Hodson v Hodson & Ors

This is my judgment on a preliminary issue ordered by Master Teverson on3 October 2008. That issue is whether the Sixth Defendant, Julienne Rowlands, was a partner with the Fourth Defendant, Neil Cloutman, in the Fifth Defendant, Tudor Rose, from 1 August 2000 to 31 July 2003. The Claimant, Paul Hodson, contends that Mrs Rowlands was a partner in Tudor Rose during that period. Mrs Rowlands’ primary case is that she was never a partner in Tudor Rose. In the alternative, she contends that, if she was a partner from 1 August 2000, she ceased to be a partner on or about 17 December 2001.

Paul Hodson is the personal representative of Ruby Hodson deceased. He is one of two adopted sons of Ruby Hodson, the other adopted son of Ruby Hobson being the First Defendant, Mark Hodson. On 12 July 2005 Ruby Hodson commenced proceedings against Mark Hodson; the Second Defendant, Kim Hodson, his wife; the Third Defendant, Hodson (UK) Developments Ltd, a property company owned or controlled by Kim Hodson; and Mr Cloutman, a solicitor. Ruby Hodson’s claim against Mark Hodson, Kim Hodson and Hodson Developments was to set aside certain transactions as having been procured by breach of fiduciary duty or undue influence and for equitable compensation for breach of fiduciary duty and dishonest assistance. Ruby Hodson’s claim against Mr Cloutman was for negligence and breach of fiduciary duty. Subsequently Ruby Hodson died and Paul Hodson took over the conduct of the claim. Furthermore, Mr Cloutman’s firm Tudor Rose was joined as the Fifth Defendant. The same solicitors represented both Mr Cloutman and Tudor Rose in the proceedings. Those solicitors ceased acting for Mr Cloutman and Tudor Rose shortly before a five day trial before Patten J in October 2006.

In his judgment dated 7 November 2006, [2006] EWHC 2878 (Ch), Patten J found in favour of Paul Hodson and gave judgment against all the Defendants. He ordered the Defendants to pay to Paul Hodson equitable compensation in the sum of just over £1.5 million, together with interest and costs. He also made an order for an interim payment of costs in the sum of £235,000.

Since then about £900,000.00 has been recovered in part satisfaction of the judgment. The amount outstanding under the judgment including interest and the costs under the interim payment order is about £1 million.

On 1 April 2008 Paul Hodson applied for permission to amend the Claim Form, in particular to join Mrs Rowlands as the Sixth Defendant and Jenny Okafor as the Seventh Defendant to the claim and to enforce the Order of Patten J against them. In support of this application Paul Hodson contended that Mrs Rowlands had been a partner with Neil Cloutman in the firm of Tudor Rose from 1 August to 31 July 2003 and that Ms Okafor had been a partner with Mr Cloutman in the firm of Tudor Rose from 1 April 2003 to 11 May 2005.

On 1 October 2008 Master Teverson gave Paul Hodson permission to join Mrs Rowlands as the Sixth Defendant and directed the trial of the preliminary issue.

On 5 February 2009 Deputy Master Behrens made an order giving PaulHodson permission to join Ms Okafor as Seventh Defendant. He also made a declaration that:

“the Seventh Defendant was a partner with the Fourth Defendant in the firm of Tudor Rose from 1^st April 2003 to 11^th May 2005 and the claimant is entitled to enforce the Order of Mr Justice Patten dated 28 November 2006 .. against the Seventh Defendant in the terms of this order.”

The claim against Tudor Rose so far as it relates to Mrs Rowlands concerns the transfer of property known as Farthingdown Combe from the joint names of Ruby Hodson and Kim Hodson into the sole name of Kim Hodson on 19 February 2003. As set out in the judgment of Patten J, the transaction was handled by Tudor Rose. He concluded that Mr Cloutman and Tudor Rose had acted negligently. Patten J also gave judgment against Mr Cloutman and Tudor Rose with regard to a sale of UK shares held by Ruby Hodson in December 2004, but that was after the period during which it is alleged that Mrs Rowlands was a partner in Tudor Rose.

The firm of Tudor Rose had professional indemnity insurance provided by Zurich Professional. Zurich Professional has refused to indemnify Ms Okafor, but has accepted that Mrs Rowlands is entitled to indemnity to the extent that she has any relevant liability to Paul Hodson, subject to the terms and conditions of the relevant policy.

The principles relevant to the preliminary issue are summarised in Lindley and Banks on Partnership (18^th Edition) at paragraph 2-01 as follows (footnotes omitted in all quotations):

“Section 1(1) of the Partnership Act 1890 provides as follows:

‘Partnership is the relationship which subsists between persons carrying on a business in common with a view of profit.’

