Supplier “Business Connexion” Under Partnership Act 1890 s.29 Requires a Partnership Asset; s.42 Does Not Apply Where Both Ex‑Partners Trade Post‑Dissolution

Court: England and Wales Court of Appeal (Civil Division)
Neutral citation: [2026] EWCA Civ 976
Date: 28 July 2026
Appeal from: Richards J, Business List (ChD), [2025] EWHC 682 (Ch)
Judges: Newey LJ; Snowden LJ; Falk LJ

1. Introduction

The appeal arose out of a short-lived at-will partnership formed in 2020 to sell Covid-19 lateral flow tests (“LFTs”), trading as “Hughes Healthcare”. The partnership, between Mr Hughes and Mr Manduca, dissolved in June 2021. In the “twilight period” between dissolution and final winding up, both sides (directly and through associated companies) continued trading in LFTs. A central dispute was whether, and to what extent, post-dissolution profits—particularly profits said to exceed £17m on a large Danish Government supply—had to be accounted for to the dissolved firm.

The appeal focused on the construction and application of the Partnership Act 1890, especially: s.29 (accountability for private profits derived from partnership property/name/business connexion); s.38 (post-dissolution authority limited to winding up and completing unfinished transactions); and s.42 (outgoing partner’s right to share profits where continuing partners carry on the business using partnership capital/assets).

The Court also addressed (i) unlawful means conspiracy and (ii) knowing receipt claims arising out of alleged appropriation of partnership opportunities/assets, and the proper approach where closing submissions were thin on a pleaded claim.

2. Summary of the Judgment

2.1 What the Court decided

  • Section 42 (1890 Act): The appeal was allowed. s.42 was held to require an identifiable set of “continuing partners” carrying on “the business of the firm” and an “outgoing partner” who is not. A partner cannot be both. Where both former partners pursue trading post-dissolution, s.42 does not readily apply on a “fragmented business” basis.
  • Mr Hughes’ counterclaims (unlawful means conspiracy and knowing receipt): The Court held the trial judge should not have dismissed these pleaded claims merely because submissions on key elements were insufficient. The conspiracy claim was to be remitted for determination. As to knowing receipt against Titanium Capital Investments Ltd (“Titanium”), the Court itself determined liability and held the claim succeeded (knowledge imputed via its sole director/shareholder).
  • Section 29 (1890 Act) – “business connexion” with supplier: The Court split. Newey LJ would have upheld the trial judge’s broad approach and treated the supplier relationship (Acon) as a “business connexion”. Snowden LJ and Falk LJ (majority) disagreed: they held that, particularly post-dissolution, a supplier relationship will only be a “business connexion” if it is properly to be regarded as a partnership asset (in substance: some exclusivity or special access/terms referable to the partnership). They would allow the appeal on “business connexion” and remit that issue (and parasitic claims) for decision under their principles.

2.2 Practical consequence

The decision narrows (on the majority approach) the circumstances in which post-dissolution profits from dealing with a former supplier can be brought into account under s.29 as “use of … business connexion”, and confines s.42 to classic “continuation by some, exclusion of others” situations rather than mutual post-dissolution competition.

3. Analysis

3.1 Statutory framework and the “twilight period”

The judgment emphasises that dissolution does not instantly end all partnership obligations: s.29 continues to bite (including after dissolution), but s.38 simultaneously constrains the dissolved firm to winding up and completing transactions begun but unfinished “but not otherwise”. The result is a tension: former partners may often compete for new business post-dissolution, yet remain constrained from appropriating assets that must be realised or dealt with in winding up.

3.2 Precedents cited (and how they shaped the reasoning)

A. Interpreting codifying statutes and the relevance of pre‑Act law

  • Bank of England v Vagliano Brothers [1891] AC 107 was used to frame statutory interpretation: start with the text, but earlier law may assist where wording is doubtful or technical. Both Newey LJ and the majority treated “business connexion” as ambiguous enough to justify historical and equitable context.
  • Section 46 (“Saving for rules of equity and common law”) supported reading s.29 in the light of pre‑1890 partnership/equity principles rather than as entirely self-contained.

B. Fiduciary “no conflict/no profit” principles and partnership accountability

  • Chan v Zacharia (1984) 154 CLR 178 (Deane J) supplied the conceptual structure of the “no conflict” and “no profit” rules, relied on in Don King Productions Inc v Warren [2000] Ch 291 (a partnership case decided on equitable principles without citing s.29). This underpinned the view that partners’ accounting duties can extend beyond dissolution where profits are sufficiently connected to the fiduciary position.
  • Recovery Partners GP Ltd v Rukhadze [2025] UKSC 10, [2026] AC 209 was used to refine the “sufficient connection” test and to distinguish legitimate post-termination competition from exploitation of position, information or opportunities. The majority invoked it to justify requiring something more than mere repeat dealing with a supplier.

