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Partners in crime

If you are in business as a partnership, you probably know that you are bound to honour your partners' contracts - even if you would not have agreed to the terms if you had been involved. You are also liable for debts incurred by your partners if they are carrying on the ordinary business of the firm - even if they are doing it negligently. It's the most worrying aspect of partnership, and it underpins the need for openness, trust and good communications between all members of a partnership.

In a recent case, the House of Lords held that this went a stage further. Innocent partners were held liable to pay someone who was damaged by a member of the firm's dishonesty. They argued that they should not be responsible for dishonesty when they themselves were not dishonest, and being dishonest was not 'carrying on the ordinary business of the firm'. The Lords disagreed. What the partner did was close to what he normally did, but was done for an improper purpose. It was right to treat it as within the business of the firm, and his partners had to pay.

This is an even more striking reminder that you need to trust your partners!

The case is Dubai Aluminium Co Ltd v Salaam and Others, and it is written up in Accountancy, February 2003 p92.