Partnership Law

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The Law of Partnerships:Scott Osborne

The applicable law:
Partnership Act 1892 (NSW)

The relevant law is contained in the Partnership Act (PA) of each of the jurisdictions. All are based on the PA (1890) UK Act.

The contractual nature of Partnerships
Partnerships are essentially contractual.

Defining a Partnership [s.1 PA 1892 NSW]

The PA defines a partnership as “the relation which exists between persons carrying on a business in common with a view of profit”

Partnerships are unincorporated bodies without any separate legal identity of their own. As Justice Barton put it in Cribb v Korn (1911), “to be partners, they must have agreed to carry on some business….in common with a view to making profits and afterwards of dividing them, or of applying them to some agreed object”.

SO…..whether a particular relationship is, in law, deemed a partnership will depend on the parties showing that it exhibits all THREE ELEMENTS that the PA 1892 require. They MUST show that they are;

1 CARRYING ON A BUSINESS;
2 IN COMMON;
3WITH A VIEW TO PROFIT.

Defining “business” [s.2 PA 1892 NSW]

In Hope v Bathhurst City Council (1980) Justice Mason defined the term business as “activities undertaken as a commercial enterprise in the nature of a going concern for the purpose of profit on a continuous and repetitive basis”.

Difficulties can arise at common law whether a particular activity constitutes “carrying on a business”. It seems to be a question of fact and degree, for example, Evans v FCT (1989) where Evans won $800k from gambling. FCT said he was “carrying on a business” for claiming tax from him. Held: Evans had not been “carrying on a business” of punting as his activities lacked system and organization. Justice Hill made the point that “all indicia to be considered as a whole”.

Defining “carrying on”

Seems to mean that there must be a degree of continuity either in fact or intention. Normally an isolated transaction will not be “carrying on a business” as in Smith v Anderson (1880) where LJ Brett said: “carrying on implies a repitition of acts and excludes doing one act which is never repeated”. The NSW Supreme Court used similar reasoning in Hitchins v Hitchins (1999) where Justice Bryson said: “it was characterized as an investment rather than a trade and flow of transactions which could be thought of carrying on a business.

BUT– a P CAN be entered into for a single venture if that is what the parties intend as in Minter v Minter (2000) where court said: “Today, a single purpose joint venture does not escape being a partnership IF otherwise it satisfies the criteria for a partnership in the sense of a commercial enterprise with the object of gain or profit”.

SO…..while continuity/repetition of operations may be a strong indication of “carrying on a business” it is probably no longer a “critical” consideration: Chan v Zacharia (1984), Justice Deane.

Contemplated Partnerships

A mere agreement to carry on a business as partners at some, (even specified), time in the future does not make the participants partners UNTIL THAT TIME ARRIVES.

If one of the intending partners starts the business early without the consent of the others this will still NOT constitute a partnership.

Engaging in merely preparatory activities will not constitute “carrying on a business” : Pioneer Concrete Services v Galli (1985)

BUT

Everything will depend on whether the activities are really merely preparatory: Khan v Miah (2000) – Lord Millett said, “they did not merely agree to take over and run a restaurant they agreed to find suitable premises, fit them out as a restaurant and run it once they had set it up. It was what they had jointly agreed to do.

Definition of “in common”

There must be some joint participation in a common business:

Checker Taxicab Ltd v Stone (1930)
A driver rented a taxi from the owner and paid him a % of the fares as commission was held NOT to be...
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