RECENT DEVELOPMENTS 


 

 

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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