Scottish Court of Session Decisions

At advising on 19th December 1947,—

LORD PRESIDENT (Cooper).—At the material time the pursuer and four other men were engaged in a share-fishing joint adventure. The first defender contributed the boat and her gear, and the pursuer and the three other partners contributed their services as crew. When the vessel with her crew was at sea in pursuance of the joint adventure, her propeller was fouled, and in order to clear the obstruction the defender Mowatt, who was acting as skipper, removed the engine-room floor boards, but (so it is averred) negligently omitted to replace them properly. The pursuer on descending to the engine-room put his foot through the opening on to the revolving shaft and coupling, and was seriously injured. It is conceded that the averments of negligence against Mowatt are relevant. The action as now amended is directed against the five partners in the joint adventure as such (including the pursuer), the pursuer's object being to constitute the debt against the partnership and ultimately to recover from his co-partners the damages awarded, less the proportion thereof which, as one of the partners, he must bear himself.

The competency of the action and the relevancy of the averments have been attacked on a number of grounds, but the issue narrowed to the question of principle: Can a partner hold his firm vicariously liable for a delict or quasi-delict from which he has suffered loss or injury and which has been committed by another partner acting as such in the interests of the firm and within the scope of his implied mandate?

In order to clear the ground, I reject at the outset a distinction which was sought to be drawn between a joint adventure and a partnership proper. For the purposes of the present question I can see no distinction. A joint adventure is simply a species of the genus partnership, differentiated by its limited purpose and duration (which necessarily affect the extent of the rights and liabilities flowing from the relationship), but in all other essential respects indistinguishable from any other partnership. "A joint adventure…differs in no respect except its transient nature…from an ordinary mercantile partnership" (More, Notes to Stair, p, xcviii). "A joint adventure is as proper a partnership as any other" (Bell's Illustrations, vol. i, p. 264). I may also refer to Bell's Principles, section 392; Commentaries, (7th ed.) vol. ii, p. 538; and Maclaren's Practice, p. 270. So far from expressly departing from these common law doctrines, the Partnership Act, by section 32 (b), tacitly accepts them.

I also reject the suggestion that the present claim is in conflict with the doctrine of confusio. It is fundamental to the Scots law of partnership that the firm is a legal persona distinct from the individuals who compose it. This rule, which dates from the seventeenth century, has been expressly preserved by the Partnership Act,section 4 (2), and it is the source of most of our distinctive rules both of substantive law and of procedure (Lorimer, Appendix to Lindley on Partnership, (8th ed.)). One of the leading consequences of the doctrine of the separate persona is the principle that a firm may stand in the relation of debtor or creditor to any of its partners, and the rule of process that a partner cannot be sued for a company debt until that debt has first been constituted against the firm, Neilson v. Wilson . Partners are of course liable jointly and severally in a question with a firm creditor for the obligations of the firm, but the theory of Scots law views them as being so liable only subsidiarie, the partners being in substance guarantors or cautioners for the firm's obligations, and each being entitled on payment of a firm debt to relief pro rata from the others. The matter is so put in Bell's Principles, section 356, and Commentaries, (7th ed.) vol. ii, p. 508, and in the Encyclopedia, s.v. "Partnership," xi, 29.

Consequently it involves no conflict with the doctrine of confusio to allow a partner to take decree against the firm of which he is a partner, because the partner's liability for a firm debt is not a primary liability, and it is one in respect of which he enjoys a right of relief against his co-partners. Confusio does not operate under such circumstances (Gloag on Contract, (2nd ed.) p. 726, and authorities there cited). It is only at the second stage, when the firm debt comes to be met by the individual partners, that confusiowould operate; and it would then operate only to the effect of preventing the pursuer from recovering from his co-partners that proportion of the firm debt for which as a partner he is liable in a question with his co-partners.

So far I am with the pursuer. But it is here that my difficulties begin. It is one thing to say that in Scotland a partner can sue his firm for a debt. It is a very different thing to say that a firm is liable to one of its partners for the negligence of another partner. The researches of counsel failed to elicit any decision or authoritative statement on the point, and I have found none.

