This section of
the website provides regular updates on developments in partnership law in
the main common law jurisdictions. Special thanks are due to Professor Dick
Webb (Emeritus Professor of Law in the University of Auckland) for alerting
me to many developments contained in this section and to Dr Keith Fletcher
of the University of Queensland.
PARTNERSHIP LAW UPDATE
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Recent Books, Articles and Case Notes
Howell, Liability for negligent
misstatements and the Limited Liability Partnerships Act 2000 (2001)
The Company Lawyer 58
Comment, Limited liability partnerships:
available at last (2001) 22 The Company Lawyer 65.
Henning, The origins of the distinction
between loan and partnership enshrined in Partnership Act 1890 (2001)
22 The Company Lawyer 75.
Fletcher, Partnership:
Commencement of business (2001) 75 Australian Law Journal 223.
Martin and Fearon, Wider uses for LLPs (2001) Solicitors
Journal 528.
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“Carrying on a business”
Existence of a partnership – Section 1(1)
of the Partnership Act 1890 – ‘persons carrying on a business in common
with a view to profit’ – When does a partnership commence - Khan and Khan v Miah,
Ahad and Miah [2001] All ER 20. This case involved a dispute
between a group of people who had decided to open an Indian restaurant in
Newbury. Mr L Miah and Mr Ahad made a proposal to Mr M Khan for the opening
of a restaurant. Mr L Miah was to be the manager and Mr Ahad and Mr M Khan
were to be the chefs. Mr K Miah was brought in for his commercial
experience. There was a falling out between the participants before the
restaurant was opened. However, before this time, the parties had arranged
for Mr K Miah to take a lease of the premises, and subsequently the
freehold was acquired In Mr K Miah’s name. He had also entered into a
contract for the design and refurbishment of the premises as a restaurant.
A joint account had been opened by Mr K Miah and Mr M Khan. Mr M Khan had
provided nearly all the moneys into this account apart from some provided
by his brother Mr S Khan. Furniture and equipment was purchased and a
contract for laundry was entered into. However, before the restaurant
commenced for business, a dispute arose between the parties. This dispute
resulted in a solicitors’ letter from Mr M Khan to the defendants, which
had the effect of terminating the business arrangement. The action came to
court when Mr M Khan and Mr S Khan sought a declaration that the
partnership had been dissolved and a declaration that the premises were
held on trust for all the partners. The issue came initially before the
Court of Appeal and it held by a 2-1 majority that no partnership existed
in this case on the grounds that, to quote Thorpe LJ, the partners could
not be said “to be carrying on the business prior to the date upon which
the restaurant opened for the consumption of meals on the premises”. The
majority decision of the Court of Appeal was reversed by the House of
Lords. The House of Lords accused the Court of Appeal of nominalism in its
determination of whether the parties were carrying on business in common
for the purposes of the definition of partnership. Lord Millett pointed out
that there “was no rule of law that the parties to a joint venture do not
become partners until actual trading commences”. Rather, Lord Millett held
that for the purposes of the definition of partnership in s 1(1) of the
Partnership Act 1890, “the work of finding, acquiring and fitting out a
shop or restaurant begins long before the premises are open for business
and the first customers walk through the door. Such work is taken with a
view to profit, and may be undertaken as well by partners as by a sole
trader.” As Buxton LJ had pointed out in his dissenting judgment in the
Court of Appeal, if it were otherwise, “every separate transaction entered
into before the opening of the restaurant for trade [would have to be]
separately litigated in respect of its effect between the parties: be that
agency, trust or whatever other legal analysis has to be applied to explain
the particular transaction….It is surely to prevent the implications for
the parties of every single piece of business entered into by persons
acting jointly in commercial matters having to be separately litigated
between them that the law of partnership was conceived.”
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Legislation
Taxation changes for partnerships – Short
tax year – Finance Act 2001, Schedule 2, para 48. As a result of the
change to the short tax year in 2001, certain consequential changes to
provisions concerning partnership returns have been implemented by the
terms of the Finance Act 2001. Paragraph 48 of the Second Schedule provides
that for the purposes of partnership returns, a partnership account made up
for a period of one year to a date falling in the period from 1 January to
5 April 2002 will, in addition to being an account made up to a date in the
year of assessment 2002, be deemed to be an account made up to a date
within the short ‘year’ of assessment 2001.
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Book Review
Fletcher, Higgins & Fletcher on the Law of Partnership in New
Zealand and Australia (8th edition, 2001) LBC Information Services
ISBN 0 455 21751 3.
