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Partnerships

Partnership Act 1895 (WA)

Is a partner’s act contractually binding on the firm & other partners? 1. Are they a partner? PA 7(1) criteria for a partnership: 1. ‘Carrying on a business’  Regular commercial behaviour  Continuity, ongoing, repetitious, intent to carry on in future Look at timing & extent of work  eg. preparatory acts for business = carrying on ( Khan v Miah)  eg. research for business is not enough (Goudberg v Herniman) * joint venture: a pooling of skills needed to develop an investment eg. construction of a building, particular act never to be repeated = NOT a partnership

2. ‘Business In common’  Must be a ‘mutuality or sharing of rights & obligations’ - Must have a sense that each is acting for & on behalf of the others, together in a mutual business  EG. not business in common: - Driving & renting a car (Checker Taxicab v Stone) - Owning & farming land (Cribb v Korn) 3. ‘With a view of profit’  Motivation & purpose of participants is commercial gain s7(2): Look at the objective intention of the parties when deciding A partnership may still exist where the parties have expressly stated their relationship is not a partnership Re Megevand  What the parties call themselves is NOT conclusive, ignore labels and view facts OBJECTIVELY  Analyse the objective INTENTION of the parties If alleged partner has any unusual control over the business  could be a partner - Look to see if there is any plausible alternative motive/explanation rather an ‘intention’ that this person be a partner - EG: a close personal or family relationship with one of the other partners s8: Factors supporting evidence of partnership (which apply) *Indicative, NOT conclusive themselves*  s8(1) co-ownership of property (joint tenancy)  s8(2) sharing of gross returns from a property Cribb v Korn  s8(3) sharing profits from business - Prima facie evidence (presumed to be true unless disproved) - Defences to s8(3) - s8(5) share of profits = wages

Khan v Miah Facts: Parties wanted to run a restaurant together, made various arrangements like obtaining premises, purchasing furniture, set up bank account Held: Parties’ acts are preparatory to carrying on business with view of profit, thus a partnership exists. Goudberg v Herniman Associates Facts: William & Gouldberg were intending to set up a partnership, but not a partnership yet because they had only done market research & demographic surveys Held: Contract signed by Williams did not bind Goudberg; not yet carrying on business in common; not a partnership. Checker Taxicab v Stone Car owner leases car to taxi driver & shares profits made by driver; no common management with, or agency on behalf of, the other party  no business in common Cribb v Korn Facts: Farmer enters agreement with Cribb that he had the exclusive use & occupation of a part of Cribb’s land & farmer would pay Cribb half of proceeds of sales. Korn (farmworker) injured, claimed compensation from Cribb on basis his employer and Cribb were partners. Held: Owner and tenant not acting in common event though owner share in the crops to be grown by tenant. Re Megevand; Ex parte Delhasse Facts: Delhasse agreed to lend money to two others; stressed the advance was a loan only & did not make the lender a partner. However, rights of lender were inconsistent with reasonable requirements of an arm’s length lender Held: Lender deemed a partner (relationship went further than a mere ‘lender-creditor’ relationship) court looked at objective intention (not label)

- s8(7) lender (instead of interest on loan, gets share of profits) - Rebuttal: Rights & control is more than of a typical employee/lender If YES a partner: liable under PA(*), and binding contract If NOT a partner: not liable under PA, not binding contract Look to see they had authority under Law of Agency… *Does the partner have authority? Partners are principals and agents of each other; the law governing their authority is a mix of common law of agency & the Partnership Act [If partner has express/implied actual or ostensible authority, their acts can bind the firm] YES Actual express authority All partners are bound under: s13: Acts of the firm are binding on all partners s16: Partners are jointly liable for all debts & obligations of the firm Implied actual authority or Ostensible (apparent) authority Goldberg v Jenkins 3rd party can claim against partner for implied/ostensible authority: Facts: Partner borrows $$ at 60% s26: Any act necessary for or usually done in carrying on business of interest when market rate is 6%10%; borrowing $$ is a type of the kind carried on by the firm shall bind other partners, implied ‘necessary for’ – business efficacy (powers needed by a person in the position of a partner in that firm to fulfil job function) ‘usually done’ – custom in firms of that type; and the authority is consistent with the partnership agreement

UNLESS partner acting has no authority to act for firm in particular matter (ostensible authority*) AND 3rd party: (no implied, if restriction** imposed on partner) (a) knows he has no authority (Goldberg v Jenkins); OR (b) does not know or believe him to be a partner *‘holding out’ by the firm that the partner has authority can simply be the ‘public appointment’ of the person as a partner in the firm

conduct ‘necessary for’ and ‘usually done’ in a firm of this type, but the partnership agreement withholds authority from this partner. Therefore, there is no implied authority. In addition, as a reasonable lender would have been suspicious of the very high interest rate, there was no ostensible authority. Held: The firm and innocent copartners are not bound.

**A restriction in a partnership agreement can take away implied authority but cannot take away ostensible authority unless the 3rd party is aware of that restriction.

