Court considers common form indemnity provision in partnership agreement (Wood v Priestley and another)

Court considers common form indemnity provision in partnership agreement (Wood v Priestley and another)

Mark Cawson QC of Exchange Chambers, assesses the practical implications of the judgment in Wood v Priestley concerning the interpretation of an indemnity clause in a partnership agreement between a salaried partner and the equity partners.

Original news

Wood v Priestley and another [2016] EWHC 2986 (Ch), [2016] All ER (D) 04 (Dec)

The Chancery Division dismissed the claimant insolvency practitioner’s claim for an indemnity arising out of a partnership agreement. The court held that, on the true construction of the agreement, the partners of the firm in which the claimant worked were not bound to indemnify him in respect of the costs and expenses and/or any award made regarding an allegation that he and another had been guilty of misfeasance and/or in breach of fiduciary duty.

What are the practical implications that those advising can take away from this case

Essentially, the judgment in this case provides:

  • guidance as to how an indemnity in an agreement between a salaried partner and the equity partners ought to be construed, and
  • guidance as to the circumstances in which a trustee might be entitled to an indemnity

What was the background to this case?

The claimant and another were salaried partners in the Poppleton and Appleby Partnership (the Partnership), of which the defendants were the equity partners. The Partnership carried on insolvency work. The defendants were not licenced insolvency practitioners, whereas the two salaried partners were. Consequently, appointments as administrators and liquidators in a large number of companies were taken by the salaried partners. The claimant’s agreement with the defendants (the Partnership Agreement) provided that he held the appointments on trust for the defendant. The Partnership Agreement also provided (by clause 11) for the defendants to indemnify the claimant against certain liabilities and to take all reasonable endeavours to effect and maintain professional indemnity insurance covering the professional negligence of the claimant.

The claimant and the other salaried partner were removed as liquidators of a company that they had been administrators of and subsequently liquidators of, and replaced by new liquidators. The new liquidators commenced proceedings against the claimant and the other salaried partner (but not the defendants) alleging that fees has been dishonestly charged to the company in administration and liquidation, including fees pai

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.