In this regular feature, partners at Reynolds Porter Chamberlain deal with questions sent in by readers. These need not be limited to insurance related matters, but can focus on any area of your activity. In this issue we have queries about partnerships, liability for construction defects and privacy

Q: We do not have a partnership agreement. Do we need one?

Stephen Mayer highlights some pitfalls for partners:
Every morning you and your partners get together to open and talk about the day's post. One morning one of your partners casually remarks that he is off to join a rival firm and hands round a letter simply giving notice of his intention to dissolve the partnership with immediate effect.

After the initial expletive, what would you do? Perhaps you would visit a partnership solicitor for advice. His first question: "Let me have a look at the partnership agreement?" Your answer: "But we don't have one. We are only a small practice, and we have always got along very well."

Your solicitor will then have to explain that the notice was indeed effective to dissolve the partnership. This is because the Partnership Act 1890 - long in the tooth though it may be - says so. No doubt he will then go on to explain some of the practical and financial consequences of a dissolution.

How can this scenario be avoided? By ensuring from the outset you have a properly drawn up partnership agreement specifying in particular how the firm is to be run and the circumstances in which a partner may retire or be asked to leave.

It is beyond the scope of this reply to set out all the terms that should be included in a partnership agreement. However, such an agreement need not be long or cumbersome, but it should contain the following main points:

  • No partner shall be entitled to dissolve the partnership otherwise than in accordance with its terms
  • The proportions in which profits are to be shared and any losses borne
  • Partners' contributions to the capital of the firm
  • Whether goodwill is to have a value - which is less common nowadays - and, if so, on what basis it is to be valued
  • Each partner to be true and faithful to the others and whether the partners are to be prohibited from engaging in other work
  • Arrangements for management of the firm, for example, whether there is to be an executive or management committee with delegated powers; which decisions are to be reserved to the partners and, perhaps in some cases, require special majorities; and any restrictions to be imposed on the authority of individual partners
  • The period of notice required to be given by a partner who wishes to leave
  • The circumstances in which a partner may be required to depart, whether on notice, in which event this will usually be by the decision of a specified majority, or in cases of misconduct
  • Payments to be made to an outgoing partner
  • Any restriction on a departing partner including restrictions on soliciting clients, restrictions on acting for clients, restrictions on competing with the firm within a particular area and restrictions on soliciting partners or staff. (Such restrictions will be enforced only if held to be reasonable)
  • Normally, a requirement for any dispute to be settled by arbitration.

    The agreement will need to be tailored to suit the individual circumstances of the partnership, and it is important for advice to be taken on its terms.

    Armed with such an agreement you will have a framework for managing the firm and considerably lessen the chances of a dispute. But one last tip. If you are thinking of asking a partner to leave then, whether or not you have an agreement, seek advice before you take the plunge rather than afterwards.

    Stephen Mayer heads Reynolds Porter Chamberlain's partnership law team.

    Contact him on sdm@rpc.co.uk .


    Q: We are insurance brokers for a builder who has just received a claim from the owner of a warehouse, which he built ten years ago. There was a serious fire at the warehouse and the owner is threatening to sue the builder on the grounds that construction defects caused the fire to spread. Is the builder potentially liable? What should we do?

    Richard Moody offers some hot tips when fire fighting for clients:
    This situation arises all too often and generates a variety of legal problems. Here are some of the key points to watch for :