The basic principle of Scots law that culpa tenet suos auctoreshas suffered certain exceptions, best justified on grounds of public expediency, of which the liability of a master for his servant is the chief; but even in this field the law has been subjected to innumerable refinements directed to determining the precise conditions on which alone the master's vicarious liability will arise, and there has been erected upon the doctrine of respondeat superior the superstructure of the doctrine of collaborateur, now tottering to its fall. Overlapping the special relationship of master and servant, there is the wider relationship of principal and agent; but, though there are cases enough in which a principal will be held liable for a wrong committed by his agent, it has never been laid down as a general proposition that all principals (as distinguished from masters) are liable for the negligence of their agents (as distinguished from servants) in the execution of their mandate, and this is certainly not the law, least of all when the injured claimant is another agent of the same principal. Mandate and locatio operarum are not the same thing. It is not possible to deduce any universal proposition from the cases dealing with an agent's fraud, for fraud is a deliberate act, normally (though not always) committed for the intended benefit of the principal, and the cases are usually complicated by equitable considerations arising from the lucrum derived by the principal from the agent's fraud, or from the incidental problem, which of two innocent parties must suffer from the fraud of a third. While recognising that a partner is proelig;positus negotiis societatis and therefore in the fullest sense an agent for the firm and his co-partners when acting in pursuance of the firm's business, I can find no warrant for holding that by the common law of Scotland a firm is liable to one partner for injury or loss due to the negligence of another (or indeed due to any wrong committed by another) when acting within his implied mandate—much less when acting beyond the scope of that mandate.

Both in Scotland and in England a firm has long been recognised as liable for wrongs committed by its partners in relation to the firm's business, this being another of the positive exceptions to the rule that culpa tenet suos auctores. But all the examples of this rule are cases in which the party damnified by the wrong has been a third party, and I know of no formulation of the rule which would admit of a like liability where the party damnified was himself a partner of the delinquent. I regard this distinction as critical and of the essence of the rule. When in section 10 of the Partnership Act the liability of a firm for the wrongful acts or omissions of a partner was formulated, the rule was in terms limited to the case where loss or injury had been caused to any person not being a partner of the firm. The Sheriffs, founding upon the reservation in section 46 of the rules of the common law except in so far as inconsistent with the express provisions of the Act, held that a right existing at common law could not be taken away by mere implication. I agree; but I am unable to discover any pre-existing common law right of the nature assumed in the Courts below. Section 10 of the Act is simply declaratory of the common law of Scotland.

Taking the matter on a broader view, if these four members of the crew were the servants of the owner instead of being in partnership with him, the present claim, dependent as it is on the fault of a fellow-servant, could not stand. It would be a little odd if the fact of partnership validated the claim. Equally, it is startling to suggest that, if one member of a business or professional firm were negligently run down by another member who was motoring on the firm's business, the partnership would be answerable.

In the result I find it impossible to affirm for the first time the proposition on which this case rests, and I am therefore for recalling the interlocutor appealed against, sustaining the defenders' second plea in law, and dismissing the action.

The Lord President stated that he had been authorised by LORD CARMONT to say that he concurred.

LORD RUSSELL .—I have had the advantage of considering the opinion just delivered, and I wish to express my entire concurrence with it.

LORD KEITH .—This is a novel action for which neither party was able to cite any precedent. It is plain from the averments and from the instance as now amended that the action is directed against the defenders as partners in a joint adventure. The action is laid upon the negligence of one of the defenders while acting in the course of, and in the interests of, the joint adventure. The pursuer is one of five partners, or co-adventurers, who are said to have been interested in the profits earned by the fishing-boat "Quest" in the proportions of sixteen thirty-sixths to the defender Dr Wood and five thirty-sixths to each of the other three defenders and the pursuer. What exactly the nature of the joint adventure was we are not told, though I assume it was fishing. The respective contributions to the joint adventure consisted of the boat and her gear by the defender Dr Wood, and the services of the other four partners as the crew. The defender Joseph Mowatt was skipper, but it appears that none of the crew drew any remuneration apart from their shares in the profits. The boat was driven by an oil engine, and the injury to the pursuer was caused by his leg being caught in the propeller shaft of the boat, owing, it is averred, to the defender Joseph Mowatt having removed some boards covering the propeller shaft in the engine-room and negligently having failed to replace them. The pursuer avers:

"It was the duty of the said Joseph Mowatt as skipper of the ‘Quest,’ acting on behalf of the whole defenders and the pursuer as joint adventurers…immediately to replace properly the loose boards which he had removed."

This averment of itself makes the nature of the action sufficiently clear, and, in my opinion, in taking action to constitute his claim, the pursuer necessarily had to include himself among the defenders as a partner and an individual. This would appear to be a partnership, or joint adventure, without any firm name. In addition it seems that it has now come to an end. In my opinion, where it is desired to constitute a claim such as the present against such a partnership, all the partners, or at least all the surviving partners, so far as known, should be called as defenders and be designed as partners of a joint adventure that has terminated. This is necessary not only from the fact that a partnership, or joint adventure, has a separate persona by Scots law, but also for the reason that questions of relief may arise as between partners, or the representatives of deceased partners, and in any decree that may pass against the defenders it is proper that the character in which the obligation was incurred should be made clear. In matters of accounting between partners, or other questions arising out of the partnership contract, other rules may apply according to the circumstances of the case, but, where it is sought to constitute a debt, or other claim, for which the partnership as a whole is liable, the appropriate form of instance must be strictly observed. The necessity for observing these rules of procedure was not recognised in the Court below, but, as the position has now been regularised by amendment, the writ is now in proper form.

