Case Note
| Published date | 01 December 2011 |
| Date | 01 December 2011 |
| Author | Stephen BULL BA, LLB (Hons) (Wellington), LLM (Harvard); Solicitor (England and Wales), Barrister and Solicitor (New Zealand), Member of the New York Bar; Practice Associate Professor, School of Law, Singapore Management University. |
BINDING SALARIED PARTNERS
Lim Hsi-Wei Marc v Orix Capital Ltd
In an important decision on partnership law, the Court of Appeal recently considered the liability of current and former salaried partners for contractual obligations incurred by the firm. In doing so the court analysed the law applicable to the authority of partners generally. The liability position of salaried partners rests on a different legal basis from that of true partners and the extent of that difference, in particular in relation to obligations incurred after the partner‘s retirement, was at issue.
I. Introduction
1 It has long been common in Singapore, as elsewhere, for law firms and other professional partnerships to include “salaried” partners. Variations on this model include “fixed-share” and “variable-share” partners. While these terms may have a relatively well-understood meaning in those professions, they are not precisely defined as a matter of partnership law.1 From the point of view of the latter, important consequences flow where one either is a partner or is held out as a
partner.2 In Lim Hsi-Wei Marc v Orix Capital Ltd3 (“Orix Capital”), the Court of Appeal, allowing in part an appeal from the High Court,4 canvassed a number of fundamental (and indeed “knotty”)5 issues of partnership law regarding the liability of partners to third parties. Although the defendants concerned were salaried partners, several of those issues are equally relevant to actual partners. They include the extent of a partner‘s ostensible authority and the effect of his retirement on his liability for post-retirement obligations (which in the case of salaried partners appears to raise a novel point).
2 The basic facts were as follows. Chor Pee & Partners (“CP&P”) was a law firm comprising, during the events described below, three principals. Lim Chor Pee (“LCP”), a veteran litigator6 in Singapore, was the founding and dominant principal of the firm; his son, Lim Hsi-Wei Marc (“Marc”), had been a salaried partner since 2001. Rebecca Tai-Yeo Hsiu Erh (“Rebecca”) had practised with the firm since 2003 under a “profit-sharing agreement” whereby she shared profits with the firm on the files on which she worked, but was described as a salaried partner without any participation in the assets and liabilities of the firm.7 That agreement included the usual indemnity against her incurring any liability to third parties as a result of her being held out as a partner.
3 In 2001, CP&P had entered into a lease with a commercial leasing company named Newcourt to rent four Canon-supplied photocopiers. The Newcourt lease was due to expire in 2010 and, if terminated prematurely, the firm would incur a very substantial earlytermination payment to Newcourt. In 2004, under a deal brokered by a Canon sales representative, Orix (another equipment-financing company) offered to replace the Newcourt lease with new copiers leased on different terms, including reduced cash-flow requirements in the first two years. Under a four-way arrangement, Canon would pay off the early-termination payment under the Newcourt lease; that payment was
reimbursed to Canon by Orix and, in effect, added to the sums payable by CP&P under the new Orix lease. Orix‘s offer was accepted and the new lease was entered in August 2004. That agreement (the “Lease”) described the “lessee” as LCP, Marc and Rebecca “practising under firm of Chor Pee and Partners”. The Lease was signed by LCP and Marc (who were described in it as “partners”) but not by Rebecca.
4 In May and June 2005, the firm defaulted on making rental payments under the Lease, and on 7 July, Orix gave notice of termination of the Lease. On 22 July, Orix‘s solicitors sent a letter of demand to the firm (addressed to the three named partners) for payment of approximately $300,000. At that point LCP spoke to Orix, and on 5 August Orix‘s solicitors wrote to the firm offering “reinstatement” of the Lease on condition of payment of the arrears and certain other amounts (and a change to rental payment by GIRO). The time for payment was extended on 23 August (again by letter addressed to the three partners) and on 29 August Orix received payment of the amounts; thereafter it treated the Lease as having been “reinstated”. This agreement, formed on the basis of the firm‘s acceptance (by conduct if not by words) of the written offer of 5 August, was referred to as the “August Agreement”. Meanwhile, Rebecca‘s profit-sharing arrangement had ceased in May 2005 when she became a “senior associate”, and she left the firm altogether by the end of July 2005.