  • Make sure that the claim has been properly notified to the relevant insurers straight away. All other policy conditions should be complied with. You will need to investigate the nature of the claim, particularly whether the alleged defect is design, workmanship or materials related. This will have a bearing upon which (if any) policy the claim will come under
  • The task of defending your builder will be a lot more difficult if the claim is made in contract. Check for limitation; if the contract was under seal (12 years) the claimant is still in time. Look for any collateral warranties the builder may have signed. These are often assignable
  • If there is no valid contractual claim, the claim will be in tort. The authority, that is really going to help you, is Murphy v. Brentwood District Council [1990]. This says that, where there is no contractual relationship with the claimant, a builder is not liable in tort for the cost of remedying defects in the building itself. This is "pure economic loss", which includes the loss of the warehouse itself. The builder remains liable for physical damage to other property, such as the building contents
  • Find out whether the building defect was latent or patent. The builder's duty to take care to avoid damage to property (other than to the building itself) extends only to latent defects. It does not extend to patent or obvious defects. Furthermore, a defect is not latent if it is reasonably discoverable by the exercise of due diligence (see Baxall Securities v Sheard Walshaw Partnership [2002]. Here, the claimant would be expected to have surveyed the warehouse before buying. If the defect should have been spotted, there is no duty of care and/or the chain of causation is broken
  • On causation, find out what the proximate cause of the fire was. The builder will need the fire brigade report, and his own independent experts at an early stage. Has the building been properly maintained or, alternatively, altered in some way that may have contributed to the spread of fire? Are there any other parties who may be insured and who may have to make a contribution under the Civil Liability (Contribution) Act 1978?
  • In order to be recoverable in tort, the type of damage must have been reasonably foreseeable as a consequence of the breach of duty at the time when the breach was committed. What was the intended use of the warehouse at the time of construction? You will be in a better position if a warehouse constructed for storing bricks was being used to stockpile high quality antique Persian carpets.

    These comments should help to point you in the right direction. There is a lot of work to be done but, by investigating the right issues with the right experts, you can create a solid foundation from which to defend the builder.

    Richard Moody is a partner in Reynolds Porter Chamberlain's construction and physical risks department. Contact him on rpm@rpc.co.uk

    Q: We've always thought that there was no privacy law in England, but recent cases reported in the press suggest otherwise. Can people now sue when their privacy is infringed? Should we be arranging cover for our clients to protect them against privacy claims?

    Keith Mathieson reveals how the law of privacy has expanded in recent years to offer greater protection:

    It was little more than ten years ago when reporters from the Sunday Sport paid an unauthorised visit to the private hospital room of television actor Gordon Kaye. When Kaye sued the paper, he was told in no uncertain terms by the Court of Appeal that English law could do little to help him: no right of privacy was recognised by English law.

    Things have changed since then. There are now laws protecting privacy in all but name. The expansion of the law of breach of confidence, coupled with the introduction of the Human Rights Act, which incorporates the right of privacy contained in Article 8 of the European Convention on Human Rights, means that privacy claims can no longer be shrugged off.

    Specialist media insurers are aware of the issue. Most media policies cover claims for breach of confidence, which can include claims in respect of all kinds of unauthorised disclosures, from kiss and tell stories to leaked takeover documents.

    Some claims against the media have been widely reported. Model Naomi Campbell spent a week in court last month complaining that her privacy had been infringed by a story in the Mirror about her drugs problem (thereby making sure we all got to hear about it). Judgment is awaited.

    The Court of Appeal told a Premiership footballer, for the time being anonymous pending a possible appeal, that a tabloid was free to publish revelations of his extra-marital affairs.

    In the meantime, Catherine Zeta Jones and Michael Douglas are suing Hello! for printing what they say are unauthorised pictures of their private wedding.

    It would be a mistake to imagine privacy is just a matter for celebrities and the media. The emerging rights of privacy protect everyone against certain kinds of unwelcome intrusions. It can be anticipated that privacy claims of all kinds will increase in the near future and the insurance market will be expected to respond. Employees may claim against employers; patients against doctors; householders against local councils.

    Brokers should now seriously consider whether their business and institutional clients are adequately covered for these potential new liabilities.

    Some of the most interesting future developments in the privacy field lie in the area of data protection. Lawyers are becoming increasingly aware of the potential for bringing claims for damages under the Data Protection Act. Even Naomi Campbell claimed that her data protection rights had been infringed when the newspaper had published "information" about her membership of Narcotics Anonymous. The liability insurance market should keep its eye on these matters: threats, but also opportunities, abound.

    Keith Mathieson is a partner in the media department of RPC, which represents publishers, broadcasters and media insurers. Contact him on kam@rpc.co.uk .

    Send us your queries
    Keep sending us your queries. The legal surgery is co-ordinated by Stuart White, a partner in Reynolds Porter Chamberlain's insurance and reinsurance department.

    If you need further information about the above topics, please email the partner concerned. If you have a legal query about another topic, email Stuart White at sgw@rpc.co.uk and the appropriate person at RPC will contact you to discuss it.

    The initial discussion is free of charge. Depending on the query, either the discussion should be enough to sort it out, or there may be a need for further work, in which case you would be free either to make arrangements with RPC or to instruct any other firm.