From this statutory definition it appears that before a partnership can be said to exist, three conditions must be satisfied, i.e. there must be (1) a business (2) which is carried on by two or more persons in common (3) with ‘a view of profit’. Historically, views differed as to whether a fourth condition was also to be imported, namely an agreement to share any profits realised. Each of these conditions, actual or supposed, will now be considered in turn”.

In paragraph 2-10 the learned editor of Lindley and Banks addresses the question of whether there is a fourth condition requiring an agreement to share any profits realised and expresses the opinion that there is no such condition. That view of the law has subsequently been endorsed in the decision of the Court of Appeal in M Young Legal Associates Ltd v Zahid [2006] EWCA Civ 613, [2006] 1 WLR 2562.

In paragraph 2-11 the learned editor cites several authoritative statements as to the normal incidents of partnership. At paragraph 2-12, however, the learned editor adds the following salutary warning:

“There is, however, a danger that what are in truth normal incidents or characteristics of partnership are wrongly perceived as prerequisites to the existence of that relationship, thus distorting the application of section 1(1) of the 1890 Act.”

In paragraph 2-13 the learned editor states:

“Partnership, although often called a contract, is more accurately described as a relationship resulting from a contract. This was made clear in the original statutory definition introduced into the House of Lords but not, ultimately, in the Act itself. Nevertheless the origin of the relationship in an agreement, whether express or implied, was clearly established before the Act and may legitimately be inferred from its provisions.”

In paragraph 2-24 the learned editor states:

“Persons who agree to become partners and who intend to sign a formal partnership deed may become partners even though they never sign such a deed. On the other hand a deed may be prepared but never acted on, in which case no partnership will be created.”

The footnote to the last sentence quoted cites Alexander Bulloch & Co v Inland Revenue Commissioners [1976] STC 514. In that case a deed of partnership was signed on 9 January 1974 which provided that the relevant partnership commenced as at 1 April 1972. The issue was whether that partnership had existed for income tax purposes before 9 January 1974, and in particular during the tax year 1972-73. The Inner House of the Court of Session upheld the finding of the Commissioners that it had not on the basis that the taxpayers had failed to prove a concluded agreement between the parties prior to the signing of the deed. I therefore do not consider that this case is authority for the proposition stated in the text.

This does not mean that the proposition stated in the text is wrong. One can imagine circumstances in which it would hold good, for example, if the deed provided that the partnership was to commence on a later date and one of the prospective partners died in the intervening period.

On 1 August 2000 Mrs Rowlands and Mr Cloutman entered into a Deed of Partnership. On its face this document appears to constitute an agreement between Mr Cloutman and Mrs Rowlands to enter into partnership. The most relevant provisions for present purposes are as follows:

“1.

The parties to this Deed agree to carry on the profession of Solicitors in Partnership under the name Julienne D. Rowlands & Co (‘the Partnership’) and any other trading name as shall be agreed between the Partners at any time.

2.

The Partnership shall begin on the 1^st day of August 2000 and shall continue for a period of three years therefrom and on the termination of three years Julienne Damaris Rowlands will transfer her one per centum interest therein to Neil Cloutman without charge.

3.

The business of the Partnership shall be carried out on the premises known as ‘Henton House’ (‘the Premises’) and at such other place or places as the Partners may from time to time agree. Such premises shall form part of the Partnership property and the costs and disbursements rent and otherwise relating thereto shall be a Partnership cost….

4.

The profit and losses of the Partnership shall belong to and be borne by the Partners as to 99 per centum thereof by the said Neil Cloutman and as to one per centum thereof by the said Julienne Damaris Rowlands.

5.

The accounting year of the Partnership shall run from the 1^st day of August to the 31^st day of July or as the Partner shall deem fit. At the end of each accounting year a balance sheet and profit and loss account shall be drawn up by the Parnership Accountants…

6.

i) The Bankers of the Partnership shall be Barclays Bank plc;…

7.

Termination on breach

Notice may be given to any Partner in writing to terminate forthwith the Partnership so far as it concerns such Partner in the event of his committing any of the acts set out below. Provided that this step shall only be taken after full discussion at a regularly constituted Partners’ meeting of which reasonable prior notice shall be given to the Partner concerned.

Such a notice may be served on a Partner if he shall:

…

7.7

without the consent of the other Partners persistently absent himself from attending the Partnership business and /or the Premises save through illness or accident or for holidays not exceeding those periods of holiday allowed under the terms of the Partnership or

7.8

be incapacitated from attending to the practise of the Partnership for [6] consecutive months.