Taking then this action, as it is intended to be, as a claim against all the partners in a joint adventure, I turn to the substance of the claim. Various lines of approach were tried by counsel for the defenders and appellants in support of his pleas that the action was incompetent, or at least irrelevant. But I doubt whether, on any line, he reached a satisfactory vantage-point from which to explore the case. I notice in passing an argument that this was a joint adventure and not a partnership, and that there is a material difference between the two. If so, it was not made plain to me in what the difference consisted or how it operated in his favour. But there is, in my opinion, no essential difference at all and certainly none that affects the decision of this case. A joint adventure may lack a firm name, its duration may be of a more limited, or transient, character than that of an ordinary partnership, and the circumstances of a joint adventure may restrict the authority of a joint adventurer to pledge the credit of the venture and of his co-adventurers; but these features at most do no more than fix a joint adventure as a species of partnership, and none of them has any bearing on the decision of the case.

The case for the pursuer and respondent is that the partnership is responsible to him for the fault of his fellow-partner. This submission, as I understood it, was based by the pursuer's counsel on the principle of agency. A partner is agent for his firm, and the firm is liable for the consequences of a partner's fault while engaged in the affairs of the partnership. I do not question this proposition in a question with third parties. But, in my opinion, it is not a principle that applies as between the partners themselves. In a question with third parties a partner is prœpositus negotiis societatis, and the liability of the partnership to third parties for the acts or omissions of a partner flows therefrom. But as between themselves the partners are really in the position of principals. Each is prœpositus,with correlative authority and responsibility, except so far as limited by special stipulations or arrangements in the partnership contract. In a question with a servant of the partnership, a partner is not a fellow-servant. The partners are the hands of the partnership, its alter ego as it is sometimes called, controlling and directing the affairs of the partnership. Together they form the partnership and in this respect may be said to occupy a higher plane than directors of an incorporated company who are in a corresponding position and are not to be regarded as fellow servants with the employees of the company. See English v. Wilsons and Clyde Coal Co., and Lennard's Carrying Co. v. Asiatic Petroleum Co. This is a sufficient answer to the contention for the appellants that they were entitled to escape liability on the doctrine of fellow-servant. That is a doctrine that has place only where there exists the relationship of master and servant. If there were any principle on which the partnership could be held answerable for the delict of the skipper of the "Quest," as a partner in the joint adventure, no defence of common employment would, in my opinion, be tenable.

There are wrongs or failures in duty which, when committed by a partner, produce certain legal consequences in a question with fellow partners. These are breaches of the duty owed by a partner to the partnership in the conduct of the partnership affairs. It is immaterial here to consider what is the standard of duty so imposed. It would seem to be lower than the duty expected of a partner in relation to third parties being measured by that diligence which he would show in his own affairs. What it is material to notice is that such failure of duty gives rise to a claim against the delinquent partner by his co-partners for the loss caused to the partnership or to their interests as partners. If, however, the pursuer is right, any such wrong should give the injured partners a claim against the partnership, with contribution to the claim necessarily among themselves. This, in my opinion, is an impossible situation and one that inverts the whole rights of parties. I do not pause to consider whether a delict such as was committed here could give rise to a claim by the other partners against the negligent partner. Unless possibly where some loss was sustained thereby by the partnership, I consider that any such claim is a purely personal claim by the injured party against the negligent party.

Reference was made in the course of the debate to section 10 of the Partnership Act, which reads as follows:

"Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act."

The fact that the section is limited in its operation to loss or injury caused to any person "not being a partner in the firm" may be a recognition of the fact that a firm could not be responsible at common law for loss or injury to a partner by a wrongdoing partner, for the reasons which I have already explained. But, as I have come to a conclusion independently of that section, I do not find it necessary to consider the matter further.

This does not, however, conclude the case. There is one aspect from which the case might be considered but which was not presented at all in argument. It cannot, however, I think, be ignored. Partnership involves community of profit and loss in the business of the firm, and loss properly incurred by a partner in the firm's business is a liability of the firm. A partner must communicate any benefit he acquires in the course of the partnership business or by use of partnership property, and in equity is entitled to be relieved of any loss legitimately incurred in like manner. Erskine, III, iii, 23, in a passage of which part only need be quoted, says of partners:

"If one of them has advanced any sum out of his proper money, upon the common account, or hath suffered any damage by robbery, shipwreck, or other misfortune, while he is managing the company's affairs, the expense so incurred, or the loss so sustained, must be made up to him out of the common stock; and if that is not sufficient to repay it, all the partners must indemnify him out of their proper money, each in proportion to his share of profit and loss."