NO, no authority - Firm may ratify contract, if firm decides it wishes to be bound - No contract, 3rd Party may sue partner for breach of warranty of authority (Collen v Wright) Is firm (all partners) liable for a rogue partner’s wrongdoing? What have they done wrong? (look at each wrongdoing & apply) Is there $$/property involved? YES s18 (1) Where any $$/property from 3rd party received while acting within their authority is misapplied, the firm is liable. Mann v Hulme NO

Mann v Hulme A partner received a deposit from clients and then stole the money for his personal use. The firm was liable as the partner was acting within the scope of his authority when he took the money from the clients.

s17(1): Any wrongful act/commission by a partner, acting in ordinary course of business is binding on the firm. Polkinghorne v Holland - [Look at scope/what business usually does Polkinghorne v Holland] Held: Even if one is acting (2): If partner is a DIRECTOR, innocent partners are not liable (as the fraudulently, if the act itself is director is not acting within the ordinary course of business) s19: Partners are jointly and severally liable for everything firm is liable for under s17&s18

objectively still inside the course of business, the firm will still be liable

Popat v Shonchhatra (1997) Facts: Partners in a newsagency; s34: Statutory Rules as to rights, duties & interests of partners partners made unequal capital (1) All partners are entitled to an equal split of profits and losses Popat contributions to the firm; partner v Shonchhatra who had contributed more argued (2) A partner’s right of indemnity [security for loss] (ie. to be able to be should get more of the profits reimbursed from partnership assets) Held: Unless agreed to in writing, presumption is that partners will - Equal share of losses among partners split profits and losses equally; - If firm is liable, rich partner can get partial share of loss, so he However, upon dissolution, is not fully liable original sum contributed has to be … paid back in full. (5) A presumption of joint management (6) No person may be introduced as a partner, without consent of Chan v Zacharia all existing partners Facts: Firm with 2 doctors; after dissolution of firm, one ex-partner takes (7) Any change must be decided by a majority of partners up lease renewal on offices where (a) Decision must be made in good faith for the interest of the surgery was located & claims renewal whole of the firm & every partner must have an opportunity to be for sole benefit. heard in the matter Held: Lease deemed held in constructive

Fiduciary Duties (Partner  Partner) Continue throughout the term of the partnership until the final settlement of accounts on winding up (ie. does NOT conclude with the dissolution) Chan v Zacharia s39: Duty of partners to render accounts s40: Duty of Partners to account for all benefits derived s41: Duty of partner not to compete with firm (carry on business of same nature  must account for & pay over all profits made) -

eg. Unlike Jenkins & Joaquim v Bennet

Consequences for breaching duty as partner s35: Expulsion of a Partner (1) If prior written agreement that allows for expulsion of a partner by the majority of the others. (2) Expulsion must be exercised in good faith, to benefit the firm & partner must be given a fair opportunity to be heard. s16, s24 Liability of incoming, outgoing & ex-partners

trust for benefit of both ex-partners. Fiduciary relationship continued until partnership had finally been wound up. in breach of continuing fiduciary duties, ex-partner has a right to a share of profits made before payout of its partnership interest.

Jenkins & Joaquim v Bennet (1965) Facts: Wife of managing partner of a firm manufacturing farm vehicle and machinery parts went into a business manufacturing passenger vehicle parts; Other partners seek dissolution for this alleged breach of duty by the managing partner; Managing Partner helped with the books of the business after hours; Decisions were made by wife Held: Managing partner not ‘carrying on’ (actively involved) wife’s business & the other business was not in direct competition with the firm.

Tower Cabinet Co. Ltd v Ingram Facts: Dissolution of partnership but no notice was given, or advertisement published. After dissolution, Christmas ordered goods from Tower Cabinet using firm’s old letterhead showing Ingram as a partner. Held: The supplier failed in his

A partner is responsible for the liabilities & obligations of the firm incurred while he or she was a partner, but not for those incurred before or after that time. * s21 Persons liable by ‘holding out’ Anyone who holds themselves out to be represented as a partner in a particular firm is liable as a partner to those who relied on this representation. Tower Cabinet Co Ltd v Ingram [*An ex- partner can be liable under s21, or when defences in s47 don’t work] s47 Defence to an ex-partner Rights of creditors (TP) against apparent members of firm (1) Where a person deals with a firm after a change in its constitution, he is entitled to treat all apparent members of the old firm as still being members of the firm, until he has notice of the change. (EXISTING CLIENTS) Hamerhaven Pty Ltd v Ogge (2) An advertisement in the ‘Government Gazette’ and in a Hamerhaven Pty Ltd v Ogge Perth or local newspaper as to a firm in WA shall be notice as Facts: Removal of letterhead when retired as to persons who had not had dealings with the firm before senior partner. the date of the dissolution or change so advertised (NEW Held: The removal of name from letterhead CLIENTS) was not proper notice for those who have dealt with the firm before.

Retiring Partners s36 – Fixed term Where partnership has been entered into for a fixed term, partner cannot retire from it during that term, except with the consent of all partners (s36) s37 – At will When no fixed term has been agreed upon for the duration of the partnership, partner can leave at any time by giving notice, in writing, of their intention to do so to all the other partners. Dissolution of Partnership > s45: Illegality of partnership (dissolved by operation of law, if unlawful to carry on business) > s46: By court (upon application) if: a) b) c) d)

Partner has an unsound mind Partner becomes physically incapable Partner is guilty of conduct that affects the carrying on of business Partner wilfully or persistently commits a breach of the partnership agreement f) Firm is unable to make a profit g) Other just & equitable grounds

Russell v Clarke Facts: Clause allowing any partner to be expelled by vote of all other partners was not strictly followed when attempt made to expel two partners at same time, since neither of partners threatened with expulsion voted for expulsion of the other.

> By partners (in agreement) Rights & Obligations after Dissolution s51 - All partners shall be entitled to have the goodwill of the business sold for the common benefit of all the partners s52 - Use of firm-name may be restrained Is an ex-partner entitled to profits made by firm after dissolution? s55: Right of outgoing partner to share profits made after dissolution

(1) ie. Partner is entitled to a share until final settlement of accounts (3) To determine (1) look at how profit was generated: from assets/good will, from skill & industry? Partnership Property s30 consists of: a) Property originally brought into the partnership; b) Property acquired whether by purchase or otherwise on account of the firm or for the purposes & in the course of the partnership business; c) Property acquired with the firm’s money unless the contrary intention of the parties appears from the transactions; and d) Goodwill of the business...