Me Justice Barling:
Introduction
- By a judgment dated 17 November 2013 Deputy Master Rhys ("the Judge") granted the Respondent's ("Mr Prior") application for summary judgment against the Appellants under CPR 24.2(a)(i). The issue before the Judge was whether the Claimants' pleaded case that Mr Prior was a partner as opposed to an employee in the First Defendant, a firm of solicitors ("the Firm"), had a real prospect of success at trial. The Judge also determined a second issue, not currently the subject of any pleading but argued out at the hearing before him, namely whether there was a real prospect of the Claimants succeeding at trial on an alternative claim that Mr Prior held himself out, or knowingly allowed himself to be held out, as a partner in the Firm, so as to be liable to the Claimants pursuant to section 14 of the Partnership Act 1890 ("s.14"). The Judge decided both points in favour of Mr Prior, and refused permission to appeal. By an order dated 14 April 2014 Hildyard J ordered the renewed application for permission to be heard by a High Court Judge with the hearing of the appeal (subject to permission) to follow. Those are the matters before me.
Procedural background
- The Second and Third Defendants ("Mr N" and "Mr T" respectively) were at the material times equity partners in the Firm. Mr Prior maintains that he was never such a partner, and that he was at all times an employee of the Firm, albeit a "salaried partner" and head of the Firm's property department from the time of his joining in October 2008 until about August/September 2009 when he resigned as a salaried partner, continuing to work in the Firm until January 2010.
- In the proceedings the Claimants seek damages and restitution (amongst other relief) against the Defendants on the basis of alleged breaches of contract, trust and duty between about 2006 and January 2011, when the Solicitors' Regulation Authority formally intervened in the practice of the Firm following an investigation which had been commenced in autumn 2009. The claim is based on an alleged agreement in October 2005 between the Claimants on the one hand, and the Firm, Mr N and Mr T on the other, pursuant to which the Firm was to act for the Claimants in relation to short term bridging finance transactions. The proposed transactions would be evaluated and arranged by the Firm, who would hold on trust the funds provided by the Claimants for this purpose. The Claimants would be protected by legal charges over the properties in respect of which the loans were provided, and would receive a guaranteed fixed return on the funds so invested. The Claimants allege that pursuant to this agreement they provided funds to the Firm which have not been repaid, in circumstances which render the Firm, Mr N, Mr T and Mr Prior liable to the Claimants.
- The claim has a somewhat complex history. Originally a series of claims (at least 18 and possibly more) were issued in the Northampton County Court Money Claims Centre in the name of the Fifth Claimant alone. Mr Prior was not joined as a defendant at that stage. Default judgments were entered in those claims. An issue then apparently arose as to whether the Fifth Claimant was the appropriate claimant for some of the claims. A case management conference eventually took place on 7 February 2012 in Central London County Court, as a result of which 18 actions were consolidated into a single action which was transferred to the Chancery Division, permission was granted for four new claimants to be added, and for Mr Prior to be joined as an additional defendant. Amended particulars of claim and an amended claim form, together with the order of 7 February 2012, were ordered to be served on the Defendants by 21 February 2012.
- It is common ground that that requirement was not complied with so far as Mr Prior is concerned, in that he was not served with the documents by 21 February 2012. They were delivered to him on about 11 April 2012. The Claimants thereafter issued an application to serve out of time, whilst maintaining that Mr Prior was in breach of the CPR by failing to acknowledge service following delivery on 11 April. The Claimants' application has not been dealt with, Mr Prior having in the meantime issued the application for summary judgment which the court decided to determine first.
- Procedural wrangling about this has occupied considerable column inches in the various skeleton arguments, and looked as though it was going to spill over into this appeal. Ms Peacocke, who appeared for the Claimants, was inclined to argue that Mr Prior was not entitled to issue an application for summary judgment before he had acknowledged service. In the event this issue went away. Mr Allen, who appeared for Mr Prior, drew attention to the notes to Part 24 CPR which, at 24.4.3, make clear that a defendant (cf a claimant) can apply for summary judgment in his favour on the claim at any time after the proceedings have been commenced, and does not need to file an acknowledgment of service before doing so. This seems eminently sensible. There remains the somewhat sterile question whether Mr Prior can be in breach of the rules by failing to acknowledge service before the Claimants have obtained permission to serve him out of time. No-one suggested that I need to resolve this conundrum, and I do not propose to do so.
- There is another issue: it relates to two items of new material which were not before the Judge and which the Claimants sought to introduce in this appeal. Mr Allen objected to the introduction of this material relying on the well-known Ladd v Marshall principles, as since interpreted by the courts in the light of the introduction of the CPR. I indicated at the outset that I would not decide the admissibility issue before hearing argument generally, and the hearing was conducted on the assumption that the material in question would be admitted de bene esse, each side reserving its position. I will refer to this new material in due course.
Factual background
- In order to understand the parties' submissions it is necessary to set out in a little more detail the factual material which was before the Judge.
- The Firm commenced practice in 1996 with Mr N and Mr T as the only partners. In 2003 the First Claimant's partner, Mrs Suzan Walsh, ("Mrs Walsh") began working there as a litigation assistant. She continued to work at the Firm throughout Mr Prior's time there. The First Claimant ("Mr Walsh") apparently lives in Thailand, and owns and/or controls the other Claimants, which are incorporated variously in Panama or the Cayman Islands.
- I have already outlined the Claimants' pleaded case based on an agreement in 2005. It is alleged by the Claimants in the amended particulars of claim that pursuant to that agreement, in reliance upon representations from Mr N and Mr T as to how the monies were to be applied, the Second Claimant on 17 October 2005 advanced £750,000 to the Firm to be available for a 24 month period as bridging finance for clients of the Firm. It is alleged that Mr N and Mr T then sought additional funding from Mr Walsh, and further sums were advanced as follows: £75,000 on 20 November 2007; £110,000 on 19 November 2007; and £75,000 on 8 February 2008.
- These funds were alleged to have been 'rolled over' between 2007 and 2010. It is not entirely clear whether this means that the loans were extended, or were used for new transactions, or a combination of the two: in paragraph 14 of the amended particulars of claim it is alleged that the fund was rolled over "as [the Firm] indicated that there were more bridging finance transactions to be arranged", in paragraph 17 the pleading states that "It was asserted by [Mr N] and/or [Mr T] at various times over the years that the [Firm] had had difficulties in recovering the money from borrowers, and extensions of the agreed term were sought and accepted several times." The pleading implies that at some point in 2010, probably in the first half of the year, Mr Walsh abandoned the "rolling over" and, where he had the necessary information, sought to get his money back from individual borrowers. Later, in August of that year, he caused the Fifth Claimant to begin in the county court the precursor claims to these proceedings, as already described.
- The pleading makes no specific complaint against Mr Prior. The sole reference to him is at paragraph 3, where it is alleged that the Firm "was a firm of solicitors comprising Andrew Needleman (3/6/96 to 2/11)…., Saroop Treon (3/6/96 to 26/7/10)……. and Clive Prior (from 20/10/08 to 4/9/09)…." Thus, he is being sued purely on the ground that he was a partner in the Firm at material times.
- In order to see the circumstances of Mr Prior's engagement in 2008 it is appropriate to quote verbatim from some of the documents which were before the Judge.
- The first is a letter of 10 July 2008 from the Firm to Mr Prior.
"Dear Clive,
I refer to our further meeting last week and I am delighted to offer you a position as an Assistant Solicitor with this firm. I will shortly let you have the terms and conditions of your employment with us, but I would like to confirm the following:
1. You will join us on a date to be agreed….
2. The remuneration "package" will consist of:
(1) Basic salary of £100,000 per annum, paid monthly in arrears
(2) Bonus of 5% paid on profit costs of the "property department" (to be discussed further)
(3) Car allowance of up to £350 per month
(4) Medical health cover…
We generally review salaries once each year and at the end of December with increases to take effect from 1 January….