…

9.

Each Partner shall observe the rules and professional standards and requirements of the Law Society and any breach thereof shall entitle either Partner to terminate the Partnership forthwith.

…

11.

The said Julienne Damaris Rowlands shall not for a period of one year from the termination of the Partnership within a radius of five miles practise as a Solicitor either alone or in conjunction with any other Solicitor save that the said Julienne Damaris Rowlands will retain as her own personal clients independently of the Partnership the clients listed in the Schedule hereto and such other clients as the Partners may agree. For the avoidance of doubt Neil Cloutman will have no objection to work carried out by Julienne Damaris Rowlands with no charge for the clients listed in the schedule hereto but in respect of work charged and carried out by the Partnership costs shall be divided on such a basis as the partners may from time to time agree.

…

13.

The said Neil Cloutman shall pay to the said Julienne Damaris Rowlands the sum of £35,000.00 in the signing hereof, in the full and final payment for the 99% share of the business referred to as ‘the Partnership’.

…

16.

The Partnership shall for the period of the Partnership maintain 100% professional indemnity insurance cover with a nil contribution in respect of any claims during the period of the Partnership.”

Although Paul Hodson primarily relies upon the terms of the Deed of Partnership deed in support of the claim that Mrs Rowlands was a partner with Mr Cloutman in Tudor Rose from 1 August 2000to 31 July 2003, he also relies upon a number of factual circumstances as supporting that claim. For her part Mrs Rowlands relies upon various factual circumstances as showing that she was not a partner in the firm, alternatively that if she ever was, she ceased to be so on or around 17 December 2001. I therefore turn to consider the facts.

Mrs Rowlands was admitted to the roll in 1972 and she practised as a sole practitioner from 1978 until 2000 trading as Julienne D. Rowlands and Co. To begin with, she was based in Somerset until she sold that practice at around 1989. Thereafter she set up a new practice trading under the same name in Abergavenny. While she was practising in Somerset she got to know Mr Cloutman. Mr Cloutman was a financial advisor trading under the name Tudor Rose.

By early 2000 Mrs Rowlands had started to suffer from fairly severe health problems, the details of which it is not necessary to go into. Accordingly she advertised her practice for sale through an agency. By that time Mr Cloutman had trained as a solicitor, but was not sufficiently qualified to practise on his own without supervision. He contacted Mrs Rowlands and offered to buy the business. Although there were other parties who were interested in purchasing the practice, Mrs Rowlands decided to sell to Mr Cloutman. Mrs Rowlands says that, although other potential purchasers offered more, she was prepared to accept Mr Cloutman’s lower offer because he did not require her to continue to work full time at the practice.

Mrs Rowlands describes the arrangement with Mr Cloutman in paragraphs 17 and 26 of her witness statement in the following terms:

“17.

It was agreed that Mr Cloutman would purchase a 99% share of my business Julienne D Rowlands & Co. However the arrangement was in reality an out and out sale, albeit with me nominally retaining a 1% share of the business (the accounts show I did not in fact receive a 1% share, or any monies from the practice following the sale, nor had I ever intended to…). The reason for this arrangement was that it was intended to give me sufficient interest to be able to provide the supervision required by rule 13 of the Solicitors’ Practice Rules 1990, given that Mr Cloutman was not sufficiently qualified to practise on his own account. The arrangement was formalised through the Deed of Partnership dated 1 August 2000.

…

26.

Essentially, the arrangement, as formalised in the Deed of Partnership, was not a true partnership for the purposes of the Partnership Act 1890, but rather it was an association borne of convenience: it was intended that Mr Cloutman received from me the supervision he required in order to practice pursuant to rule 13 of the Solicitors’ Practice Rules 1990… I received the benefit of professional indemnity insurance for the small pieces of work I would undertake for the clients referred to in the Schedule should my health permit to do so in the future… ”

Mrs Rowlands says that Mr Cloutman in fact paid her the sum of £45,000 for the business, not £35,000 as set out in the Deed of Partnership.

Mrs Rowlands says that, about a month after the Deed of Partnership was signed, Mr Cloutman changed the name of the practice to Tudor Rose and she felt unable to object to this change. Thereafter the firm started using notepaper headed Tudor Rose Solicitors and Financial Planners. At the bottom of the note paper is small print stating as follows:

“Partners: Neil Cloutman, Julienne D Rowlands. Executive: Gina Bevan. Assistant: Emma Verrier.

