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  4. NHBC loses post-dissolution claim against partnership

NHBC loses post-dissolution claim against partnership

11th April 2023

The National House Building Council has failed in an action to cover the cost of remedial works from a partnership, Gavin Henderson Joiner & Builder Contractors, that was dissolved before the date of its demand for payment.

The Sheriff Appeal Court ruled that while the claim had not prescribed, because the obligation in question was one of indemnity for costs incurred in rectifying construction defects in a development rather than one to remedy defective performance, the contract terminated on dissolution of the partnership in March 2010 while the claims were not intimated until 2015 and 2018. Although the action was also raised against the partners individually, the contract documentation did not impose direct liability on the partners.

While the sheriff held that the partnership had not in fact been dissolved at the date claimed owing to its having been re-registered shortly afterwards with the NHBC, the Appeal Court held he had erred in giving undue weight to the surrounding circumstances rather than the evidence of the partners and their advisers, and in concluding that re-registration was inconsistent with dissolution. (Among other reasons, there was a clear rationale in the need to effect the sale of the remaining house plots.) He further erred in stating that a partnership did not cease to exist as a legal entity as at the date of dissolution, albeit the scope of its activities was curtailed. 

For the partnership to be liable, the NHBC would require to show either that it had continuing existence beyond 2010, or alternatively that the obligation had some type of existence prior to dissolution. There was no partnership against which to make the payment demands of 2015 and 2018; and prior to the demands, there was no claim, monetary or otherwise, and the existence of a potential or contingent liability was not an equivalent and did not trigger any obligation. Section 38 of the Partnership Act 1890 did not assist the NHBC’s argument.

As respects the continuing liability of the partners, that depended on liability being established against the partnership. Section 9 of the Act created liability for firm debts “while a partner”; if there was no firm, there could be no partners.

The defenders’ appeal was allowed and the action dismissed.

Read the opinion here.

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