Recent UK case on the existence of a partnership, partnership assets, partners' duties, and just and equitable winding up.

Malik v Hussain and others [2020] EWHC 2334 (Ch)

This case involved a business operated though an alleged combination of partnerships and companies. In 2002 the claimant and the first defendant took preparatory steps to enter into a restaurant business together. They later incorporated a company and acquired a property from which the restaurant was to operate, and in 2003 the restaurant began trading. They only entered into a formal partnership deed in 2006. In 2013 the first defendant opened a restaurant trading under the same name but in a different location.

The court held that there was a partnership in relation to the property and the business, that the two partners held their shares in the company as partnership property, and that the partnership should be dissolved and wound up. It stated that the normal rules applicable to the construction of written commercial contracts applied equally to partnership agreements, and the relevant principles were clear. The parties were therefore bound by the written terms of the deed and could not seek to imply inconsistent terms.

The court held that there was sufficient evidence that an informal partnership came into existence in 2002. The claimant and the first defendant had agreed to go into business together, with a view to owning property and using it to run a restaurant business, they had opened a joint bank account which they were using for the development of the business, and they had decided to take out a joint loan. The company which they had set up had never been intended to take over the whole of the business, and there was no evidence that the opening and operation of the company current account, and the treatment of the restaurant business in the accounts, the property rental statements and the personal tax returns, were carefully considered decisions, the effect of which had been explained by the accountants. In the absence of such evidence, they were insufficient to infer that the claimant and the first defendant had agreed to hive the restaurant part of the partnership business completely out of the partnership and into the company. The court concluded that the parties had intended to own the whole business as partners but for the company to operate the restaurant business on behalf of the partnership.

In the absence of an exhaustive definition of the partnership assets in the partnership deed, the court held that particular attention should be paid to the statements that the parties wished to carry on the business of an Indian restaurant in partnership, that all the equipment and fittings in the property and used for the purposes of the business should be partnership assets, and that the capital was £6 million, which was only explicable if the value of the business was included. These demonstrated that the business was a partnership asset and that this was the basis on which the shares in the company were held by the partners as partnership assets.

The court also held that the obligations in s29 of the Partnership Act 1890 to account for benefits derived from the partnership, and in s30 to account for the profits of a competing business, did not arise. Any benefit derived by the second restaurant from the use of the name of the first and its reputation was modest and short lived, and there had been no meaningful competition given that the second restaurant was over 200 miles from the first. In any event, the parties had given prior consent to either of them operating a competing business. Although the deed was silent on this point, a separate prior oral agreement had been reached and recorded in a file note, and this amounted to a valid consent under s30.

The court concluded that the relationship between the two partners had wholly broken down, and therefore that it was it was just and equitable to make an order for the dissolution of the partnership under s35(f) of the Partnership Act and for the partnership to be wound up and a final account taken.

Recent UK case on partnership winding up

Loveridge and others v Loveridge [2020] EWCA Civ 1104

A caravan park business was operated through several companies and three oral partnerships at will. The partnership proceedings related to the winding up of the three partnerships.

The first instance court had appointed the respondent partner to manage the partnerships pending their winding up, and ordered that the three other partners be restrained from interfering with the business. It discounted the possibility of appointing a third party receiver or manager because it would involve unjustified expense, and there also insufficient time for it to be done.

The Court of Appeal allowed the appeals. It noted that when appointing a partner rather than a third party receiver or manager, it was necessary to take account of the fact that the majority partners, by definition, had the most to lose from any mismanagement. Further, where several partnerships were involved, it was not necessary for the court to order ‘unitary control’ by one partner of all the partnerships. There was no reason to disrupt the status quo of the management of the partnerships by removing all control from the appellants. The respondent was not the only person capable of running any individual partnership, and as it was unclear whether he was a partner at all in one of the partnerships - in which case he would have no say in its future - and at most he had a 25% interest, and as he had made no complaints about the its continued management by the partner who might in fact be its sole owner, the court ruled that she should remain in sole day to day control of this partnership pending trial of the respondent’s claim. The court awarded sole control of one of the other partnerships to the two appellants, since they lived on its principal site, and awarded the respondent sole control of the other partnership.