3. There is usually a three month probationary period, but I suggest that we discuss this if you are happy to proceed on the terms set out in this letter.
4. Your holiday entitlement will be 25 working days in addition to statutory bank and public holidays in each calendar year…which does not increase with length of service. Holidays are to be taken at times agreed with a Partner, so as to fit in with the requirements of this firm.
5. The office is fully staffed between 9am and 6pm Monday to Friday although it may be necessary for you to work longer hours than this, depending on your workload. Overtime is not paid to professional staff.
6. Your appointment is subject to a restriction that in the event of you ceasing to be employed by [the Firm] for any reason you will not for 6 months thereafter directly or indirectly engage in legal work for clients for whom you had carried out work during the last 12 months of your employment here, unless they were clients that you introduced personally to the firm…..
7. This offer of employment is subject to acceptance by you within 14 days and satisfactory referees….
8. The above terms are of course subject to the terms and conditions which will form part of your employment contract for all aspects of the terms of your employment and I will let you have the terms and conditions shortly. If there is any discrepancy between the two this letter takes precedence over the terms and conditions.
I trust that the above terms are acceptable to you. I am confident of a long and happy association and look forward to hearing from you."
- The next document comes some 17 days later on 27 July 2008. Again it is a letter under the reference of Mr T and is written to Mr Prior:
"Dear Clive,
Further to our discussion of 17 July 2008 and subsequent exchange of emails I remain delighted to offer you a position as the head of our property department. I enclose the terms and conditions of your employment with us. We also have arrangements with a company called Peninsula who look after all our HR needs and will prepare an Employment Contract incorporating the enclosed terms and conditions which you will be required to sign.
In the meantime I would like to confirm the following:
1. You'll join us on a date to be agreed…
2. The remuneration package offered will consist of:
(1) Basic salary of £100,000 per annum paid monthly in arrears
(2) Bonus will be paid in arrears on the following basis:
• 5% of the profit costs of the "property department" up to £200k
• 10% of the profit costs over and above £200k
(3) Car allowance of up to £350 per month or the sum of £350 gross will be added to the basic salary
(4) Medical health cover…
We generally review salaries once each year…
3. There will be a notice period of 3 months on either side…
4. Your holiday entitlement will be 25 working days in addition to statutory bank and public holidays in each calendar year commencing 1 January, which does not increase with length of service. Holidays are to be taken at times agreed with a Partner so as to fit in with the requirements of the firm.
5. [as in the earlier letter]
6. [as in paragraph 7 of the earlier letter]
7. [as in paragraph 8 of the earlier letter]
I trust that the above revised terms are acceptable to you and I look forward to receiving your confirmation…."
- Enclosed with this letter was a document dated May 2008 under the name of the Firm. It is entitled "Terms and Conditions of Employment for Professional Staff". The following passages from this document appear to be of relevance:
Under the heading "Introduction":
"The provisions of this booklet, together with the terms and conditions set out in your letter of appointment (which takes precedence), and any subsequently notified variations of those terms, formally constitute your contract of employment with [the Firm]."
Under the heading "Commencement of your Employment":
"Your employment with [the Firm] begins on [blank] September (October) 2008".
There then follow the following provisions:
"Changes to Conditions of Employment"
Your particulars of employment are subject to changes as necessary from time to time (after consultation with you), details of which will be notified to you.
Notice Periods
Your employment may be determined by 3 months written notice on either side, save in cases of gross misconduct.
The firm reserves the right at its sole discretion to terminate you employment immediately and to pay you in lieu of notice.
Salaries
Salaries are paid monthly in arrears…there is no entitlement to increases, but relevant factors to consider will include inflation, performance and attendance.
Deductions
The firm reserves the right to make deductions from your salary in respect of any sum that you owe to the firm.
Pensions
The firm has an employee contribution only stakeholders' pension scheme, details of which are available from the Office Manager. You are contracted into the [Serps]….
Hours of Work
Office hours are from 9am to 6pm daily Monday to Friday but in your position you may be required to work such additional hours as may be necessary…
Lunch Break
Your daily lunch break is 1 hour…
Overtime
Overtime is not paid to professional staff.
Holidays
…Holiday dates must be agreed in advance with a partner (normally your supervisor) who will sign a holiday request form, which you should give to the Office Manager before the start of your holiday…You are not normally entitled to carry over untaken holiday to the following year except in exceptional circumstances and with consent in advance, in writing, from a partner."
There are various disciplinary requirements in relation to prompt and regular attendance at work, use of the telephone, writing of personal emails in the office, internet policy and a grievance procedure. Under a heading relating to the latter, the terms provide:
"If you have any grievance or complaint you should take it up in the first instance with any partner (other than the senior partner)…."
Towards the end the document deals with the Firm's disciplinary procedure, including the power of dismissal and the circumstances in which dismissal for gross misconduct may occur, together with appeals procedures. Finally there are terms relating to absence from work and sickness, sick pay, compassionate leave, accidents in the office, treatment of the Firm's and clients' confidential information, personal appearance of staff, maternity and paternity rights and data protection.
- It is common ground that these terms and conditions do not ever appear to have been signed by Mr Prior, as the letter of the 27 July indicates he would be required to do. Ms Peacocke attached considerable significance to the absence of any signed version of the terms and conditions, as I will explain in due course.
- Mr Prior responded to the letter of 27 July by his letter of 4 August 2008, sent to Mr T at the Firm:
"Dear Saroop,
Thank you for the revised offer, which I am delighted to accept.
I would also like to confirm the following points which we discussed at out meeting on 17 July 2008:
1. In addition to being head of the property department I will also have "partner" status and the equity partners will provide me with a suitable indemnity.
2. Although I will endeavour to make sure bills are paid promptly, the bonus will be calculated on fees billed as opposed to fees billed and paid. It would be useful if you would clarify whether the bonus is to be paid on a monthly or annual basis.
3. There will be no probationary period
4. You will not require references
5. There will be no restrictive covenant
6. You will provide a mobile phone and will pay the cost of a mobile phone contract and all call charges
7. You will pay all professional fees, including practising certificate, law society membership and compensation fund fees
8. You will pay all costs of continuing professional development
9. We will discuss equity partnership in the future, although no timetable has been set for this
Please confirm that these are agreed.
As you have mentioned, my contract requires that I give my present firm 3 months notice, which means that I should be able to join you at the beginning of November 2008…"
- It appears that Mr Prior began work at the Firm on the 21 October 2008. He was recorded as a partner on the Firm's notepaper from approximately that time. On 4 August 2009 he informed the Firm that he was resigning as a salaried partner. Later, the context of his claim for unfair constructive dismissal, Mr Prior informed the Employment Tribunal in some detail of the reasons for this resignation. In short, he said it was because he had become aware that the Firm was using or transferring clients' money for its own purposes as a result of serious cash flow difficulties, and was also omitting to make payment of stamp duty in relation to property transactions within the required statutory period. Mr Prior told the Tribunal that he was concerned that, although not a party to these breaches, as a salaried partner in the Firm he would nevertheless be implicated in any disciplinary proceedings which might result from them. After resigning as a salaried partner, Mr Prior continued to work as a solicitor at the Firm until about the 22 January 2010, when he resigned with immediate effect because, as he put it to the Tribunal, he believed that he could no longer trust the partners of the Firm to be honest and truthful with him.
