Partnership – fraud – misrepresentation – professional negligence

Appeal by the defendants (X) from the decision of Deputy Master Mark giving summary judgement in favour of the claimants (Y). X were partners in an accountancy practice (the firm). The senior partner (G) committed a series of frauds against a client by forging her signature on five stock transfer forms for the sale of shares in a company (W). The forms were sent to a stockbroking firm, in which Y were partners. The London Stock Exchange or the registrars of W asked the stockbrokers to confirm the genuineness of the signatures, which they did. The sale of the shares was registered and G received the proceeds. A subsequent claim brought by the client against W was compromised and W then sued, amongst others, Y. In the instant action Y sued X for their loss in paying W. X submitted that it had a real prospect of successfully defending the claim on several bases, including that G’s fraudulent acts were not carried out in the ordinary course of the firm’s business and that W’s loss was caused by Y’s inadequate investigation as to the genuineness of the signatures.

HELD: There was no basis for a defence that G’s acts were not in the ordinary course of the firm’s business. X accepted that it was common knowledge that it was part of the ordinary business of many accountancy firms to buy and sell shares on behalf of clients, and their own evidence was that the firm did so for some of its clients. Nor could it be seriously argued that the negligence of Y broke the chain of causation between G’s acts and Y’s loss. G was guilty of fraudulent misrepresentation and his partners were therefore labile to the same extent. There could be no serious dispute that G intend Y to rely upon his fraudulent misrepresentation. X had no real prospect of a successful defence.

Appeal dismissed.

“Lawtel”: 29.12.03