Partner fails in damages claim

A FORMER partner in City firm Malkin Janners, which is in the final stages of winding up, has failed in a High Court damages claim against fellow partners.

The case spotlighted questions of travel expenses being used by partners for personal rather than business travel.

Mr Justice Carnwath dismissed the action brought by Robert Hurst and ruled that Hurst was liable to his former partners for continuing liabilities resulting from the partnership.

The original claim was against 19 Malkin Janners partners but the judge said that terms had been agreed with five of them.

A dissolution agreement regarding the troubled firm was signed in October 1990 by all the partners except Hurst, said the judge.

He said that since then a number of the partners had formed a new practice under the name Malkins, several others had joined Reynolds Porter Chamberlain and Hurst joined DJ Freeman in November 1990.

However, in his action Hurst claimed among other things that the Malkin Janners management committee had been in breach of duty to him by budgeting for “excessive expenditure on travel, entertainment, promotional parties, cars and office premises and generally failing to take steps to secure a balanced budget”.

He said the partnership had been wrongfully repudiated without his consent and sought damages for alleged wrongful repudiation.

Mr Justice Carnwarth, referring to the travel expenses issue, said it was a “curious feature” of the Malkin Janners expenses regime that there was no clear distinction between expenditure for business purposes and for other personal purposes.

“Thus, it appears it would have been immaterial to the partnership whether a particular partner spent his travel allowance on, say, visiting a legal conference specifically for the purposes of his practice, or taking his family to a holiday in Greece,” said the judge.

He said the “odd effect” of this would have been that partners who had a significant element of work in foreign practice and needed to spend money on foreign travel for the purposes of business, would have been at a disadvantage in terms of the amount available for personal expenditure, compared with those whose practices were exclusively office-based.

The judge said the firm's accountant said expenses were intended to be solely for business purposes and accounts had been submitted to the revenue on that basis.

However, the judge said he was not surprised by the revelation that some of the expenses had been used for personal purposes, because, “in the real world many businessmen, small and large, endeavour to get away with expenses to the best of their abilities without necessarily being fully business expenses and it's the way of the world”.

Dismissing Hurst's claim, the judge said substantial losses had been incurred as a result of his involvement in the partnership and these losses had been incurred largely by other partners.

“However, that unfortunately does not alter the fact that he was a member of the partnership, and therefore must share in the responsibility for its fortunes or misfortunes,” he said.