- The statements made by the partners of the Firm and by Mr Prior to the Employment Tribunal assumed some significance in the parties' submissions to the Judge, and at the hearing before me. Those unfair dismissal proceedings were, of course, based on the fundamental premise that Mr Prior was an employee of the Firm. The significance of this is that, as is common ground, status as an employee is inconsistent with true partnership ie within the meaning and for the purposes of the 1890 Act. Although, as seen, Mr Prior accepted that he was a salaried partner, he distinguished that from partnership in the sense that I have described, and stated on several occasions that his status was that of an employee of the Firm.
- One of the issues that arose in the claim for unfair dismissal was whether the partners had kept Mr Prior informed about the Law Society's investigation of the Firm. One aspect of Mr Prior's claim was that the partners had unfairly kept him in the dark about the position, notwithstanding that as a salaried partner he was vulnerable. In a witness statement put before the Tribunal, Mr N reiterated that at all times Mr Prior was the Firm's employee and that they regarded him as in no way responsible in respect of the disciplinary proceedings brought against the Firm. At paragraph 22 of his witness statement Mr N stated:
"It was and is our position that the matters Mr Prior refers to in the context of the [Law Society investigation] did not and would not have related to Mr Prior as he was at all times considered to be an employee, relate to issues which never concerned Mr Prior. Further we have provided information and confirmation to that effect to the [Law Society] and once that matter had been raised proceedings as against Mr Prior were withdrawn.
We believe that Mr Prior was not a partner of the firm and was in fact an employee; it was not appropriate for him to be kept abreast of any or all developments relating to the running of the firm, as this was not within his responsibilities or remit."
- Mr N's evidence to the Employment Tribunal was that the intention was that Mr Prior would run the property department with a view to improving performance for existing clients and attracting new business. It was common ground before the Tribunal that not much, if any, new business was in fact generated by Mr Prior, although the reasons for that were the subject of considerable dispute. Mr Prior's position was that he was never allowed to run the department as he saw fit, his recommendations for improving the performance and practices of the department were repeatedly disregarded, the department had very little existing work, and its client base was almost non-existent. Mr N, on the other hand, stated in his evidence that the property department under Mr Prior was subject to chronic underperformance, that Mr Prior rejected various conveyancing transactions which would have alleviated some of the cash flow problems, and that in spite of his considerable salary he failed to generate reasonable fees.
- In the event the Tribunal by unanimous decision found that Mr Prior had been unfairly constructively dismissed on 21 January 2010, and awarded him a sum of £88,529 by way of compensation. That award appears to have been on the basis of a compromise of the claim.
- Unsurprisingly Mr Prior places considerable reliance upon this decision of the Tribunal, given that all parties to those proceedings, and the Tribunal itself, acted upon the premise that Mr Prior was an employee of the Firm.
- In addition to this material, the Judge also had before him a letter dated 6 November 2013 written to the Claimants' solicitors by Mrs Katherine Kandelaki. Mrs Kandelaki states in the letter that she is a solicitor and that she worked for the Firm from 2003 to 2011, having qualified in May 2008. The letter continues:
"I confirm that Clive Prior joined [the Firm] in autumn around 20 October 2008 as a new partner and the Head of the Property Department, for both commercial and residential property. From his appointment Mr Prior acted and represented himself as the partner, for example I recall he signed the firm's letter heads as a partner. I was also advised that he would be my new supervisor in place of the other two partners, Andrew Needleman and Saroop Treon.
Upon his appointment Mr Prior immediately acted as my supervisor in place of the other two partners.
During this period I was dealing with various property transactions for [some of the Claimants] I reported all my transactions to Mr Prior and it is my understanding that he was aware of all matters relating to the Property Department including the property transactions for the [claimants]. I was also dealing with instructions to sell some of the properties owned by Carlos Layne [apparently one of the borrowers]. It is my recollection Clive Prior dealt with the drafting of legal charges regarding Carlos Layne in relation to [one of the Claimants] that had lent Mr Layne moneys."
- Finally there was a witness statement before the Judge from Mrs Walsh dated 31 October 2013. She states that she began working for the Firm from 2004 to assist them with a case relating to Mr Walsh. She was unpaid for the first three years, and was put on the payroll in August 2007. She stopped working at the Firm in October 2010. She describes the circumstances in which the alleged agreement of October 2005 came into being, with the Firm undertaking to comply with all legal requirements and to ensure that all loans were fully secured, so that neither Mr Walsh nor any of the other Claimants were exposed in any way. According to Mrs Walsh, Mr N and Mr T also provided Mr Walsh with personal guarantees in relation to the funds provided under the agreement. She states that when in October 2008 Mr Prior joined the Firm, he was introduced to her as a partner who would be in charge of the conveyancing department and of all conveyancing matters handled by the Firm, and would be assisted by the other solicitors in that department. She was also told that he would be acting on the conveyancing side of the transactions to be undertaken with funds provided by Mr Walsh.
- Her statement continues:
"Both Martin Walsh and I were pleased and reassured that there was a specialist conveyancer in the firm responsible for the drafting, registration and implementation of the relevant documentation. Mr Prior was held out to Martin Walsh and me not only as a specialist conveyancer but also as a partner of the firm and his name was added to the firm notepaper in that capacity. All the correspondence from the firm throughout Mr Prior's involvement contained Mr Prior's name as a partner…I was personally aware…that Mr Prior did indeed undertake conveyancing work in relation to the transactions entered into with funds provided by Martin Walsh, as well as the conveyancing work involved when pre-existing transactions were rolled over following the expiration of the initial loan periods applicable to such transactions….My experience of and information about Mr Prior's involvement was communicated to Martin Walsh…..Both Martin Walsh and I relied upon his involvement as a specialist conveyancing partner throughout the period of his engagement, which was a period when funds provided by Martin Walsh were being used as bridging finance. Indeed, when Martin Walsh began to become concerned that the substantial capital that he had provided to the firm was not being recovered and repaid to him, he and I both relied upon the fact that the funds were secured by formal documentation prepared and vetted by Mr Prior as a specialist conveyancer."
- As I have said, the Claimants have sought to introduce two further items of evidence in this appeal. I will return to these.
The main issues
(1) A real prospect of proving Mr Prior was a partner in the Firm?
- The Judge directed himself that if at that stage it could be established by Mr Prior (the burden being on him) that there was no real prospect of the Claimants proving on the balance of probability that he was a partner in the Firm, then the case would be suitable for summary judgment on that issue. He went on to remind himself by reference to the notes to Part 24 CPR that he should disregard a fanciful prospect of success, but it was not appropriate to conduct a "mini trial" or seek to resolve complex questions of law and fact, and so a case with even an improbable but real prospect should go to trial.
- He then proceeded to consider the material before him in the light of those principles. He referred to the correspondence conducted between Mr Prior and the Firm when negotiations for his engagement (to use a neutral term) were on foot in 2008, and also to the material relating to Mr Prior's claim against the Firm in the Employment Tribunal in 2010 for unfair constructive dismissal. He also had before him the witness statement of Mrs Walsh and the letter from Ms Kandeleki, and referred to them (albeit more in the context of the alternative claim under section 14 of the 1890 Act). Finally he referred to the relevant law, and in particular the passages in the ruling of the Court of Appeal in M. Young Legal Associates v Zahid [2006] 1 WLR 2562, which confirm that a salaried partner may still be a partner in the full sense within the meaning of the Partnership Act 1890, depending on the particular facts of the case, the label attached to the person concerned not being determinative. Having considered this material, together with the aspects of the case which Ms Peacocke urged upon him as being indicative of partnership, the Judge concluded that there was no real prospect of the Claimants establishing at trial that Mr Prior was a partner in the Firm for the purposes of the 1890 Act, as he was quite clearly an employee.