Tudor Rose and Julienne D Rowlands and Co are the same firm which is regulated by the Law Society.

Authorised by the Financial Services Authority for Investment Business Activities.”

Mrs Rowlands says that she vacated the Henton House premises after entering into the Deed of Partnership and did not work from there. She was not engaged in supervising or managing the business in any meaningful sense save to satisfy the Law Society requirement. She did assist Mr Cloutman by answering his queries from time to time. Although she continued to work intermittently, most of her work was done for family and friends and was done without charge. In such cases she even paid the disbursements. She accepts, however, that occasionally she did work for which a fee was charged. In such cases the invoice was rendered by Tudor Rose on Tudor Rose headed paper. As indicated above, Mrs Rowlands never received a 1% share of the profits of the partnership. The financial benefit of any work she charged for went to Mr Cloutman.

Mrs Rowlands accepts that she benefited from her association with Tudor Rose in at least two ways. First, as set out above, she received the benefit of the professional indemnity insurance taken out by Tudor Rose in accordance with clause 16 of the Deed of Partnership. Secondly, she was able to use the firm’s client account for handling client monies. Most of her work was conveyancing. Accordingly, she needed access to a bank account which complied with the Solicitors’ Accounts Rules for handling mortgage funds and purchase monies.

Tudor Rose’s financial statements for the year ended 31 July 2001 are in the name of “Neil Cloutman & Julienne Rowlands”. The financial statements record the partners of the business as being N. Cloutman and Mrs J. Rowlands. They also provide for the financial statements to be approved both by N. Cloutman and Mrs J. Rowlands, although the relevant page is not signed by either of them on the copy in evidence. Consistently with Mrs Rowlands’ evidence, the trading and profit and loss account for the year ended 31 July 2001 shows that all the profits are payable to Mr Cloutman and none to Mrs Rowlands.

Tudor Rose’s financial statements for the year ended 31 July 2002 are not in evidence, but their contents can be seen from the financial statements for the year ended 31 July 2003 which are in evidence. The financial statements for the year ended 31 July 2003 are again headed “Neil Cloutman & Julienne Rowlands”. Again the partners are identified as N. Cloutman and Mrs J. Rowlands. Again there is a page providing for the financial statements to be approved by Mr Cloutman and Mrs Rowlands, although again the page is unsigned. Again it can be seen that, both in the year ended 31 July 2002 and in the year ended 31 July 2003, all the profits were payable to Mr Cloutman and none to Mrs Rowlands.

Tudor Rose filed a partnership tax return for the year ended 5April 2001. This gives the name of the business as Neil Cloutman & Julienne Rowlands t/a Tudor Rose Solicitors. The accounting period is stated to be 1 August 2000 to 31 July 2001. The seventh page of the return sets out individual partner details identifying the partners as Mrs J. Rowlands and Mr N. Cloutman. In each case the date appointed as a partner is stated to be 1 August 2000. All the profits are attributed to Mr Cloutman and none to Mr Rowlands.

Much the same position is set out in the partnership tax return for the year ended 5 April 2002. The name of the business is stated to be Neil Cloutman & Partners t/a Tudor Rose Solicitors, with an accounting period staring on 1 August 2000 and ending on 31 July 2001. The individual partners are again identified as Mrs J. Rowlands and Mr N. Cloutman. Again all the profits are attributed to Mr Cloutman and none to Mr Rowlands.

Similarly, in the partnership tax return for the year ended 5 April 2003 the name of the business is given as Neil Cloutman & Partners t/a Tudor Rose Solicitors with an accounting period starting on 1 August 2001 and ending on 31 July 2002. The individual partners are again identified as Mrs J. Rowlands and Mr N. Cloutman. Again all the profits are attributed to Mr Cloutman and none to Mrs Rowlands.

Consistently with the position set out in the partnership tax returns, in her personal tax returns Mrs Rowlands declared that she was not in partnership. Thus in her tax return for the year ended 5 April 2001, Mrs Rowlands answered question 4 “were you in partnership?” no, and question 3 “were you self-employed?” yes. She attached self-employment pages in respect of her business identified as Julienne D Rowlands & Co with an accounting period starting on 1 August 1999 and ending on 31 July 2000. The date of cessation of the business was given as 31 July 2000. She also attached capital gains tax liability sheets showing a gain on assets in respect of a solicitors’ practice for the period from 16 March 1998 to 31 July 2000 and disposal proceeds of £30,000.00.