5 The death of LCP in late 2006 swiftly resulted in the demise of the firm.8 This led to a further default on the rental payments in early 2007 and this time Orix terminated the contract and brought an action for breach of contract against LCP‘s estate, Marc and Rebecca (the second and third defendants respectively (the “defendants”)). Liability was admitted by the estate but was contested, on various grounds, by Marc and Rebecca.
6 In brief, in the High Court, Judith Prakash J held that Marc was liable on the August Agreement. It had been made on the firm‘s behalf by LCP at a time when Marc was being held out as a partner. Rebecca, on the other hand, was held not liable, essentially because the August Agreement was entered into after she had ceased to be a salaried partner. The Court of Appeal allowed Marc‘s appeal but rejected Orix‘s appeal in Rebecca‘s case. Accordingly, Orix ultimately failed in its claims against both defendants.
II. The issues
7 This note concentrates on the issues relevant to partnership law. The High Court also had to decide some prior questions, viz, (i) whether the Lease (and consequently the August Agreement) were unenforceable on various contract law grounds, and (ii) whether the defendants‘ liability, if any, arose under the Lease or under the August Agreement.
A. The enforceability of the Lease
8 In the High Court, Marc had raised a number of objections to the enforceability of the Lease (which, if upheld, would also infect the August Agreement). These included claims that the Lease: (a) was a sham; (b) had been procured through the plaintiff ‘s misrepresentation; (c) was procured by undue influence or was an unconscionable bargain; or (d) was void as being in breach of the Moneylenders Act.9 The Court of Appeal concurred with Prakash J‘s dismissal of each of these claims, describing them as “imaginative” and “entirely misguided”;10 it is not within the scope of this note to discuss them further.11
B. The operative contract
9 A crucial issue going to the defences of both defendants was whether the firm‘s liability emanated from the Lease or the August Agreement. Following the 2005 payment default, Orix had notified its termination of the Lease for breach but had then been persuaded by LCP to reverse course and “reinstate” that agreement. Prakash J held that a validly terminated contract was as a matter of law incapable of being revived.12 It was not possible by agreement to effect a revival of the same contract. Orix‘s election to terminate the Lease was final even though it had later compromised its accrued right to pursue remedies by entering into the August Agreement, which contained some new terms (eg, the conditions for “reviving” the Lease) but generally replicated the original terms of the Lease. After 29 August 2005, therefore, the firm‘s liability arose from the August Agreement, which had discharged its obligations
under the Lease.13 Since the parties did not challenge this finding on appeal, the Court of Appeal accepted it for the purposes of the case, although not without commenting that the proposition that a terminated contract cannot be revived “might be questionable”.14
10 This aspect of the decision is potentially of significance for creditors of firms, given the revolving nature of the membership of many partnerships. Purported termination by creditors of agreements with a firm followed by a negotiated “restoration” of the agreement may not be uncommon. Moreover, a similar point may arise where agreements are not terminated for breach but simply expire and are treated as being renewed by conduct.
C. Partnership law issues
11 The Court of Appeal‘s judgment, delivered by V K Rajah JA, essentially discussed three issues:
(a) whether the Lease, and more importantly the August Agreement, were entered on behalf of CP&P as a firm or the three individuals in their personal capacities (the “capacity issue”);
(b) whether the Lease and the August Agreement were transactions entered into within the usual course of the firm‘s business (and thus within LCP‘s authority) (the “authority issue”); and
(c) whether Rebecca, who had retired as a salaried partner of CP&P before the August Agreement was concluded, was nevertheless liable on it pursuant to s 36 of the Partnership Act15 (the “retirement issue”).
12 In the High Court, Prakash J had also analysed in detail whether either Marc or Rebecca was liable under the doctrine of holding out. In view of its findings on the authority and (in Rebecca‘s case) retirement issues, it was unnecessary for the Court of Appeal to decide this question. Nevertheless, the court did make some interesting obiter
comments on aspects of the holding out issue which contrast with Prakash J‘s, and these will also be considered below.16
(1) The capacity issue
13 This issue concerned whether the Lease and the August Agreement were entered into on behalf of the firm or in the individual capacities of the partners.17 If the latter, each agreement would bind only the respective signatories - in the case of the crucial August Agreement, only LCP. The relevant test for the capacity in which a contract is entered is the mutual intention of the parties, objectively ascertained.18 The material facts have been described above.19
14 In relation to the Lease, the phrase...
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