- At this stage it is worth recalling the somewhat lean definition of partnership provided in section 1(1) of the 1890 Act:
"Partnership is the relationship which subsists between persons carrying on a business in common with a view of profit."
Section 2 elaborates:
"In determining whether a partnership does or does not exist, regard shall be had to the following rules:
….
(2) The sharing of gross returns does not of itself create a partnership….
(3) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but receipt of such a share, or of a payment contingent on or varying with the profits of a business, does not of itself make him a partner in the business; and in particular-
……
(b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such;…"
- In her cogent submissions Ms Peacocke referred me to the passage in the judgment of Megarry J in Stekel v Ellice [1973] 1 WLR 191 which considered the label "salaried partner", and was approved by the Court of Appeal in M. Young Legal Associates v Zahid (above):
"It seems to me impossible to say that as a matter of law a salaried partner is or is not necessarily a partner in the true sense. He may or may not be a partner, depending on the facts. What must be done, I think, is to look at the substance of the relationship between the parties; and there is ample authority for saying that the question whether or not there is a partnership depends on what the true relationship is, and not on any mere label attached to that relationship. A relationship that is plainly not a partnership is no more made into a partnership by calling it one than a relationship which is plainly a partnership is prevented from being one by a clause negativing partnership: see, for example, Lindley on Partnership, 13th ed. (1971), p. 66.
If, then, there is a plain contract of master and servant, and the only qualification of that relationship is that the servant is being held out as being a partner, the name "salaried partner" seems perfectly apt for him; and yet he will be no partner in relation to the members of the firm. At the other extreme, there may be a full partnership deed under which all the partners save one take a share of the profits, with that one being paid a fixed salary not dependent on profits. Again, "salaried partner" seems to me an apt description of that one: yet I do not see why he should not be a true partner, at all events if he is entitled to share in the profits on a winding up, thereby satisfying the point made on section 39 by Lindley at p. 13. However, I do not think it could be said it would be impossible to exclude or vary section 39 by the terms of the partnership agreement, or even by subsequent variation (see section 19), and so I think that there could well be cases in which a salaried partner will be a true partner even though he would not benefit from section 39. It may be that most salaried partners are persons whose only title to partnership is that they are held out as being partners; but even if "salaried partners" who are true partners, though at a salary, are in a minority, that does not mean that they are non-existent."
- Ms Peacocke acknowledged that the status of a partner (properly so called) and an employee are mutually exclusive, and that at trial it would be for the Claimants to establish that Mr Prior was not an employee of the Firm. However, she submitted that the issue as to Mr Prior's status at the Firm is not suitable for summary determination, and that the Judge erred in treating the material on which he relied in the Judgment as determinative of Mr Prior's status. She contends that there are indicia of partnership present here, and there are also outstanding issues of fact which are relevant and can only be determined at a trial, probably by way of a preliminary issue.
- As for indicia of partnership, the Claimants rely in particular on:
(i) The absence of any signed employment contract, which was said to be required.
(ii) Mr Prior's insistence upon "partner status" rather than just a partnership label;
(iii) Mr Prior's management position within the firm, as head of the property department;
(iv) Mr Prior's entitlement to share the profits of the firm, by reference to the profitability of the property department;
(v) Mr Prior's entitlement to an indemnity from the other partners and to be indemnified by the firm's professional indemnity insurers.
- The outstanding questions of fact identified by Ms Peacocke included the following:
(i) Whether any formal agreement was entered into with Mr Prior in 2008, and if so, what it said; and if not, why not;
(ii) Whether Mr Prior did take over management of the Firm's property department without supervision by another partner;
(iii) Whether Mr Prior was entitled to a share of the profits of the Firm, calculated by reference to the profitability of the property department;
(iv) What terms were agreed for an indemnity provided to Mr Prior by the other partners of the Firm, and the basis for Mr Prior's entitlement to the benefit of the Firm's professional indemnity insurance.
- In particular, she submitted that there was absolutely no evidence of what Mr Prior's contractual relationship with the Firm amounted to in practice. This was the only evidence with which the court should have been concerned in deciding whether Mr Prior was in fact a partner at the material time, and the Judge was in error in reaching the decision he did in the complete absence of such evidence.
- Pointing to the absence of a signed contract of employment and to the request by Mr Prior for "partner status" in his letter of 4 August 2008, Ms Peacocke argued that this raised the question whether the request represented a crucial change in the relationship between the Firm and Mr Prior as envisaged in the Firm's offer letter of 27 July 2008. She acknowledged that the tenor of the latter was an offer of employment, but submitted that the tenor of Mr Prior's letter of 4 August was different, and amounted to a counter offer at least so far as "partner status" is concerned.
- Ms Peacocke accepted that she would be in difficulties if there had been a signed contract of employment, and also that there was evidence that Mr Prior and the Firm had entered into an employer/employee relationship. Nevertheless, she submitted that as things stood the evidence went both ways, and there were unanswered questions, in particular, whether the counter offer was merely a minor adjustment to what was otherwise an employment contract, or something much more fundamental. All that was needed was a real prospect of establishing at trial that the true relationship was one of partnership and not employment. Given this question of "partner status", as well as the doubts about the extent of Mr Prior's managerial control, about his ability to bind the Firm, and the other open questions, it was submitted that the case was inappropriate for summary judgment and should go to trial.
- It was also submitted that the material before the Employment Tribunal was of little help in determining the true status of Mr Prior and should not have been relied upon by the Judge to the extent that it was. It was generated after the relationship had come to an end and at a time when it was in Mr Prior's interest to maintain that he had been an employee, given his claim was for unfair dismissal. Similarly, it was in Mr N and Mr T's interest to take the same stance, as it would explain and excuse their having kept Mr Prior in the dark about the Law Society's investigation of the Firm. It was also suggested by Ms Peacocke that the proceedings in the Tribunal had been "friendly"; although there had been a substantial award, the claim had been settled and there was no evidence the award had been enforced by Mr Prior.
Discussion of issue 1
- It is important to bear in mind the principles applicable to summary judgment under Part 24 CPR. In this respect my attention was drawn to the decision of the Court of Appeal in TFL Management Services Ltd v Lloyds Bank PLC [2013] EWCA Civ 1415, in which the Court approved the very helpful collation of these principles by Lewison J (as he was then) in Easy Air Limited v Opal Telecom Limited [2009] EWHC 339 (Ch):
" .. the court must be careful before giving summary judgment on a claim. The correct approach on applications by defendants is, in my judgment, as follows:
i) The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 1 All ER 91;
ii) A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];
iii) In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman;
iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10];
v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;
vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;
vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725."
- The considerations set out at paragraphs (v), (vi) and (vii) of that summary were discussed by Briggs J (as he then was) in Lexi Holdings (in administration) v Pannone and Partners [2009] EWHC 2590 (Ch):
"The particular aspect of the court's approach to summary judgment applications about which submissions were made to me concerns what is sometimes labelled Micawberism. Put shortly, the principle is that, in order to challenge an assertion that a party has no real prospect of success, or of successfully defending, in relation to a claim or issue, it is necessary to do more than say that some evidence currently unavailable might turn up in time for the trial. The party facing the summary judgment application must, whether by evidence or submission, persuade the court that there is a sufficient prospect that material will become available in time for trial so as to afford the defendant the real prospect of a successful defence."
- The Judge in the present case clearly took these considerations into account, concluding that going through the process of a trial would not alter the fact that Mr Prior was clearly an employee (paragraph 28 of the Judgment).