Tudor Rose’s accountants filed Accountants’ Report forms with the Law Society in respect of the reporting periods 1 August 2000 to 31 July 2001 and 1 August 2001 to 31 July 2002 in which Mr Cloutman and Mrs Rowlands were both identified as partners. As counsel for Mrs Rowlands pointed out however, the Report forms state:

“An accountants report is required from a solicitor who has been held out as a partner in a practice which has held or received client money or controlled trust monies. Therefore any solicitor, whose name is included in the list of partners on the firm’s letterhead, even if the name appears under a separate heading of salaried partner or associate partner, should be included in this report”.

On 1 August 2000 Mr Cloutman and Mrs Rowlands executed a signature card in respect of an account with Barclays Bank Plc. This provided that the bank was to honour cheques or orders signed by either of them, but that any overdraft increases were to be agreed by both. Mrs Rowlands gave evidence that in the course of running her own practice she had had an overdraft facility of £30,000.00, but that when Mr Cloutman took over it was agreed with the bank manager that the level of the overdraft would not exceed £6,000.00. It appears that she slightly misremembered the figure and that the true figure was £6,500.

Mrs Rowlands went on to say that some time later she found out from the bank that Mr Cloutman had increased the overdraft and obtained a business credit card in contravention of the agreement that they had signed with the bank. She complained to the bank and they agreed that this was wrong. It is relevant to note that this incident took place after December 2001. There is in evidence a letter from Barclays to Mrs Rowlands dated 29 November 2002, in which a manager states:

“Personal liability. I wish to reiterate the agreement you have with my predecessor Richard Thomas i.e. that your personal liability in respect of the practice overdraft is limited to £6,500 with any surplus over this figure not being recoverable from you.”

Mrs Rowlands said that Barclays had only written this letter after 8 months of nagging following an oral confirmation that they had been in the wrong. Even on that basis, the incident in question would have taken place in about March 2002.

Barclays rendered bank statements in the name of N. Cloutman and J.D. Rowlands t/a Julienne D Rowlands & Co and Tudor Rose Solicitors down to at least February 2003.

Turning to the professional indemnity insurance position, as previously related Tudor Rose was insured by Zurich Professional. The first policy in evidence is in respect of the period 1 September 2000 to 31 August 2001. This identifies the firm insured as Julienne D. Rowlands & Co. It provides for an excess of 0 in respect of any one claim. The terms and conditions of the policy include the following definitions:

“2.8

EMPLOYEE

Employee means any person

(a)

employed or otherwise engaged in the Firm’s practice including without limitation, as a solicitor, trainee solicitor, consultant, associate, locum tenens, office or clerical staff member or otherwise;

…

2.12

THE INSURED

The Insured means each and all of the following persons or legal entities each being several insured hereunder:

(a)

Each Principal, each former Principal and each person who may become a Principle of the Firm during the period of insurance and any Recognised Body;

….

(c)

each Employee, each former Employee and each person who during the period of insurance becomes an Employee of the Firm or a company referred to in paragraph (b);

…

2.16

PRINCIPAL

Principal means in relation to

(a)

a partnership, each partner and any person held out as a partner…”

As counsel for Mrs Rowlands pointed out, the effect of these definitions is that the policy of insurance would have covered Mrs Rowlands whether she was a partner in the firm, someone held out as a partner in the firm or simply someone working for the firm.

The next policy of insurance that is in evidence is one in respect of the period from 1 September 2002 to 31 August 2003. This identifies the firm insured as Tudor Rose and provides for an excess of £1000 in respect of any one claim. As counsel for Mrs Rowlands pointed out, this is not in accordance with clause 16 of the Deed of Partnership.

The Solicitors’ Regulation Authority has twice provided information to Paul Hodson’s solicitors in respect of the partners in Tudor Rose from its computer database. In a letter dated 4 August 2007 the SRA stated:

“Mrs Julienne Damaris Rowlands was the sole practitioner at Tudor Rose solicitors from before 1995 (when our computer database started) to 31 July 2000, and then a partner to 31 July 2003.”

In an email dated 17 October 2008 the SRA stated:

“The roles that Mrs Julienne Rowlands has had in her time working for Tudor Rose are as follows. Own Accounts from unconfirmed date till 30-May-2001, Senior Partner from 30 May-2001 till 17-Dec-2001 & Partner from 17-Dec-2001 till 31-Jul-2003.