The
author, Dr Keith Fletcher, a distinguished academic at the University of
Queensland, has produced the eight edition of this significant work on the
law of partnership in Australia and New Zealand. This book is strongly recommended
to anyone interested in partnership law in Britain and Ireland. It might
seem unusual to be recommending a book on partnership law in Australia and
New Zealand to Irish lawyers, yet this should not be the case. This is
because the law of partnership in both Australia and New Zealand (and
indeed in a number of other common law jurisdictions) is strikingly similar
to Irish partnership law. This can be explained by our common colonised
past (in the case of Ireland, Australia and New Zealand) and in particular
by the continued application, in Ireland, Australia and New Zealand, of
either the Partnership Act 1890 itself or legislation which is based
practically word for word on that Act. The same goes for the Limited
Partnerships Act 1907. For this reason and because of the relative
stability of partnership law in the past century, it is arguable that there
is no other area of law that is as similar in our respective jurisdictions.
Accordingly
the main reason for recommending this work to practising lawyers and
academics on this side of the world is because it provides a wealth of
caselaw on aspects of the Partnership Act 1890 (and to a lesser extent the
Limited Partnerships Act 1907) which have not been litigated in British or
Irish courts. What makes the text particularly user friendly in this regard
is the fact that it contains a comparative table of Partnership Acts, to
enable lawyers from the Northern hemisphere to isolate which equivalent
provision of the Partnership Act 1890 is at issue in particular discussions
in the book. One important issue that has been litigated in the Australian
courts, but which has yet to receive consideration in this side of the
world, is the question of whether it is possible to expel two partners by
one resolution of the partners at one partners’ meeting, or whether it is
necessary to call separate partners’ meetings. This issue was considered in
Hanlon v Brookes (1997) 15 ACLC 1626 which is considered in detail
by Dr. Fletcher. The partnership agreement in that case contained the
standard interpretation clause that the ‘singular includes the plural and vice-versa’
and other provisions in the Partnership Agreement entitled the partners to
expel another partner by special resolution, namely the votes of 75% of the
partners. The Victorian Court of Appeal held that a special resolution
which expelled two partners was valid and in so doing pointed out that the
main safeguard for partners was the fact that a 75% vote was required and
that this safeguard was not compromised by having the vote for the
expulsion of two partners at the one time. This case would appear to be the
first case in the common law world to consider the validity of a multiple
partner expulsion.
Of
even more practical interest to those in large professional partnerships
and their advisers will be the case of Duke Group Ltd v Pilmer
(1999) 73 SASR 64. This case considered the issue of national practices (in
this case a national practice of accountancy firms) and the question of
whether they might be such as to constitute a holding out of a group
partnership between the individual firms who are members of the national
practice so as to make them liable under the equivalent of s 14(1) of the
Partnership Act 1890. The case involved an alleged negligent report prepared
by a firm of chartered accountants in Perth, called Nelson Wheeler. The
report was prepared on Nelson Wheeler Perth letterhead but at the bottom of
the letter it was stated that the firm had offices in other Australian
cities and there was an annex to the report that stated that Nelson Wheeler
was a national firm of accountants. The plaintiff, the addressee of the
takeover report, sought damages from all the firms in the national
practice. The action against the local firm Nelson Wheeler Perth was successful,
but it failed against the other members of the Nelson Wheeler association.
The Full Court of South Australia found that the other firms in the
national practice had not been represented to be partners, as required by s
14(1), since the plaintiff had no idea of their identity or standing and
for this reason it could not see how the plaintiff could be said to have
placed any reliance on the representation of partnership, as required by
that section. Fletcher is rightly critical of this overtly technical
interpretation of s 14(1), which he points out creates a divergence between
the law of estoppel and s 14(1). He also, quiet rightly it is suggested,
questions the Full Court’s insistence that reliance must be placed on
membership of a firm by a particular person and not just upon the existence
of a partnership. Support for the author’s view can, it is suggested, be
found in the 19th century English case of Martyn v Gray (1863)
143 ER 667 in which it was held that the name or identity of the apparent
partner need not be stated for that person to be liable as a partner by
holding out.
While the majority of the book deals with Australian
and New Zealand caselaw, Fletcher does not restrict himself to commenting
on such cases and refers, where appropriate, to major developments in the
British courts (such as the question of whether a partnership has to have
traded to have come into existence, which was decided in Khan v
Miah [1998] 1 WLR 477, by the Court of Appeal, but readers should bear
in mind that, thankfully, it has since been reversed by the House of Lords
at [2001] All ER 20). Nor does he ignore developments in the Irish courts
(see for example his reference to the important Supreme Court decision of Meagher
v Meahger [1961] IR 96 on the payment to a former partner of,
post-dissolution but pre-settlement of accounts, profits.)
This
book is to be recommended to law students, since Dr. Fletcher manages to
deal succinctly yet comprehensively with the principles of partnership law.
However, because of the literally hundreds of many interesting partnership
cases, which clarify the meaning of the various provisions of the
Partnership Act 1890, this book is strongly recommended to partnership
lawyers, in any country where the principles contained in the Partnership
Act 1890 still hold sway, and so I would recommend it to partnership
lawyers, not just in Ireland, Scotland, England & Wales but also in
Canada, America and South Africa, not to mention the author’s home
jurisdictions of Australia and New Zealand.
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