- It is important to step back and exercise caution before giving summary judgment in any case or on any issue, as the effect is to deprive the party in question of a trial thereon. All the more so in a context of an issue such as the existence or not of partnership which, as the authorities show, is often multi-faceted and fact-dependent. Ms Peacocke points to the fact that most if not all of the leading cases where the relevant factors giving rise to partnership have been explored and such issues determined, have involved trials of a preliminary issue, with disclosure and oral evidence, rather than summary judgment.
- It may be (I express no view) that, given the subtleties and nuances which are capable of occurring in this context, such issues will be suitable for summary judgment on relatively few occasions. However, each case must be considered on its own merits, and it is not suggested that the Part 24 procedure is not available in an appropriate case.
- Despite Ms Peacocke's valiant attempt to persuade me otherwise, I am in no doubt that the Judge was entitled to reach the conclusion he did on the material before him. Her argument relied heavily on the suggestion that there was a significant question mark over the relationship between the Firm and Mr Prior as a result of his failure to sign the terms and conditions of employment enclosed with the offer letter dated 27 July 2008. However, when the contractual correspondence is considered I do not consider that the absence of a signature can possibly bear the weight she sought to place on it.
- It is clear beyond any reasonable question (as Ms Peacocke herself appeared to accept in the course of argument) that the offer in that letter is one of employment as the head of the Firm's property department. This is so notwithstanding that part of the "remuneration package" is a bonus based on a percentage of the profit costs of that department. One is mindful of the principle that labels are not in any way determinative. Nevertheless, the whole tenor of the letter, including the several references to "your employment", "employment contract" and "This offer of employment", and the requirement to agree holiday times "with a Partner", reflects precisely what one would expect where what is on offer is a post as an employee, as distinct from any other relationship. Similarly, the terms and conditions which are in fact enclosed with the letter ("I enclose the "terms and conditions of your employment with us.") are unequivocally indicative of an employer/employee relationship. (See earlier in this judgment.)
- What next happens is significant. In the first line of his reply letter Mr Prior says "Thank you for the revised offer, which I am delighted to accept." It is therefore clear that Mr Prior is accepting that he is to become an employee of the Firm. Although in the remainder of the letter he reminds Mr T of other matters which were apparently discussed between them on 17 July that year, and which he clearly feels need to be confirmed, there is absolutely nothing in the letter which calls into question that the relationship is to be one of employer/employee. I cannot agree with Ms Peacocke that, when read in the context of the letter a whole, the reference to ""partner" status" calls the relationship into question. In my view it does not, neither in terms of the letter itself (which is clearly accepting an offer of employment), nor in terms of how the parties themselves regarded their relationship.
- In the latter respect, the Claimants' challenge to the significance of the material and evidence put before the Employment Tribunal is not justified. Those proceedings were far from "friendly", as the Claimants suggest. On the contrary, the allegations made by Mr Prior against the partners were extremely serious and were regarded as such by Mr T and Mr N (see above). Nor is there the slightest reason for supposing that the characterisation of their relationship as employer/employee in the context of the unfair dismissal claim reflected anything other than their genuine understanding of the position. Of course, it is possible that parties to a contract might create a different relationship than the one they think they are creating. But in the present case the one they clearly believed they were creating is precisely the same as the one which is reflected in the contractual documents. Moreover, the relationship created by those documents is clearly the one which was carried through in practice. In particular, there is no evidence that Mr Prior carried out any other role or conducted himself in any way differently than would an experienced conveyancing solicitor employed by the Firm as head of the property department, with "partner status" but no partnership. There is nothing in the evidence before the Judge (nor is there any reason to believe that something is likely to become available if the matter goes to trial) to indicate that Mr Prior was at any time anything more than a "salaried partner" in the sense of Megarry J's dictum:
"If, then, there is a plain contract of master and servant, and the only qualification of that relationship is that the servant is being held out as being a partner, the name "salaried partner" seems perfectly apt for him; and yet he will be no partner in relation to the members of the firm." (See above)
- Nor in my view are any of the matters said by the Claimants to be "outstanding questions of fact" (see paragraph 35 above) capable of affecting the position: there is no hint of a suggestion in the evidence that there might be any other contractual documents; the evidence available (including that produced by the Claimants) gives no grounds for any genuine controversy about the way in which Mr Prior carried out his responsibilities as head of the property department; the bonus element of the remuneration package is clearly set out in the contractual correspondence, and is confirmed by Mr Prior in his evidence; and it is fanciful to suppose that knowledge of the details of any indemnity granted to Mr Prior by the Firm and/or of the terms of any professional indemnity insurance available to him would make any difference.
- Similarly, the factors relied upon by the Claimants as indicia of partnership are entirely consistent with the employer/employee relationship clearly offered and accepted by the Firm and Mr Prior respectively.
- Therefore, in my view the Judge's conclusion that the Claimants have no real prospect of success on this issue was one which he was justified in reaching, and indeed was correct, on the material before him.
- It remains to consider the effect, if any, of the new items of evidence not before the Judge which the Claimants now seek to introduce. One of these items is said to be "crucially relevant" to this issue. It is a copy email dated 10 December 2009 from Mr Prior to Mr T, at a time when Mr Prior had resigned as a salaried partner but was continuing to work as a solicitor in the Firm. The email states:
"Andrew, I understand from the [Solicitors Regulation Authority] that my practising certificate has not been issued due to a shortfall in the Solicitors Compensation Fund contribution paid by you on my behalf. Apparently, as I have been a partner in the last 12 months, the amount payable is £390 instead of the £130 paid….Can you please confirm when this will be paid."
- It is common ground that the compensation fund contribution was higher for a partner than for an assistant solicitor, and the shortfall of £260 formed part of the unfair dismissal claim and award in the Employment Tribunal.
- This email was exhibited to a witness statement by Ramandeep Dhadli of the Claimants' solicitors dated the same date as the appeal hearing before me began. Mr Prior did not therefore have an opportunity to respond to the witness statement or to comment on the email prior to the hearing of this appeal. However, Mr Allen submitted that the email was in any event of no assistance to the Claimants. He produced the Solicitors Regulation Authority ("SRA") Compensation Fund Rules for 2011, together with the SRA Accounts Rules 2011 and the SRA Code of Conduct 2011. In each of these documents "partner" is defined as meaning "a person who is or is held out as a partner in a partnership". In the time available Mr Allen was not able to obtain the version of the rules current when the email was written in 2009. However, it is highly unlikely that they would be materially different in this respect, and Ms Peacocke did not suggest otherwise.
- In my view this email takes the matter no further and is of no assistance to the Claimants in this appeal. The contract between Mr Prior and the Firm required the Firm to pay for his practising certificate and all other professional fees, including those relating to the compensation fund (see paragraph 18 above). It is clear that Mr Prior was held out as a partner (including on the Firm's notepaper), and therefore under the relevant SRA rules he would have fallen within the definition of "partner", thus attracting the higher fee. In that context the email is in no way inconsistent with his contention that he was at all times an employee of the Firm, and there is no realistic prospect that at trial the Claimants would be able to show that it was of some significance to their case.
- This does not deal with its admissibility on appeal, to which Mr Allen objects on Ladd v Marshall[1] grounds. Given my conclusion about the significance of this document, it is not necessary to deal extensively with the helpful submissions from both sides on this issue. However, in view of the objections raised by Mr Allen it is appropriate that I should briefly indicate my view.
- It is clear that following the introduction of the CPR the conditions of admissibility laid down in Ladd v Marshall are no longer directly applicable, as they were under the former Rules of the Supreme Court. In Terluk v Berezosky [2011] EWCA Civ 1534, the Court of Appeal confirmed that in the light of the decided cases the primary rule for the exercise of the discretion to admit new evidence on appeal is now embodied in CPR r.52.11(2)(b), together with the overriding objective.