C. Goodwill, customer connection, and “business connexion”

  • Willett v Blanford (1842) 1 Hare 253, Trego v Hunt [1896] AC 7 and IRC v Muller & Co.'s Margarine Ltd [1901] AC 217 were used to link “connection/connexion” to goodwill and to explain why soliciting old customers (or misusing customer lists) is classically treated as misappropriating goodwill.
  • John Taylors v Masons [2001] EWCA Civ 2106 illustrated that a “business connection” can include a relationship with a licensing authority (not only customers), and that post-dissolution opportunities linked to partnership assets can be held for the partnership. The Court, however, treated the supplier question here as materially different.

D. Supplier relationships and accounting liability

  • In re Jarvis [1958] 1 WLR 815 was debated as a supplier-connection analogue; the majority regarded it as primarily a goodwill/premises case (trustee context) and not strong authority that ordinary supplier dealings alone create an accountable “business connexion”.

E. Section 42 authorities

  • Hopper v Hopper [2008] EWCA Civ 1417 provided the classic explanation of s.42: continuing partners carry on the firm’s business using partnership capital/assets without a final settlement.
  • Pathirana v Pathirana [1967] AC 233 confirmed s.42 can apply even where only one partner continues (two-partner firm), but the Court distinguished that from a scenario where both ex-partners trade separately.
  • Duncan v The MFV Marigold PD145 [2006] SLT 975 was cited on overlap: s.29 concerns benefits derived; s.42 concerns compensation for use of outgoing partner’s capital.

F. Unlawful means conspiracy and pleaded-claim disposal

  • OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC 1 (Lord Hoffmann) framed the “intention to injure” element (distinguishing end/means/foreseeable consequence). The trial judge used this to uphold the conspiracy claim against Mr Hughes’ side but dismissed the counterclaim for lack of submissions; the Court of Appeal held the pleaded counterclaim still required merits determination.

G. Knowing receipt

  • El Ajou v Dollar Land Holdings [1994] 2 All ER 685 supplied the three elements of knowing receipt (breach of fiduciary duty; traceable receipt; requisite knowledge).
  • Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 supplied the knowledge standard: whether it is unconscionable to retain the benefit. Applying that, the Court found Titanium liable because knowledge was that of its sole director/shareholder.

3.3 Legal reasoning and the new principles

A. Section 29 “business connexion”: majority vs minority

(i) Newey LJ (minority on this point)

Newey LJ preferred a meaning tied to relationships with third parties “of value (or potential value)” to the partnership and contributing to goodwill; supplier relationships can qualify if they are not generally accessible and are of real value to the business. On the facts found at trial—supplier selectivity, referrals of circumvention attempts, and the partnership’s reliance on that source—Newey LJ would treat the supplier as a “business connexion” even absent formal exclusivity, leaving apportionment (“derived from”) to Trial 2.

(ii) Snowden LJ and Falk LJ (majority)

The majority held the trial judge’s approach was overly literal and insufficiently anchored in equitable/partnership concepts preserved by s.46. Their central move was to tie “business connexion” to something that can properly be regarded as an asset belonging to the partnership, akin to how equity treats certain information/opportunities as partnership “property” where excludable as against the partner.

For supplier relationships post-dissolution, the majority stressed:

  • mere historic trading with a supplier does not make the supplier “belong” to the partnership;
  • post-dissolution, the partnership cannot take on new work (s.38), so liability must be grounded in misuse of a realisable partnership asset (eg, an exclusive/special supply right, preferential access/terms, or other “special treatment” referable to the partnership);
  • in the absence of such an asset capable of being realised in winding up, ordinary post-dissolution sourcing from the same supplier will not usually be “use of … business connexion”;
  • careful separation is needed between a partnership relationship and an individual’s personal rapport with supplier personnel.

On the facts, the majority was sceptical that the supplier relationship met this threshold, noting substantial supply to other entities (including a distributor in which the other partner had a secret profit interest) and the lack of unfinished supplier-related transactions. They therefore would allow the appeal on “business connexion” and remit for redetermination under their test.

