What’s your partner up to?

The principle that a partner can be liable for the wrongful acts or omissions
of a fellow partner is widely known. What is less understood is the extent to
which that liability can extend to activities carried out by a fellow partner
which are both unknown to the partnership and fraudulent.

The recent decision in Goldberg & Oths v Foster Squires brings into sharp
relief the risks of partnership and raises warnings that any accountant would be
well advised to heed.

In Goldberg the court found that two accountants (M and B) in partnership
with a third accountant (X) were liable in negligence and deceit for losses
suffered as the result of negligent investment advice provided by X. That advice
was given in furtherance to a multi-million pound (Ponzi) fraud committed by X
against third parties, including clients of the firm.

A principal part of M and Bs defence was that (i) X was not authorised to
provide investment advice by the Financial Service Authority and the firm
itself, (ii) the partnership did not give investment advice of the type provided
by X, and (iii) a reasonable person would not have believed that the advice
given by X was being given by him as an accountant. As such, the firm should not
be liable for the wrongful acts of X who was engaged on a frolic of his own.

In Goldberg there were particular facts that assisted the claimants. The
letter paper of the firm had the printed words “Regulated by the FSA in the
conduct of investment business”. It did not seek to identify those partners who
conducted such business. Further, the website of the firm included statements
that it provided “investment advice”, again without qualification. However, of
general importance were the court’s findings that (i) it is in the ordinary
course of the business of an accountant to express a view as to the risks
associated with an investment (it matters not whether for regulatory purposes
they should or should not be giving such advice), and (ii) where no limitation
on a partner’s authority to give investment advice is drawn to the attention of
any actual or potential client, it is not unreasonable for such a person to
proceed on the basis that the partner is able to give such advice.

The lessons provided by the decision in Goldberg are clear. The first, and no
doubt widely practised, is to ensure that checks and balances are in place to
prevent an accountancy practice’s good reputation being utilised in a fraud.

However, liability may arise not only on the basis that advice was given
fraudulently, but simply negligently. Therefore, the particular guidance that
follows Goldberg is (i) If an accountancy firm provides investment advice, it
should take steps to delineate which partners or employees are authorised to
give such advice and to make that known to its clients, and (ii) if a firm does
not provide investment advice as part of its ordinary course of business, it
should make that position clear to its clients and the public, if it hopes to
avoid liability for a maverick or over enthusiastic colleague providing such

A failure to heed such warnings may lead to a partner being liable for advice
being provided by a fellow partner, which the innocent partner was not aware was
being proffered and was understood, at least internally, not being given.

Further, while limited liability partnerships may reduce a personal
liability, hard won professional reputations (and increased insurance premiums)
remain at risk.

Geraint Jones QC & Marc Glover of Tanfield Chambers are counsel for
the claimants in Goldberg & Oths v Foster Squires

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