Crouch and Lyndon (a Firm) v IPG Finance Australia Pty Ltd & Anor

This decision is a very important decision on the liability of partners for the tortuous or wrongful acts of other partners.  It concerns the difficult question of whether or not an act of a partner which has exposed the partnership to a risk of liability was or was not done within the scope of the authority of the partner?  Although the facts of the matter are complex, at their simplest a partner of a firm misappropriated funds entrusted to him by a client for the purposes being used in a mortgage lending business.  That said, the partner receiving the funds was purporting to use them as part of certain mortgage broking activities which he was unlawfully undertaking.  The appeal concerned the question of the liability of the remaining partner under ss 13 and 14 of the Partnership Act or in negligence?  Under s 13 the question was whether or not the defaulting partner had committed “a wrongful act” in the ordinary course of the business of the partnership.  The wrongful act alleged was that of making representations about the ability of the firm to assist the clients to run a mortgage lending business and certain representations that there existed various borrowers who entered into loan transactions.  These transactions were, in fact, shams.  It was accepted by the trial judge that the other partner in the firm was not aware of the mortgage lending activities conducted by the errant partner and that the errant partner’s conduct was not authorised by the innocent partner.  The Court held that the alleged breaches of contractual warranties were not wrongful acts in the ordinary course of the firm’s business and in determining that issue it was necessary to identify what is the business of the partnership and what were the nature of the alleged acts and the circumstances in which they occurred.  It was held that even if the acts done were the same type of acts done in the firm’s ordinary business, if the purpose of doing the acts was not in pursuit of that business then the acts would not be authorised so as to expose the innocent partner to liability.  The Court also dealt with the position where the acts of the errant partner are not apparently outside the scope of the partnership business or solely for the benefit of the individual partner.  In the circumstances of the case it was held that the actions of the errant partner were within the scope of the partnership business and binding on the innocent partner.