B. Dissolution as a limiting principle (s.38’s role)

A key analytical advance is the majority’s insistence that dissolution changes the normative baseline: after dissolution, partners may (absent restraint) compete for new business. Therefore, for s.29 to catch post-dissolution conduct, it is not enough that the former firm once had a trading relationship; there must be exploitation of something that remains a partnership asset to be wound up (or an interference with the winding up/completion of unfinished transactions).

C. Section 42: no “dual status” and no “fragmented continuation”

The Court (Newey LJ with agreement from the majority) held the judge’s approach to s.42 was legally wrong. Section 42 presupposes: (1) some partners carry on the business of the firm using partnership capital/assets without final account settlement, and (2) another partner is “outgoing”. Where both ex-partners trade post-dissolution for themselves, s.42 cannot be applied by treating each as “continuing” in relation to one slice and “outgoing” in relation to another. The appropriate remedy, where available, is via s.29 (and equitable principles), not by stretching s.42.

D. Procedural fairness: pleaded claims should be determined on the merits

The Court criticised an approach that treated claims as failing simply because closings did not fully grapple with each ingredient. Where claims are pleaded, evidence has been adduced, and the judge knows the claim is not abandoned, the judge should determine it on the merits (or, if necessary, manage the deficiency by inviting focused submissions). This drove:

  • remittal of Mr Hughes’ unlawful means conspiracy counterclaim; and
  • the Court’s own determination that the knowing receipt counterclaim against Titanium succeeded.

3.4 Impact

A. Post-dissolution competition vs accounting duties

The majority approach recalibrates s.29 in the post-dissolution setting: it reduces the risk that ordinary re-entry into the market—buying from a former supplier on ordinary terms—automatically triggers accounting, and instead focuses on whether a partnership asset (special access/terms, excludable relationship, confidential information, or an unfinished transaction/opportunity that must be dealt with in winding up) has been exploited.

B. Supplier “connections” are not presumptively partnership assets

Many trading partnerships rely on key suppliers. This decision indicates that, absent exclusivity or special supply rights/terms attributable to the partnership, the supplier relationship may be insufficient as a “business connexion” under s.29—particularly after dissolution when the firm cannot take new business under s.38.

C. Narrowing s.42 and encouraging correct pleading of remedies

Litigants are steered away from using s.42 as a general “post-dissolution profit share” tool where both parties have moved on to separate ventures. The decision reinforces that s.42 is targeted at continuation by some using partnership capital/assets without settling accounts, not mutual competition.

D. Corporate recipients and imputed knowledge

The knowing receipt ruling against Titanium underscores the vulnerability of closely-held companies used as “repositories” for partnership-related receipts: where the directing mind is the fiduciary wrongdoer, knowledge will ordinarily be imputed and retention may be unconscionable under BCCI v Akindele.

4. Complex Concepts Simplified

  • “Twilight period”: the period after dissolution but before the partnership’s affairs are fully wound up and accounts finally settled.
  • Accounting for profits (s.29): a partner must hand over to the firm profits obtained without consent if they come from partnership property, the partnership name, or the partnership’s valuable business relationships (“business connexion”).
  • “Business connexion”: not simply “someone the partnership once dealt with”. On the majority view, it is a business relationship that can properly be treated as a partnership asset (something the partnership is entitled, in substance, to exploit as against the partner—typically requiring special/exclusive access or terms in the supplier context).
  • Section 38 constraint: after dissolution the partnership generally should not take on new business; partners’ powers continue only for winding up and completing unfinished transactions.
  • Section 42 election: where some partners carry on the firm’s business using partnership capital/assets without settling accounts, the outgoing partner can elect for (a) a share of profits attributable to use of their share of assets, or (b) 5% interest.
  • Knowing receipt: if a person/company receives traceable property derived from a fiduciary breach with sufficient knowledge to make retention unconscionable, they must restore it.
  • Unlawful means conspiracy: a combination using unlawful acts with the intention to cause loss to the claimant (not merely foreseeability of loss).

5. Conclusion

[2026] EWCA Civ 976 is a significant Partnership Act 1890 decision on the boundary between legitimate post-dissolution competition and the continuing obligation to account. The Court: (i) confined s.42 to cases of true continuation by some partners to the exclusion of others (no “dual status” when both ex-partners trade); (ii) required, on the majority view, that a supplier “business connexion” under s.29 must be a partnership asset in substance—typically demanding special or exclusive access/terms rather than mere historic dealings; and (iii) reinforced that pleaded claims should ordinarily be decided on their merits, while also demonstrating the ease with which knowing receipt may be established against a one-person company receiving traceable proceeds of a fiduciary breach.