Partnership

DEFINITION

A Partnership is the relationship which exists between persons carrying on a business in common with a view to profit. It involves an agreement between two or more parties, to enter into a legally binding relationship and is essentially contractual in nature.

Partnership law derives from case law and from statute law. The relevant legislation is to be found in the Partnership Acts 1982 (NSW). This area of law is called a special type of agency and the main reason for this is that partners, when acting in the course of the partnership business, are acting as agents for one another: Lang v James Morrison & Co Ltd (1911).

DETERMINING WHEN A PARTNERSHIP EXISTS

Necessary elements
Section 1 of the Partnership Act provides that 3 elements must be satisfied in order to establish the existence of a partnership. These elements are:
•    The carrying on of a business;
•    In common;
•    With a view to profit.

If one of these elements is missing, the relationship is not one of a partnership.

1.    Carrying on of a business

A number of early decisions emphasized the need continuity and repetition.

Smith v Andersen (1880):
Brett J stated at 277-8:
“The expression ‘carrying on’ implies a repetition of acts and excludes the case of an association formed for doing one particular act which is never to be repeated. That series of acts is to a series of acts which constitute a business…The association, then, must be formed in order to carry on a series of acts having the acquisition of gain for their object.”

Ballantyne v Raphael (1889)
- A syndicate of more than 20 persons had been formed to acquire a large block of land.
- The intention was to subdivide the land and sell individual allotments at a profit.
- The court which approved of Smith v Andersen, held that this was not a company, association or partnership carrying on business for gain. It was an isolated act, not repetitive.

However, the necessity of establishing an intention to continue in business has been overlooked in some cases.
Ford v Comber (1890)
- Holroyd J admitted of the possibility that an agreement to share the cost of acquiring a single block of land and the profit on resale could constitute a partnership between the parties.

Canny Gabriel Castle Advertising Pty Ltd & Anor v Volume Sales (Finance) Pty Ltd (1974)
- A company named Fourth Media Management Pty Ltd (“FM”) entered into contracts with singers Elton John and Cilla Black for performances in Australia. Volume Sales (Finance) (“VS”) agreed to finance the contracts.
- Later, an agreement was made between FM and VS whereby it was agreed:
•    That FM assign to VS a one half interest in the contracts with the singers;
•    That the arrangement between FM and VS was to be performed as a ‘joint venture’;
•    That VS was to finance the contracts by way of a loan and that this loan was described as a ‘loan to the joint venture’ which was repayable prior to the distribution of profits;
•    That the accounts show that the money advanced was a loan;
•    That all profits were to be shared equally between the parties;
•    That all policy matters were ‘to be agreed upon by the parties hereto’;
•    That a bank account of VS be opened and be operated ‘in such manner as VS sees fit’;
•    That the money loaned would be repaid if the contracts with the singers failed.

- After this agreement was made, FM granted an equitable charge over its undertaking and property including its interest in the box office proceeds of the contracts to Canny Gabriel Castle Jackson Advertising Pty Ltd, the appellant.
- The question was whether VS’ interest would prevail over the later equitable charge.
- If the arrangement between FM and VS was a partnership, then VS would have a beneficial interest which would prevail over the charge.
- HC HELD: there was a partnership, even though it did not describe the parties as partners and did not provide expressly for the sharing of losses, although HC though that it did so impliedly.
- Factors which led the court to the conclusion that a partnership existed were stated as follows:
1)    the parties became joint venturers in a commercial enterprise with a view to profit;
2)    profits were to be shared;
3)    the policy of the joint venture was a matter for joint agreement and it was provided that differences relating to the affairs of the joint venture should be settled by arbitration;
4)    an assignment of a half interest in the contracts for the appearances of Cilla Black and Elton John was attempted, although, we would have thought, unsuccessfully;
5)    the parties were concerned with the financial stability of one another in a way which is common with the partners.

- The Finding by the HC that the arrangement between the parties was a partnership implicitly acknowledged that a single commercial venture could be a ‘business’ in order to satisfy the requirements set out in the Partnership Act.

This decision was applied in Television Broadcasters Ltd v Ashton’s Nominees Pty Ltd (1979), however, it was held that a joint venture for the promotion of a circus tour did not make the participants, partners. This was due to the fact that there was no agreement for the sharing of losses and, importantly, the respective obligations contained in the party’s agreement were regarded as separate obligations.
Also, the employees were regarded as employees of the defendant rather than the employees of parties jointly.

United Dominions Corporation Ltd v Brian Pty Ltd and others (1985)
- The second respondent, Security Projects Ltd (‘SPL’), was engaged in promoting two distinct but related ‘joint ventures’ involving the development of land which it was buying in Brisbane.
- One proposed joint venture involved the development of part of the land as a hotel, the other involved the developments of the residue of the land as a shopping centre.
- By September 1973, the participants in each proposed venture had been settled. Brian Pty Ltd was to have a 20% share in the hotel venture and a 5% share in the shopping centre venture.
- United Dominions Corporation Ltd (“UDC”) was also to be a participant in both ventures, however SPL was to be the main participant in each proposed venture.
- On July 23, 1974 a formal agreement in respect of the shopping centre venture was executed.
- Approx. 90% of the capital for each project was to be provided by borrowings from UDC, with the remainder being contributed by each of the proposed participants according to their respective shares.
- The prospective parties to the hotel venture, including Brian Pty Ltd, had, by Sept 1973, all made payments to SPL as project manager. The prospective participants in the shopping centre project had also made financial contributions, except for Brian Pty Ltd, which made a contribution in Nov 973.
- In Oct 1973, SPL mortgaged the land to UDC as security for borrowings for the two ventures and later 2 further mortgages were also executed by SPL in UDC’s favour.
- In August 1974, the hotel project was abandoned and thereafter the whole of the land was devoted to the shopping centre project, the shares of the various parties were rationalized.
- Eventually the shopping centre was built and sold at a large profit, however, Brian Pty Ltd received neither repayment of the money it contributed nor payment of a share of the profit.
- UDC claimed to be entitled to retain all profits because of a ‘collaterisation clause’ in a mortgage given to it by SPL before the joint venture agreement was formalized – the effect of this clause was to charge the land with all indebtedness incurred by SPL in the venture.
- When SPL went into liquidation, the question was whether UDC stood in fiduciary relationship to Brian Pty Ltd on the date on which SPL gave to UDC the mortgage containing the collaterisation clause.
- The HC HELD that UDC stood in fiduciary relationship to Brian Pty Ltd and had breached this duty. Importantly their honours stated that fiduciary obligations were not confined to persons who actually are partners, ‘but extend to persons negotiating for a partnership, but between whom no partnership, but between whom no partnership as yet exists’. This meant that UDC could not rely on the collaterisation clause.
- The agreement of 23 July 1974, although describing the parties as engaging in a ‘joint venture’ was in essence a partnership agreement dealing with a ‘partnership for one transaction’.

“There may be a partnership for a single adventure or undertaking, for the Acts provide that, subject to any agreement between the partners, a partnership, if entered into for a single venture or undertaking, is dissolved by the termination of that adventure or undertaking.” E.g. Partnership Act 1892 (NSW), s32(b).
Continued on page 2