In Beven on Negligence, (4th ed.) at page 1410 appears the following:

"Where a partner is engaged in partnership business and is thereby exposed to loss, he is entitled to recoupment from the partnership funds; and the opinion of Julian was generally accepted, that, if a partner sustained injury in defending the partnership goods, the partnership should pay the doctor's bill."

These passages are based on the Pandects, and the matter is more fully discussed in Pothier on Partnership (Tudor's Translation, 1854, pp. 93–94). Pothier writes:

"A partner ought to be indemnified by the partnership, not only for the disbursements which he has made and the obligations which he has contracted directly and as principal for the affairs of the partnership; he ought equally to be indemnified from the risks and hazards which he has incurred, when they were unavoidable in carrying on the affairs of the partnership, and he only incurred them for the said affairs; because the partnership, being entitled to all the profits which result from his exertions, it is equitable that it should bear all the risks: ubi lucrum, ibi et periculum esse debet.This has given rise to the question, which has been agitated among the jurisconsults of the two sects, namely, whether one of the partners, having been wounded by the slaves whom he took to sell at a market on account of the partnership, in endeavouring to hinder them from escaping, ought to be indemnified by the partnership for the expense of dressings and medicaments made use of for his cure."

After referring to this difference of opinion Pothier proceeds, "On the contrary, Julian, who was of the school of the Sabinians, held the affirmative, and his opinion has prevailed:…The reason is that the risk incurred by that partner of being maltreated by the slaves was a risk inseparable from their convoy, which he only incurred for the affairs of the partnership and from which he ought consequently to be indemnified by the partnership. For the same reason the same Julian decides that if a partner, in a journey which he makes for the affairs of the partnership, has been attacked by robbers who have robbed him and wounded his servants the partnership ought to indemnify him for what he has lost and the expense which he has incurred for the cure of his servants."

Lastly, there should be noted the language of the Partnership Act. Section 24 provides:

"The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement express or implied between the partners, by the following rules.…(2) The firm must indemnify every partner in respect of payments made and personal liabilities incurred by him—(a) In the ordinary and proper conduct of the business of the firm; or, (b) in or about anything necessarily done for the preservation of the business or property of the firm."

This right to reimbursement is plainly measured by a different standard from that applicable to damages for negligence. The question is, Has it any application to the circumstances of the present case? It has been noticed that Erskine refers to "damage by robbery, shipwreck or other misfortune," and says that "the expense so incurred or the loss so sustained shall be made up to him." By this, I think, he means, not any personal or physical loss or expense unrelated to the affairs of the partnership, but any loss or expense incurred on behalf of, and in the interests of, the partnership. This is borne out by the terms of section 24 of the Partnership Act, which confines the indemnity to payments made and liabilities incurred by a partner. To take the illustration of a shipwreck, if a partner on board the ship, engaged in trade for the partnership, incurred personal outlay or liability in an attempt to salve ship or cargo, I do not doubt but that he is entitled to be reimbursed by the partnership, and this right of reimbursement might entitle him to recover his expenses in returning himself to the seat of the partnership, including any medical expenses necessary to fit him for the journey. If, however, he lost a leg in the disaster, there is no principle on which the partnership would be bound to compensate him for the permanent loss of a leg. It is a loss incurred while engaged in the partnership affairs, but it is a personal loss compensation for which would have no relation at all to the purposes or objects of the partnership. Illness or incapacity, apart from permanent incapacity, to carry out the partnership contract, does not bring about a dissolution of the partnership nor prevent a partner sharing in its profits. Nor have I ever heard it suggested that a partner is thereby entitled to compensation. If illness or accident gives no right to indemnity from the partnership still less can it give a partner such a right where brought about by the negligence of a fellow-partner. In such a case the injured partner has a common law remedy against the wrongdoer personally. He has none, in my opinion, against the partnership. The situation is covered, I think, by a passage in Mayne on Damages, (10th ed.) p. 550, quoting from Story on Agency, section 341, when dealing with the remedies of an agent against his principal:

"But if the losses or damage are casual, accidental, oblique, or remote, the principal is not liable. The agency must be the cause, and not merely the occasion of the loss, to found a just claim for reimbursement."

In the present case the pursuer was engaged, as partner, in the business of the partnership. He was injured, I will assume, by the negligence of a fellow-partner while so engaged. In these circumstances the partnership relationship was, in my opinion, merely the occasion of the pursuer's loss, not its cause, and his claim has no basis on the ground of reimbursement.

The action, in my opinion, fails on relevancy at all points and should be dismissed.