Insurance: Negligence - salaried partner not liable to client

In 1990, Mr Lewis, a sole practitioner, invited Mr Williams to become a salaried partner in his firm of solicitors. Mr Williams accepted the offer and, thereafter, his name was added to the firm's notepaper.

In 1991, the firm was retained by the Plaintiff Building Society to act in a mortgage transaction. The matter was handled solely by Mr Lewis, but the report on title was sent to the Building Society together with a letter on the firm's headed notepaper which showed the names of Mr Lewis and Mr Williams.

Subsequently, the Plaintiff commenced proceedings against Mr Lewis and Mr Williams alleging negligence in the preparation of the report on title.

The Solicitors' Indemnity Fund declined to indemnify Mr Lewis owing to allegations of dishonesty.

Mr Williams did, however, defend the proceedings with the backing of the Solicitors' Indemnity Fund. He contended that, although he was held out as a partner in the firm, he was only an employee and was not therefore liable for the report on title prepared by Mr Lewis.

As a preliminary issue, the Judge held that Mr Williams was liable on the basis that he was held out as a partner of Mr Lewis. In that regard, the Judge referred to the Partnership Act 1890 Section 14(1) which provides that, anyone who represents himself as a partner in a firm is liable as a partner to anyone who has given credit to the firm on the faith of that representation.

As the report on title was supplied with a covering letter showing the names of Mr Lewis and Mr Williams, the Plaintiff was entitled to regard the report as being the advice of a two - partner firm. Reliance by the Plaintiff could therefore be presumed and, as a result, Mr Williams was estopped from denying responsibility for the report on title.

Mr Williams appealed on the basis that there was no evidence the Plaintiff did anything in reliance on the representation that he was a partner and that the Judge was wrong to presume such reliance.

Held:

The appeal was successful.

The doctrine of estoppel requires a person to show he has relied on a representation to his detriment. If so, the party who made the representation is estopped from denying its truth.

The Court of Appeal held that the Judge was wrong to find that reliance on the representation made in the firm's notepaper could be presumed. The burden of proof rested on the Plaintiff to show reliance.

On the facts of the case, there was no evidence that anyone at the Plaintiff Building Society had noted Mr Williams' appearance as a partner on the firm's notepaper, and still less that they had relied on that fact. There was no evidence that Mr Williams had ever done any work for the Plaintiff. It did not follow from the fact that the Plaintiff had relied on the report on title that it had also relied on Mr Williams as giving authority to that report.

Accordingly, as it could not be shown that the Plaintiff had relied on the fact that Mr Williams was held out as a partner, the claim against Mr Williams failed.

Note:

• This case is an important one for professional indemnity insurers, as it shows that a salaried partner in an insured firm will not automatically be liable in relation to negligent advice given by other partners in the firm. In view of the composite nature of most professional indemnity policies, this may be particularly important in circumstances where (as here) there is an innocent salaried partner who is entitled to indemnity.
• The outcome in the present case may well have been different if (a) the Building Society had been in a position to say they had placed some reliance upon Mr Williams appearance on the notepaper and (b) they had produced evidence to that effect - e.g. that it was not their practice to instruct sole practitioners and that they had, therefore, drawn comfort from the apparent existence of a second partner.
• A salaried partner is, in reality, only an employee of a firm. If he allows his name to appear on the notepaper, he is allowing himself to be represented as a partner in the firm. If a client relies upon that representation, the salaried partner may find himself liable in relation to any claim brought against the firm. The question of reliance will depend upon the facts of each case. As Sir Christopher Slade stated in his judgment: "...an employee who, in order to enhance his apparent status, allows his name to appear on the firm's notepaper as an apparent partner exposes himself to peril. Let there be no doubt about that. I would accept that, on the particular facts of some other cases, even in the absence of explicit evidence of reliance, the Court might readily infer that persons dealing with the firm had done so in reliance on the representation that the employee was a partner, particularly, for example, if all their dealings had been with the employee himself ..."
• The position of salaried partners should be contrasted with equity partners who are jointly and severally liable for the acts of all other equity partners (Nationwide Building Society -v- Lewis & Another CA: judgment 24th February 1998).