- In that case the present position was summed up by Laws LJ (with whom Lady Justice Rafferty and the Chancellor agreed):
"It is convenient first to consider the law relating to the deployment of fresh evidence in civil appeals. The locus classicus is Ladd v Marshall [1954] 1 WLR 1489, 1491 where three criteria were articulated by Denning LJ as he then was: (1) the evidence could not with reasonable diligence have been obtained for use at the trial; (2) the evidence must be such that, if given, it would probably have had an important influence on the result of the case (though it need not be decisive); and (3) the evidence is apparently credible though it need not be incontrovertible.
The admission of fresh evidence in this court is now addressed in the Civil Procedure Rules. CPR 52.11(2) provides in part:
"Unless it orders otherwise, the appeal court will not receive... (b) evidence which was not before the lower court."
The impact of the CPR on the established approach set out in Ladd v Marshall has been considered in a number of cases. It is clear that the discretion expressed in CPR 52.11(2)(b) has to be exercised in light of the overriding objective of doing justice (see for example Hertfordshire Investments Ltd v Bubb [2000] 1 WLR 2318 per Hale LJ as she then was at paragraph 35, Sharab v Al-Sud [2009] EWCA Civ 353 per Richards LJ at paragraph 52). The Ladd v Marshall criteria remain important ("powerful persuasive authority") but do not place the court in a straitjacket (Hamilton v Al-Fayed (No 4) [2001] EMLR 15 per Lord Phillips MR as he then was at paragraph 11). The learning shows, in my judgment, that the Ladd v Marshall criteria are no longer primary rules, effectively constitutive of the court's power to admit fresh evidence; the primary rule is given by the discretion expressed in CPR 52.11(2)(b) coupled with the duty to exercise it in accordance with the overriding objective. However the old criteria effectively occupy the whole field of relevant considerations to which the court must have regard in deciding whether in any given case the discretion should be exercised to admit the proffered evidence." (See paragraph 32 of the Judgment of Laws LJ.)
- However, there is little guidance as to the applicability and application of these principles where what is in issue is the admission of fresh evidence in an appeal in a summary judgment case. The current edition of the White Book (2014) in the notes at 52.11.2, page 1881, refers to the decision of the Court of Appeal in Aylwen v Taylor Joynson Garrett [2001] EWCA Civ 1171, in which this question was discussed by Lady Justice Arden (with whose judgment Peter Gibson and Kay LJJ agreed).
- In that case the High Court had allowed an appeal from the Master and had given summary judgment against the claimant on the whole claim. The claimant appealed to the Court of Appeal and applied for permission to make further amendments to the particulars of claim and to adduce further evidence. The applications and the appeal were dismissed. Lady Justice Arden referred to the continuing relevance of the Ladd v Marshall criteria in the CPR regime, and then stated (at paragraphs 47-9):
"Mr Nash submits that a more generous approach should apply on appeal against summary judgment under CPR 3.4 or 24.2, otherwise these new provisions of the CPR, which for the first time allow applications against claimants for summary judgment, could be used oppressively against claimants who, for some technical reason, have pleaded their case in a defective way. He submits that to approach the matter otherwise would be to reverse the previous practice under Order 14. He submits that the principles in Ladd v Marshall did not apply to an appeal against a refusal of leave to defend, although they did on an appeal against a refusal of summary judgment. The court should treat parties in the same way under the CPR and that the court should accordingly not apply the Ladd v Marshall principles on an appeal against an order for summary judgment.
I remind myself of the old Rules of the Supreme Court. The question of the Ladd v Marshall principles in relation to summary judgment was considered by the House of Lords in Langdale v Danby [1982] 1 WLR 1123 referred to in passages in the Annual Practice to which Mr Nash has referred us. In that case the Court of Appeal set aside a judgment under Order 86. That was a judgment granting specific performance again on a summary application. The Court of Appeal did so on the basis of evidence adduced for the first time in the Court of Appeal. The House of Lords held that the principles in Ladd v Marshall should have been applied. Lord Bridge, with whom the other members of the House agreed, held that:
"In the situation arising on an appeal to the House of Lords from a summary judgment the application of these conditions, and perhaps the conditions themselves, will require some modification. It may well be that the standard of diligence required of the defendant preparing his case in opposition to a summons for summary judgment, especially if under pressure of time, would not be so high as that required in preparing for trial. The second and third conditions will no doubt be satisfied if the further evidence tendered and is sufficient, according to the ordinary principles applied on applications for summary judgment to raise a triable issue. But I see no injustice at all in requiring the defendant to use such diligence as is reasonable in the circumstances to put before the judge on the hearing of the summons, albeit in summary form, all the evidence he relies on in defence; whereas it would be a great injustice to the plaintiff to allow the defendant to introduce for the first time on appeal evidence which was readily available at the hearing of the summons but which was not produced."
In the light of this decision, the practice of the Court of Appeal as recorded in the annual practice is to decline to admit fresh evidence even on an appeal against summary judgment unless the special grounds in Ladd v Marshall apply. It seems to me that a similar approach should apply to the reception of fresh evidence on applications under CPR 3.4 and 24.1 as now apply to other appeals (see Hertfordshire Investment v Bubb), respecting of course the type of difference in application of the principles to which Lord Bridge referred in Langdale v Danby. Moreover, I would accept that the same should apply to amendments to statements of case adduced for the first time in the Court of Appeal to avert the unfavourable outcome of an application to dismiss a claim under CPR 3.4 or CPR 24.2."
(See also the decision of Eady J in Cotton v Rickard Metals Inc [2008] EWHC 824 (QB) )
- It is, therefore, clear that the Ladd v Marshall considerations should also inform an appeal court's determination when a party seeks to introduce fresh evidence on an appeal against a summary judgment under CPR r.24. However, in exercising its discretion under r.52.11(2) in the context of such an appeal the appeal court must bear in mind the overriding objective to deal with the case justly and at proportionate cost. In so doing the court should have regard to the fact that because, by its very nature, an application for summary judgment is likely to occur at a much earlier stage in proceedings than a trial, neither party is likely to have arrived at the state of preparation that would ultimately be expected of them: disclosure and inspection will almost certainly not have occurred; although there may well be witness statements available for the summary judgment hearing, the parties may not have had sufficient time to investigate the issues fully, to hunt down witnesses, find all relevant documents, assess their significance to the issues in the case etc., with the result that the witness statements and available documents may well not be as detailed or complete as they would at trial.
- Therefore, when it comes to assessing whether the Ladd v Marshall criteria are fulfilled in respect of fresh evidence in such a case, it will be necessary to bear in mind Lord Bridge's observations in Langdale v Danby and to consider carefully whether those criteria need to be applied with modifications or even be modified themselves. This may more often be the case with the first of those criteria, when a court is faced with an objection to admission of new evidence on the basis that it could with reasonable diligence have been obtained for the original hearing.
- Applying this approach to the email from Mr Prior, I am satisfied with Ms Dhadli's explanation for the failure to discover this in time for the hearing below. The first Ladd v Marshall criterion is therefore satisfied. However, for the reasons I have given, the document, if it had been available to the Judge, would not have had any (let alone an important) influence on the result of the summary judgment application. In those circumstances, having regard to the overriding objective, I would not admit the email in evidence, although I have taken account of it de bene esse as if it had been admitted.
