Keenan and Riches’BUSINESS LAW

Chapter 5Non-corporate organisations – sole traders and partnerships

Relationship of utmost good faith

It is a basic principle of partnership law that each part-
ner must treat his co-partners with utmost fairness and
good faith. An example of bad faith in this context is, as
we have seen, Blisset v Daniel(1853), above.
The principle of utmost good faith is not set out as
a general proposition in the 1890 Act. The Act does,
however, set out certain areas to which the good faith
principle is applied. They are as follows:

1 The duty to account.Section 28 requires every partner
to give true accounts and full information regarding all
things affecting the firm to any partner.
This is a positive duty to disclose facts. It is not
merely a negative dutynot to misrepresent facts.
As the following case shows, silence can amount to
misrepresentation as between partner and partner.

Under s 29 each partner must also account to the firm

for any benefit he has had without the consent of the

other partners from any transaction concerning the firm

or from any use by him of the partnership name or cus-

tomer connection. An illustration is to be found in the

following case.

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Lawv Law (1905)

Two brothers, William Law and James Law, were part-

ners in a woollen manufacturers’ business in Halifax.

William lived in London and did not take a very active

part in the business and James offered to buy William’s

share for £10,000. After the sale William discovered that

certain partnership assets, that is money lent on mort-

gage, had not been disclosed to him by James. William

brought an action against James for misrepresentation.

The court decided that there was a duty of disclosure

in this sort of case and the action was settled by the

payment of £3,550 to William, which he accepted in dis-

charge of all claims between him and his brother.

Conlon v Simms (2006)

The case involved a partnership of City solicitors, Bower

Cotton. Paul Simms, a senior partner, had been sub-

ject to investigation by the Office for the Supervision of

So far as s 28 is concerned, the 1890 Act makes clear
that the duty arises once the parties are in fact partners
but at common lawthe duty of disclosure arises also at
the negotiation or pre-contract stage of the arrange-
ments. This has never been made clear in partnership
law but the following decision states quite clearly that
the duties of disclosure are also pre-contractual.

Solicitors for alleged dishonesty involving his clients’

bogus investments and money laundering schemes.

Mr Simms began negotiating a new partnership agree-

ment with the claimant, Michael Conlon, after a number

of partners left Bower Cotton. Mr Conlon knew that there

was an investigation but he was assured by Mr Simms

that he had not been dishonest. However, later the

Solicitors Disciplinary Tribunal decided that he had been

dishonest and he was struck off.

The claimant asked for damages on the basis that Mr

Simms owed him a duty of good faith at common law

and that he had breached that duty by failing to disclose

matters which might affect his entitlement to practise.

Mr Conlon said that he would not have entered into

the partnership agreement if he had known about Mr

Simms’ dishonesty.

Mr Simms contended that he did not have a duty

of good faith or disclosure before he and Mr Conlon

became partners and, further, since he knew of the in-

vestigation there was nothing more to disclose.

The High Court did not accept these contentions. The

duty of good faith and disclosure extended beyond

actual partners to prospective partners. There was sup-

port for this view in Bellv Lever Bros(1932), where Lord

Atkin had stated in his judgment that such a duty existed

towards an intending partner. This did not settle matters

at the time because the case did not concern a partner-

ship but was dealing with the fiduciary duty of directors.

The fact that Mr Conlon knew of the investigation was

irrelevant. He did not know of its outcome. In addition,

while mere nondisclosure leads only to the contract

being avoided, where the failure to disclose is fraudulent,

i.e. deliberate and dishonest or reckless, there is an

action in deceit for which damages are also available as

a remedy.

Comment.Lindley on Partnership, the standard practi-

tioners’ work, states that the duty of disclosure is pre-

contractual also. The judge noted this but said that it did

not settle the matter because the decisions quoted in

Lindleydid not support the conclusion. This decision

does clear up the matter of pre-contractual disclosure.