The Court of Appeal has handed down judgment in Titanium Capital Investments Ltd & Ors v Hughes & Ors, a significant decision concerning the obligations owed by former partners under section 29 of the Partnership Act 1890 during the period between the dissolution and winding up. Gardner Leader acted for the successful Appellants in the appeal.
The appeal arose from a dispute concerning a partnership established during the Covid-19 pandemic to supply lateral flow tests. One of the central issues before the Court was the extent to which a supplier relationship may constitute a partnership “business connexion” for the purposes of accounting for benefits derived from that relationship after dissolution. The issue arose in the context of the partnership’s relationship with Acon, the Chinese manufacturer of the lateral flow tests supplied by the partnership.
At first instance, the High Court held that whether something amounts to a “business connexion” is a question of fact and degree to be considered in light of all relevant circumstances. Applying that approach, the High Court concluded that the partnership’s relationship with Acon constituted a business connexion because Acon was selective as to who it supplied, access to Acon’s tests was the “lifeblood” of the partnership’s business, and Acon took steps to prevent customers circumventing the partnership.
The Court of Appeal did not agree this approach and considered in detail how the concept of a partnership “business connexion” should be approached. Whilst recognising the ordinary meaning of the statutory language is the starting point, the Court of Appeal held that it is necessary to look beyond the bare words of the statute and consider the broader principles underpinning section 29, including the circumstances in which fiduciaries may be required to account for benefits obtained through their position.
Although the Court of Appeal accepted that a supplier relationship may, in principle, amount to a business connexion, it emphasised that there must be something about the relationship that is specific or exclusive to the partnership and capable of being realised as part of the winding-up process. The Court of Appeal held that, in considering that question, the focus is on whether there is a business relationship properly regarded as an asset of the partnership, such that the partnership has the right to exploit that relationship to the exclusion of a former partner.
The decision provides important guidance on the obligations of partners to account for post-dissolution business and serves as a reminder that, whilst former partners are generally free to compete with one another following dissolution, disputes may arise where post-dissolution business is alleged to derive from property or assets belonging to the partnership which should be realised in the winding up for the benefit of all former partners.
The Court also allowed the Appellants’ appeal in relation to section 42 of the Partnership Act 1890 and remitted certain issues to the High Court for further consideration.
A copy of the Court of Appeal judgment can be found here.
Lexa Hilliard KC (Wilberforce Chambers), Kate Rogers and Sam Lane (both Radcliffe Chambers) appeared for the Appellants, instructed by Gardner Leader LLP’s Sam Pinder and Kerrie Duffy who led the appeal.
Chris Felton and Elinor Clifford of Gardner Leader LLP also continue in the High Court proceedings.