The information relating to the partners in this firm and when they started and finished in practising in that firm are as follows:

Mr N Cloutman (Senior Partner) Start Date: 17-Dec-2001 / End Date: 11-May-2005

Mr N Cloutman (Partner) Start Date: 01-Aug-2000 / End Date: 17-Dec-2001)

…

Mrs JD Rowlands (Senior Partner) 30-May-2001 / End Date: 17-Dec-2001

Mrs JD Rowlands (Partner) Start Date: 17-Dec-2001 / End Date: 31-July-2003

Mrs JD Rowlands (Own Account) Start Date: Default Date / End Date 30-May-2001.”

As counsel for Mrs Rowlands pointed out, these two statements are both inaccurate so far as the statement that Mrs Rowlands was practising on her account under the name Tudor Rose prior to 31 August 2000 is concerned and inconsistent. The email dated 17 October 2008 is also inaccurate in suggesting that she continued to practise on that basis until 30 May 2001. Nevertheless the email is of some assistance in that it suggests that there was some change in the position of Mr Cloutman and Mrs Rowlands in the year 2001, and in particular on or about 17 December 2001.

Mrs Rowlands gave evidence, which I accept, that due to her ill health she became increasingly concerned that she was unable to fulfil the requirements of the Law Society in respect of supervision. Accordingly Mr Cloutman prepared a letter to the Law Society seeking a dispensation from this requirement, which she approved. Some time later, Mr Cloutman showed her a letter from the Law Society granting the dispensation. It appears from the SRA communications that this dispensation is likely to have been granted on or around 17 December 2001, although the SRA has no record of the dispensation itself.

Mrs Rowlands says in her witness statement:

“Although not formally expelled in accordance with the terms of the Deed of Partnership, I was in reality excluded from Tudor Rose. In view of the combined effect of my illness, my de facto exclusion and my formal release from supervising Mr Cloutman, there was, therefore, no need for the theoretical ‘partnership’ between Mr Cloutman and myself to continue, and by virtue of my exclusion and my acceptance of it, it did not continue. From then onwards, I regarded my entitlement to be associated with Tudor Rose to be limited to doing such work for family and friends as I could (although due to my health this was, in practice, very little) but I did not regard myself as having actual authority over or involvement in the affairs of Tudor Rose.”

Mrs Rowlands accepted in cross-examination, however, that she had continued to do a little work after that point in time, some of which was charged for.

The final piece of evidence to which I need to refer is that on 28 November 2006 Paul Hodson’s solicitors wrote to Mrs Rowlands saying that on 7 November 2006 they had obtained judgment against a number of defendants including “your former partner Neil Cloutman and your former firm of solicitors Tudor Rose”. They went on to say:

“As a former partner of Neil Cloutman in the firm of Tudor Rose at the material time you are potentially liable for the sums the court orders Tudor Rose and Neil Cloutman to pay. We note that pursuant to the enclosed deed of partnership the partnership began on 1 August 2000, however please confirm on what date the partnership between you and Neil Cloutman was dissolved. We will be in contact regarding your potential liability in due course.”

On 1 December 2006 a representative of Paul Hodson’s solicitors spoke to Mrs Rowlands on the telephone. His attendance note of the conversation reads as follows:

“JRA attending Julienne Rowlands on the telephone.

JR confirmed that she had left the partnership with Neil Cloutman in 2003.

JR said that the partnership was purchased on 31 July 2000 but she was not in attendance from 2000 onwards. She said that she stayed as Neil Cloutman was newly qualified but she applied to the Law Society for a waiver so that he could practise on his own. JR said that she had medical problems and suffered from [details] from 2000 onwards.”

Mrs Rowlands did not contest the accuracy of the attendance note.

It is convenient to consider the position as at two periods of time. The first period is from 1 August 2000 to about 17 December 2001. The second period is from about 17 December 2001 to 31 July 2003.

Counsel for Paul Hodson’s primary submission was that the relationship between Mr Cloutman and Mrs Rowlands was defined by the Deed of Partnership and that that agreement clearly established a partnership between the two of them. I agree. The relationship defined by the Deed of Partnership not only purports on its face to be a partnership, but also satisfies the three conditions contained in section 1(1) of the 1890 Act. The business is the solicitors’ firm then known as Julienne D. Rowlands & Co and subsequently named Tudor Rose. Under the Deed of Partnership it was to be carried on by two or more persons in common, namely Mr Cloutman and Mrs Rowlands. It was plainly with a view of profit. In addition, although this is not essential, the Deed of Partnership did provide for the profits of the partnership to be divided between the partners.

The conclusion that Mr Cloutman and Mrs Rowlands were partners is supported by the evidence that the purpose of the arrangement was to ensure that Mrs Rowlands was in a position to provide the supervision for Mr Cloutman required by rule 13 of the Solicitors’ Practice Rules 1990. It is common ground that compliance with rule 13 required Mrs Rowlands to be a partner.