(2) The "holding out" claim under section 14 of the 1890 Act
- As mentioned at the beginning of this judgment, the Judge also determined a second issue in favour of Mr Prior, namely whether there was a real prospect of the Claimants succeeding at trial on an alternative claim that Mr Prior had incurred liability to them pursuant to s. 14 of the 1890 Act. That issue was not the subject of any pleading. It seems to have been raised for the first time in a long letter dated 29 January 2013 written to the Claimants' solicitors by the solicitors acting for Mr Prior. In that letter they provided detailed reasons why he was neither a partner in the Firm nor liable under s.14. However, the Claimants did not then seek permission to amend their pleadings to make that alternative case. Nor did they do so later, when Mr Prior issued the application for summary judgment. Even so, the issue was argued out before the Judge notwithstanding the absence of a pleaded case. It was also argued out before me, and in addition I was provided (by way of Ms Peacocke's skeleton argument) with a possible amendment to the amended particulars of claim to reflect the new claim.
- The proposed amendment is as follows:
"If (which is not admitted) the Fourth Defendant was not a partner of NT as alleged, then he (to the knowledge of the Claimants) represented himself as a partner of NT by (inter alia) knowingly being named as a partner of the firm's notepaper and describing himself, and being described by others, as a partner and head of the firm's property department (from 20/10/08 to 4/9/09), and is liable as a partner under section 14 of the Partnership Act 1890 to the Claimants and each of them, who (through the First Defendant) relied upon such representations in agreeing to and/or allowing loan and security transactions as described herein to be arranged by the firm (with the involvement of the property department) with funds provided by the Claimants throughout the period of the Fourth Defendant's involvement with the firm."
- S.14 provides:
"(1) Everyone who by words spoken or written or by conduct represents himself, or who knowingly suffers himself to be represented, as a partner in a particular firm, is liable as a partner to anyone who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made."
- Thus, there are two main elements in a cause of action under s.14. First, there must be a holding out of the person in question as a partner in a firm. The second element has two sub-elements: a claimant must have "given credit" to the firm in reliance upon ("upon the faith of") the representation.
- In Nationwide Building Society v Lewis [1998] Ch 482 the Court of Appeal considered s.14, stating that the phrase 'given credit' should not be interpreted restrictively and could apply to 'any transaction of the firm'. The Court also considered what constituted reliance for the purposes of s. 14 and, adopting an earlier judgment of Lord Esher MR, said:
"The doctrine of 'holding out' is a branch of the doctrine of estoppel. If a man holds himself out as a partner in a firm, and thereby induces another person to act upon that representation, he is estopped as regards that person from saying that he is not a partner. The representation may be made either by acts or by words; but the estoppel can be relied upon only by the person to whom the representation has been made in either way, and who has acted upon the faith of it."
- In Nationwide, the claimant building society unsuccessfully brought a claim in respect of a negligent report on title by its solicitors. The claim was against a salaried partner in the firm, who was in reality an employee but whose name appeared as a partner on the firm's headed paper and also on the paper upon which the negligent report on title was provided to the building society. The claim failed because there was no evidence that the building society relied in any way upon the fact that the headed paper held the employee out as a partner of the firm. The Court held that it was necessary for the claimant to prove that it relied on the relevant holding out in entering into the retainer in question, and that there was no presumption of reliance in favour of a claimant, but it was a matter for a claimant to prove in every case.
- My attention was also drawn to Sangster v Biddulph [2005] PNLR 33, in which Nationwide was applied by Mr Justice Etherton (as he then was). The learned Judge said:
"19. In order to establish estoppel at common law, the claimant must satisfy the court that a representation was made to her that the second defendant was a partner in Biddulphs, and that she relied upon the representation in circumstances in which it would be unjust for the true legal status of the second defendant now to be asserted.
20. It is common ground that in order to establish reliance in this context the claimant must establish, on the facts of the present case, that on a balance of probabilities the holding out or representation had a material influence on her decision to proceed with the proposed transaction through Biddulphs, as her solicitors: Nationwide Building Society v Lewis at p.494 F (Evans L.J.), citing Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 A.C. 501. The holding out or reliance does not need to have had a decisive effect but it must have been a contributing causative factor in her decision."
Discussion of Issue 2
- Although not formally conceded by Mr Allen, and indeed disputed in his skeleton argument, in oral argument before me he did not strenuously contend that the first element, viz holding out, was not satisfied for the purposes of a summary judgment application. The contrary seems to me a very difficult argument to make: the undisputed evidence is that Mr Prior sought and was granted "partner status" from the outset of his employment by the Firm; he was described as such on the Firm's notepaper, was apparently introduced to Mrs Walsh and Mrs Kandeleki as a partner, and acted accordingly while working as the head of the property department, at least until he resigned as a salaried partner in August/September 2009.
- Further, it would be difficult for Mr Prior to argue that there is not a real prospect of the Claimants establishing on the balance of probability at trial that Mr Walsh was at all material times aware of the holding out of Mr Prior as a partner: in this respect one can point to, in particular, Mrs Walsh's own employment in the Firm throughout Mr Prior's time there, and also the likelihood that her husband, as a client of the Firm, would at some point have observed Mr Prior's description on the Firm's notepaper. Further, in her witness statement Mrs Walsh states that her husband was aware.
- The Judge appears to have decided the s.14 issue on the basis of the second element, namely the requirement that "credit" is given in reliance on the representation. In his judgment he referred to the Nationwide and Sangster cases which I have mentioned, and to the evidence before him. He pointed out that all the funds which are the subject of the Claimants' claim had been advanced for use as bridging loans by the Firm's clients by February 2008, several months before Mr Prior was engaged in October 2008, and that there was no evidence from Mr Walsh or from any of the other Claimants. Then he dealt with the matter succinctly as follows:
"In my judgment the evidence produced does not even begin to cross that threshold [of a real prospect of success]. At best, and this is on a generous reading of the evidence, it shows that Mr and Mrs Walsh were reassured that a specialist conveyancer was on board at [the Firm] to carry out work relating to property transactions, although it is not explained why the claimants were prepared to advance substantial funds when no such property or [sic] specialist was on board. This evidence is nowhere near enough it seems to me.
- He concluded that there was no real evidence of reliance, Mrs Walsh's evidence being "vague, unspecific and wholly inadequate".
- Ms Peacocke first submitted that the Judge erred in reversing the evidential burden for summary judgment, and also applied the wrong test by contrasting unfavourably the evidence adduced in response to Mr Prior's summary judgment application with that available in the Sangster case, which was a trial with the benefit of disclosure, oral evidence and cross-examination. He should have recognised that all the Claimants had to do to defeat the application for summary judgment was to show some "real" (that is, not fanciful) prospect of success.
- Both these criticisms of the Judge's approach are unwarranted. It should be borne in mind that on the s.14 issue he was considering an unpleaded claim which, if pleaded, would require the Claimants to allege that they relied upon the holding out of Mr Prior in respect of a transaction or transactions. Such reliance was a matter peculiarly within the knowledge of the Claimants, and the Judge was clearly entitled (indeed obliged) to have regard to the adequacy of the evidence relied upon in that regard by the Claimants. It is also perfectly clear that throughout his assessment the Judge was applying the correct approach to a summary judgment application ie a "real, not fanciful, prospect of success": indeed he expressly referred to this test at paragraphs 9, 10, 11, 12, 14, 27, and 36 of his judgment.
- On the substance of reliance, Ms Peacocke referred to the following evidence of Mrs Walsh: that the information she obtained from her employment at the Firm was communicated to Mr Walsh (who controlled the other Claimants), that she and Mr Walsh "relied upon [Mr Prior's] involvement as a specialist conveyancing partner throughout the period of his engagement", and that she was aware (and communicated to Mr Walsh) that Mr Prior undertook conveyancing work in relation to transactions that are the subject of these proceedings.
