Partnership: To Be Or Not To Be? By Dean Thistle
As head of the commercial group at Becket Chambers, I have the pleasure of seeing some of the articles prepared by my colleagues before they are released.
One of particular interest to my commercial contacts is Dean Thistle's article on Partnership, which can be found here.
Dean has kindly allowed me to publish it below.
Forming a partnership is an act achievable by anyone. Seasoned commercial veterans may enter into lengthy negotiations to determine their specific aims and roles within the partnership, or two friends having a drink in a bar may decide they have come up with a great idea and want to put it into action. The only requirement to form a partnership is that the entities ‘carry on business in common with a view of profit.[1]’
The existence of a partnership agreement assists in determining both the terms of the partnership and, in many cases, whether a partnership actually exists. In the absence of such an agreement the Court is required to determine whether there has been any other form of express or implied agreement that the putative partners carried on business together.
Case law
In Dutia v Geldof and others [2016] EWHC 547 (Ch) the Court was asked to determine whether the Claimant, four Defendants and fifth Defendant Company had entered into a partnership. Chief Master Marsh had previously granted Summary Judgment in favour of the Defendants, determining that a partnership had not been formed, which decision the Claimant appealed. As such, the Court was not asked to form a view as to where the truth of disputed facts might lie, but instead conduct an examination of the material relied on by the Claimant to see whether the claim had any reality to it and whether it was fit for trial.
The claim was concerned with the establishment of a private equity business, aimed at creating investments funds for investing in businesses in Africa, it being intended that the capital would be raised principally from outside investors. The Claimant accepted that there had never been any express agreement that the parties would be partners in such a partnership; instead the Claimant argued that the parties agreed to work together with a view of profit and this agreement was sufficient to make them partners.
The appeal was dismissed, the Court determining that the Claimant had agreed to provide services to an LLP that was in the process of raising the fund. The Claimant was encouraged to start work under the LLP, and later to work longer hours than the agreement provided for, by way of assurances that everyone was in the same boat. It was determined that he was offered, and accepted in principle, subject to certain points being clarified, a role that involved him working for the LLP on terms that would deliver potentially very large rewards to him, such rewards being derived from the business to be carried on by the LLP rather than by the purported partnership.
Guidance
In reaching its decision the Court reiterated the long-standing principle that in order for there to be a partnership, there has to be an express or implied agreement. The principles applicable to an agreement to form a partnership are the same as those applicable to other contracts. Moreover, where there is no express agreement, the Court must look at the entire suite of facts, and does so sceptically, as contracts are not lightly to be implied.[2]
[1] Section 1(1) Partnership Act 1980
[2] Blackpool & Flyde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195