In this respect there is a close parallel between the present case and that of M Young Legal Associates Ltd v Zahid. In that case there was no written agreement setting out the nature of the relationship between Mr Lees and Mr Bashir, but the evidence was that the purpose of the arrangement was to ensure that Mr Lees was in a position to provide the supervision to Mr Bashir required by rule 13. Wilson LJ, with whom Hughes and Tuckey LJJ agreed, said:

“35.

In my view however the judge’s conclusion was correct. There was one feature of the context of the agreement between the two men which was determinative, namely the need for a solicitors’ practice to comply with rule 13 of the Rules of 1990. Its effect was that the firm could lawfully practise between March 2002 and November 2002 only if Mr Lees was a partner in it. The evidence of both men was that it was in order to comply with rule 13 they had entered into the agreement and indeed that Mr Lees became associated with the firm at all.

36.

Let me hasten to accept that in the absence of one crucial though uncontroversial finding, the presence of rule 13 in the context of the agreement would not have been determinative. It would be perfectly possible for two men in the position of Mr Bashir and Mr Lees to decide that they would only pretend to comply with rule 13 and in fact they would not enter into partnership together. Had such been the facts then, subject only to a difficult argument raised on behalf of Mr and Mrs Sharif by their former lawyers in a respondents’ notice that any assertion of such facts should be subject to an estoppel, there would indeed have been no partnership. But it was never asserted by Mr Lees or otherwise that the agreement was reached in order only to pretend to comply with rule 13. On the contrary Mr Lees asserted to the OSS that the partnership had not been a sham; and in his evidence in the proceedings, he never sought to withdraw or qualify that assertion. Thus it was inevitable that the judge made the crucial finding that neither of the men intended to circumvent what rule 13 required.

37.

In that the two men intended to comply with rule 13 they must have intended to enter into a contract of partnership. I believe the judge was entitled to infer, indeed correct to infer, that, notwithstanding the provisions for the firm’s payment to Mr Lees and for the absence of a contribution on his part to its capital, they succeeded in implementing their intention.”

Likewise, in the present case it was not suggested by or on behalf of Mrs Rowlands that she and Mr Cloutman had only pretended to comply with rule 13.

Counsel for Mrs Rowlands submitted that, although Mr Cloutman and Mrs Rowlands had intended to comply with rule 13, they had not succeeded in doing so. He pointed out that, although Mrs Rowlands was held out as a partner by the firm of Tudor Rose, which would give rise to liability under section 14 of the 1890 Act in the event of reliance upon such holding out, no such claim had been made in the present case. He argued that, although the Deed of Partnership if implemented in accordance with its terms might have constituted a partnership, it had not been implemented fully in accordance with its terms, and in this and other respects the relationship between Mrs Rowlands and Mr Cloutman was not such as to constitute a partnership.

The three principal matters he relied upon were as follows. First, that there was no sharing of profits as provided for by clause 4 of the Deed of Partnership. Secondly, that Mrs Rowlands took no benefit from the supposed partnership. Thirdly, that she had no involvement in the management of the supposed partnership.

In my judgment, there is no substance in any of these points. So far as the first is concerned, Mrs Rowlands was entitled to 1% of the profits under the Deed of Partnership. If she chose to waive her entitlement to 1%, that was a matter for her. Furthermore, as I have already pointed out, sharing of profits is not a pre-requisite for a relationship of partnership. As to the second point, I do not accept that Mrs Rowlands derived no benefit from the partnership. As I have said, she herself accepted that she had derived two particular benefits, firstly the benefit of professional indemnity insurance and secondly the benefit of being able to use the firm’s client account. It is true that she did not need to be a partner in the firm in order to derive those benefits, but that is the mechanism that she chose to put in place. In any event, it is not a pre-requisite of partnership that a putative partner should derive benefit from the partnership. As to the third point, Mrs Rowlands’ evidence was that she did discharge her duties of supervision down to about 17 December 2001. To that perhaps limited extent, she did have some involvement in the management of the partnership. More importantly, it is again not a pre-requisite for a relationship of partnership to exist that one of the partners should be involved in the management of the partnership. It is well-established that a sleeping partner can be a partner.

I would add that in most respects the Deed of Partnership was implemented either accordance with its terms or in accordance with its terms as varied by consent provided for those by terms.

Accordingly, I conclude that Mrs Rowlands was partner in the firm of Tudor Rose down to at least about 17 December 2001.

