asset on behalf of an English limited partnership, even after final accounts have been drawn and capital returned. Whether commencing proceedings is necessary is fact-sensitive. Necessity means what is reasonably required in the circumstances, rather than what is absolutely or strictly essential. A hopeless or uneconomic claim is unlikely to satisfy that test, but there is no general rule requiring every cause of action to be assigned or litigated by former partners individually.

Frontiers Capital I Limited Partnership was a pre-2009 English limited partnership governed by the Limited Partnership Act 1907 and the Partnership Act 1890. It ceased business, was dissolved and wound up, and its capital was returned. Its general partner was later restored to the Guernsey companies register and brought claims against Thomas Flohr concerning alleged contractual and fiduciary breaches arising from a 2002 shareholders’ agreement.

Mr Flohr applied to strike out the claim or obtain summary judgment, arguing that the general partner lacked authority after dissolution and that proceedings were not necessary for the purposes of section 38 of the Partnership Act 1890. Master Brightwell rejected that challenge in [2023] EWHC 2723 (Ch). The central issue on appeal was whether an outstanding partnership cause of action kept the winding up incomplete and whether pursuing it was reasonably required.

1. Appeal dismissed. The court, giving judgment through Asplin LJ with Elisabeth Laing LJ and William Davis LJ agreeing, held that the general partner had authority to pursue the claim.
2. Under section 7 of the Limited Partnership Act 1907, the ordinary partnership rules applied subject to inconsistency with the 1907 Act. An English partnership is not a separate legal person. Dissolution ends the partnership relationship for ordinary purposes, but statutory rights and obligations continue for the limited purposes required to complete the winding up.
3. Section 38 of the Partnership Act 1890 must be read according to its natural and ordinary language. The authority continues after dissolution so far as necessary to wind up the partnership affairs and complete unfinished transactions. It is not subject to a fixed time limit. A pre-dissolution cause of action which remains an unrealised partnership asset means that the winding up is incomplete, even if final accounts have been drawn, capital has been returned and the person conducting the winding up mistakenly believed it complete.
4. The statutory concept of necessity is fact-sensitive. It means what is reasonably required in the circumstances, not what is absolutely or strictly essential. Bringing in partnership assets will generally be necessary. A claim with very little prospect of success or which is not cost-effective is unlikely to qualify, but the court rejected a rigid distinction between certain claims and speculative claims. Assignment is not invariably required.
5. Section 38 confers a limited power and does not authorise new bargains or impose an additional duty. In a limited partnership, the decision whether to pursue a partnership cause of action lies with the general partner, subject to challenge by the defendant. The authorities concerning accounts between former partners, including Gopala Chetty v Vijayaraghavachariar, Marshall v Bullock and Belgravia Nominees Pty Ltd v Lowe Pty Ltd, did not establish that section 38 ceased to operate once accounts were settled or capital returned.
6. The position was not analogous to a dissolved company or a Scottish firm with separate legal personality. The rights and obligations of former partners continued until the winding up was complete.

• Court of Appeal (Civil Division): dismissed the appeal against Master Brightwell’s order.
• Chancery Division: Master Brightwell dismissed the application for strike-out and/or summary judgment on the authority issue in [2023] EWHC 2723 (Ch).