Lecture 3: Law of Partnership

What is a partnership?

- It is a voluntary association of two or more people

- Contribution of goods, money, skill and industry
- Binds the company
- Pine Energy Consultants Ltd v Talisman Energy (UK) Ltd [2008]
- Section 1(1), Partnership Act (PA) 1890: ‘Partnership is the relationship which
subsists between persons carrying on business in common with a view of profit.’

Essential elements of partnership:

- 'Persons'
- 'Carrying on Business'
- 'With a view of profit': Winsor v Shroeder (1979) 129 NLJ 1266 - Court said that,
while a single transaction was less likely to be regarded as a partnership, in this case
a partnership existed. The important consideration was not whether it was a single
venture but whether it was a commercial venture.

Guidelines to Determine Whether a Partnership Exists:

Rule 1

- 1. ‘Joint tenancy, tenancy in common, joint property, common property, or part

ownership does not of itself create a partnership as to anything so held or owned,
whether the tenants or owners do or do not share any profits made by the use
thereof.’
- See Sharpe v Carswell 1910 SC 391 - Simply having a part ownership of a vessel was
not sufficient to make him a partner.

Rule 2

- 2. ‘The sharing of gross returns does not of itself create a partnership, whether the
persons sharing such returns have or have not a joint or common right or interest in
any property from which or from the use of which the returns are derive.’
- Cox v Coulson [1916] 2 KB 177: Here there was no partnership; this was merely an
arrangement to share gross returns. See also Clark v Jamieson 1909 SC 132.

Rule 3

- 3. ‘The receipt by a person of the share of the profits of a business is prima facie
evidence that he is a partner in the business, but the receipt of such a share, or of a
payment contingent on or varying with the profits of a business, does not of itself
make him a partner in the business.’
 - The Act sets out situations where share of a profit will not make the recipient a
partner:

 Repayment of debt
 Remuneration
 Annuity to widow
 Loan
 Goodwill

- Pratt v Strick (1922) 17 TC 459: A medical practitioner sold the goodwill of his
practice, but agreed with the purchaser to remain in the house from which the
practice was carried on for three months to introduce the patients to the purchaser.
The earnings and expenses during the three months were to be shared equally. It
was held that these were not partnership earnings - there was an agreement for an
outright sale of the business.

Formation of a partnership

- Constitution: no formality. It does not need to be in writing for instance. In practice

however, written agreements usually take the form of a partnership deed. In
Cheema v Jones [2017] EWHC 1706, the initial partners discussed the prospect of
enlarging the medical practice shortly after the partnership shortly after the
partnership agreement was signed. J purported to dissolve the partnership by issuing
a notice to all doctors including those who joined later. The Court of Appeal decided
that C or J intended to abandon the initial agreement. ‘The fact that a new
agreement was never signed does not undermine that inference’.
- Capacity: must have capacity to contract. E.g. Minors/ pupils pre-September 1991
S 1 (1) of the Age of Legal Capacity (Scotland) Act 1991Insanity
- Illegality: cannot have an enforceable partnership to do something which is illegal.
Everet v Williams (1893) 9 LQR: Two highwaymen entered into a partnership
whereby they were to equally share all expenses relative to their activities and were
likewise to share all profits of their robberies. One later brought an action calling the
other to account for certain ‘profits’ which he had failed to declare to the other. The
action was dismissed.
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