Counsel for Mrs Rowlands submitted that, even if there had been a partnership at the outset, the partnership had come to an end on or about 17 December 2001 when the dispensation in respect of rule 13 was granted. He submitted that either the partnership had been terminated or it had been varied.

So far as termination is concerned, counsel for Mrs Rowlands did not contend that there had been any express agreement, either in writing or orally, to terminate the partnership. Furthermore, he did not contend that there had been termination in accordance with the provisions of clause 7 of the Deed of Partnership. Rather, he argued that there had been a termination through the conduct of the parties. I do not accept this. While it is true that the primary reason for Mrs Rowlands and Mr Cloutman having entered into a relation of partnership disappeared once the dispensation was granted, it remained the case, as Mrs Rowlands would have been well aware, that the Deed of Partnership provided for a three year term. On the evidence, the only change in the relationship between Mr Cloutman and Mrs Rowlands after 17 December 2001 was that she ceased to provide supervision. In other respects, matters carried on as before. Mrs Rowlands continued to be held out as a partner on the notepaper of the firm. She continued to be a signatory to the bank account. She continued to be named on bank statements. She continued to be subject to liability in respect to the bank account, subject to a cap of £6,500. As pointed out above, this is something that was reconfirmed in 2002. She continued to do a little work, some for free and some charged for. Tax returns and accountants’ reports continued to be filed naming her as a partner. Given that there was no express agreement to bring the deed of partnership to an end and no termination in accordance with clause 7, I cannot see that the parties can have terminated it by their conduct.

Turning to the argument that there was a variation, counsel for Mrs Rowlands pointed out that section 19 of the 1890 Act provides as follows:

“The mutual rights and duties of partners whether ascertained by agreement or defined by this act may be varied by the consent of all the partners and such consent may be either expressed or inferred from a course of dealing.”

In the present case however, what Mrs Rowlands is contending for is in reality not a variation of the mutual rights and duties as set out in the Deed of Partnership, but a cessation of those mutual rights and duties. In my judgment that could only have come about if the Deed of Partnership had been terminated. It is difficult to conceive of a variation to the terms of Deed of Partnership which had the effect that Mr Cloutman and Mrs Rowlands ceased to be partners, without rendering the agreement a nonsense. Furthermore, if it is supposed that the relationship between Mr Cloutman and Mrs Rowlands ceased to be one of partners, it would follow that Mrs Rowlands took up some other status, such as that of consultant. Yet there is no evidence of any agreement between the parties as to Mrs Rowlands becoming a consultant, still less as to the terms of any such consultancy.

Finally, counsel for Mrs Rowlands pointed to the declaration made by Deputy Master Behrens on 5 February 2009to the effect that Ms Okafor had been a partner in the firm of Tudor Rose from April 2003. He submitted that this was inconsistent with there having been a partnership between Mr Cloutman and Mrs Rowlands as at that date, and that this supported the proposition that their partnership had come to an end on or around 17 December 2001.

In response to this, counsel for Paul Hodson made three alternative submissions. First, he submitted that Mr Cloutman had had implied authority to admit a further partner to the partnership. I do not accept this. There is no express authority under the Deed of Partnership, nor do any of the provisions of the 1890 Act to which my attention was drawn give Mr Cloutman that authority. In those circumstances I am unable to see how such authority could be implied.

Secondly, counsel submitted that the partnership with Ms Okafor had constituted a different partnership to that between Mr Cloutman and Mrs Rowlands. As counsel for Mrs Rowlands pointed out, however, the present claim is based upon the judgment and Order of Patten J which relate to a single entity called Tudor Rose.

Thirdly, counsel for Paul Hodson submitted that the unilateral act of Mr Cloutman in entering into partnership with Ms Okafor cannot have affected the partnership between himself and Mrs Rowlands. In my judgment this is the correct analysis. In bringing Ms Okafor into the partnership in April 2003, prior to the termination of his partnership with Mrs Rowlands, Mr Cloutman acted in breach of the Deed of Partnership. The fact that he acted in breach of the Deed of Partnership does not in my view mean that the partnership ceased to exist. Furthermore, this act took place after the date that is relevant for the purposes of Mrs Rowlands’ liability in respect of the underlying claim.

Accordingly, I conclude that Mrs Rowlands continued to be a partner in Tudor Rose until 31 July 2003 (or at any rate until April 2003).

I conclude that Mrs Rowlands was a partner in Tudor Rose from 1 August 2000 to 31 July 2003. I will hear further argument, if necessary, on quantum and any other matters arising.