- Ms Peacocke submitted that, contrary to the assessment of the Judge, there was nothing fanciful or unrealistic about this evidence; on the contrary it was credible evidence to the effect the Claimants (through Mr Walsh, by himself and from information provided by Mrs Walsh) were aware that Mr Prior was held out as a partner of the Firm and that Mr Prior personally undertook work on transactions which formed the subject of this action as a specialist conveyancer; it also showed that the Claimants relied upon Mr Prior "as a specialist conveyancing partner" at a time when funds provided by the Claimants were being used as bridging finance and/or were extended after the expiration of their initial terms, and that such funds were "secured by formal documentation prepared or vetted by Mr Prior". This, she submitted, was enough to dispose of summary judgment, even without recourse to the fresh evidence sought to be introduced in the form of a witness statement from Mr Walsh.
- I cannot accept Ms Peacocke's submissions, despite the skill with which they were presented. I share the Judge's assessment of Mrs Walsh's evidence as "vague, unspecific and wholly inadequate". The highest her statement takes the matter is that she and Mr Walsh "were pleased and reassured that there was a specialist conveyancer in the firm responsible for the drafting, registration and implementation of the relevant documentation." As the Judge held, this goes nowhere in evidencing an allegation of reliance on Mr Prior's status as a partner by any of the Claimants, nor does it begin to explain what 'documentation' she is referring to, nor identify any transaction upon which Mr Prior is said to have acted for the Claimants. Similarly, the statement that Mr Prior undertook 'conveyancing work' in relation to transactions 'entered into with funds provided by Martin Walsh', as well as 'the conveyancing work involved when pre-existing transactions were rolled over' is entirely unspecific, and in any event provides no evidence of any relevant reliance by any Claimant in respect of any specific transaction, where the holding out of Mr Prior as a partner is said to have influenced one or more of the Claimants in deciding to enter into the transaction. Nor, in my view, does the addition of the word "partner" later in the statement make any difference:
"Both Martin Walsh and I relied upon his involvement as a specialist conveyancing partner throughout the period of his engagement…."
- In considering whether the evidence gets the Claimants off first base (which is a quite distinct exercise from any attempt to conduct a "mini-trial"), I bear in mind, as the Judge did, that all of the funds in question had been advanced by the Claimants to the Firm some considerable time before Mr Prior had any involvement with the Firm, and so none of those advances could have been in any way influenced by a representation that Mr Prior was a partner.
- Furthermore, as Mr Allen points out, the allegation in the pleading is that the funds were 'rolled over between 2007 and 2010'; in other words this was occurring for a year before Mr Prior had any involvement with the Firm and for a well over a year after he ceased all such involvement. In those circumstances it was hardly surprising that no evidence could be adduced that the Claimants relied upon a representation about Mr Prior's status in relation to any material transaction.
- There is a further point arising from the "rolling over" statement in the particulars of claim. As I have already mentioned at paragraph 11 above, the amended particulars of claim allege that the rolling over was at least in part due to the fact that at various times over the years the Firm had "difficulties in recovering the money from borrowers" with the result that "extensions of the agreed term were sought and accepted several times." This reason for "rolling over" is not consistent with any reliance being placed upon anyone's partnership status.
- In any event, the evidence before the Judge was, as he found, insufficient to show a real prospect of success at trial on this alternative claim. By the time of the hearing before the Judge in November 2013, the Claimants had been on notice of Mr Prior's position (that he was not a partner and was not liable under s.14) for nearly a year. The Judge was therefore entitled to assume that the evidence filed in response to the application for summary judgment was the best the Claimants could do in formulating a claim against Mr Prior.
- The deficient nature of the available evidence is reflected in Ms Peacocke's specimen amended pleading (paragraph 65 above). This is couched in terms of such generality that if pleaded in that form it would be liable to be struck out.
- For these reasons, on the material before him the Judge was entitled to reach the conclusion he did, and I agree with that conclusion.
- As with the email from Mr Prior, I have considered de bene esse the fresh evidence in the form of a short witness statement from Mr Walsh dated 22 May 2014, which Ms Peacocke has sought to introduce in support of this alternative claim. I invited the parties to make submissions as though it had been admitted.
- Mr Walsh refers to the 2005 agreement with the Firm, and states that he was aware from conversations with Mrs Walsh in 2008 that Mr Prior had joined the Firm as a partner in charge of the conveyancing department. He was told by Mr N and Mr T that Mr Prior was a very experienced conveyancer and that he would be handling Mr Walsh's bridging finance facility documentation. He then states:
"I was pleased and reassured that a specialist conveyancing partner would be responsible for the drafting, registration and implementation of the relevant documentation to secure the bridging finance that was being rolled over. I specifically relied upon the fact that Mr Prior was a partner, which indicated to me his seniority and experience and also his assumed responsibility for the conveyancing work of the firm.
…..
I relied upon Mr Prior's involvement as a specialist conveyancing partner throughout the period when funds provided were used as bridging finance after October 2008. Indeed when I began to become concerned that the substantial capital that I had provided to the firm was not being recovered and repaid, I particularly relied upon the fact that the funds were purportedly secured by formal documentation prepared or vetted by Mr Prior as the specialist conveyancing partner of the firm."
- This statement appears to have been prompted by a comment of the Judge in his judgment (see paragraph 73 above). Although produced some six months after that judgment, about one and a half years after the s.14 point was discussed in detail in the January 2013 letter from Mr Prior's solicitors, and nearly two and a half years after the date of the amended particulars of Claim in which Mr Prior was first joined as a defendant to these proceedings (albeit not on the basis of this alternative claim), Mr Walsh's statement is extremely general and lacking in particularity. More importantly it does not begin to make out a case of material reliance on any holding out of Mr Prior as a partner. There is no positive assertion that Mr Walsh or any of the Claimants would or might have done anything differently absent the representation as to his status, even when he began to become concerned about the prospects of repayment. The most that can be derived from it is that Mr Walsh felt reassured because of Mr Prior's specialist skills and seniority. In any event, in the circumstances (including those I have identified at paragraphs 79-82 above), I do not consider that an assertion of reliance upon a representation of Mr Prior's status as partner in relation to "rolling over" transactions, in the sense of an assertion that absent such representation Mr Walsh would or might not have extended a funding arrangement, would have been credible. However, no such assertion is made.
- It follows that in my view Mr Walsh's statement adds nothing to the material before the Judge, and does not assist the Claimants. Even if the statement were admitted, there would be no real prospect of the Claimants succeeding on this point at trial.
- For the same reason (turning now to admissibility) the statement does not satisfy the second criterion in Ladd v Marshall. Further if, contrary to my understanding of it, the statement could be read as suggesting that Mr Walsh was influenced in deciding to enter into one or more "rolling over" transactions as a result of the holding out of Mr Prior as a partner, then the statement would fail to satisfy the third criterion, as it would in that event lack credibility.
- As to the first criterion, namely whether the statement could with reasonable diligence have been put before the Judge, I consider that this criterion, too, is not satisfied. I do not find the explanation for the failure to put this evidence before the Judge, as set out in the further witness statement of Ramandeep Dhadli dated 9 June 2014, at all satisfactory. The facts there stated do not reveal the exercise of reasonable diligence to produce the evidence in time, but rather the contrary.
- For these reasons, and having regard to the overriding objective, I would decline to admit Mr Walsh's witness statement.
Conclusion
- In the light of my conclusions there is no real prospect of the Claimants succeeding against Mr Prior at a trial on the pleaded case or on the alternative unpleaded claim. Nor in my view are the conditions for permission to appeal satisfied. I would therefore refuse permission to appeal from the Judge, and refuse any application to re-amend the amended particulars of claim to include that alternative claim, whether in the form of the draft amendment in Ms Peacocke's skeleton argument or at all.