Recent UK case on the duties of designated LLP members

Re A&C Restoration LLP: Manolete Partners plc v Riches [2020] EWHC 1404 (Ch)

(Judgment in this case was given in May 2020 but the transcript has only recently become available)

Riches was a designated member of A&C Restoration LLP until he retired under the terms of a retirement deed. At that time a new member was appointed. The deed included a waiver of any claim by the LLP for sums owed by Riches as a result of drawings by him which exceeded profits.

The court noted that the LLP was insolvent at the time the deed was entered into. It held that designated members of an LLP, such as Riches, owed the same duties as company directors owed to limited companies (McTear v Eade [2019] EWHC 1673 (Ch)), and that these duties included a duty to take into account the interests of creditors at a time when the firm was insolvent. It concluded that it was a breach of duty, objectively viewed, to cause the LLP to agree to a waiver which released a debt, since this could not be in the interests of the creditors. Riches was therefore estopped from relying on the clause, and remained liable for the debt. He was not able to ask the court to grant relief for any breach of duty pursuant to s1157 of the Companies Act 2006 (applied to LLPs by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009), because that section was dependent on him having acted honestly and reasonably, and the court considered that it could not be a reasonable decision to waive one’s own liabilities in the context of insolvency.

New short article on Irish limited partnership law.

Maebhdh Clancy, Editor of the second edition of Twomey on Partnership, has published a short article on the reform of Irish limited partnerships in the Commercial Law Practitioner. The full citation is Maebhdh Clancy, 'Limited partnerships - time for long-awaited reform' (2020) 27(9) CL Pract 192-195.

Short article on recent Scottish case on partner expulsion

Professor Laura Macgregor, one of the speakers at our most recent conference, has published a short article on good faith and partner expulsion:
Laura J Macgregor, ‘Rennie v Rennie: the requirements of natural justice on expulsion from a Scottish partnership (Case Comment)’ (2020) 24(3) Edin LR 416-421.

Short articles on Canadian partnerships

Matthew Pollack and Prasad Taksal of law firm DLA Piper have published two short article on Canadian partnerships:

'Partnerships: what, how and when' -vailable at

https://www.dlapiper.com/en/us/insights/publications/2020/08/types-of-partnerships/

'Partnership agreements: A primer' - available at:

https://www.dlapiper.com/en/canada/insights/publications/2020/08/partnership-agreements/

New short article on UK partnership disputes

George Sim, 'Unscrambling partnership disputes' (2020) 170(7906) NLJ 19, available at:

https://www.newlawjournal.co.uk/content/forensic-accounting-unscrambling-partnership-disputes

If you are not already a subscriber to the New Law Journal you can register free of charge for two weeks.

Short article on recent UK case on partnership taxation arrangements

Andrew Howard, 'BlueCrest: new developments in UK partnership taxation' (2020) 1503 Tax Journal 16 provides a brief analysis of the judgment in BlueCrest Capital Management Cayman Ltd & others v HMRC. It is available at:
https://www.taxjournal.com/articles/bluecrest-new-developments-in-uk-partnership-taxation

UK government response to consultation on Corporate Transparency and Register Reform Government: response to the consultation on options to enhance the role of Companies House and increase the transparency of UK corporate entities

The UK government has recently published its response to an earlier consultation on the registration of limited partnerships, LLPs and companies. The response includes proposals to require identity verification of those who register such businesses, and of some participants in them (but only general partners of limited partnerships, and designated members of LLPs), and provisions to enable the striking off of limited partnerships from the register (something which is currently impossible).

BEIS, 'Corporate Transparency and Register Reform: Government response to the consultation on options to enhance the role of Companies House and increase the transparency of UK corporate entities' (September 2020) is available at:  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/919356/corporate-transparency-register-reform-consultation-government-response.pdf

Ireland's Investment Limited Partnerships (Amendment) Bill 2020

Law firms Arthur Cox and Dillon Eustace have both published brief updates on this latest piece of legislation. They are available at:

Arthur Cox: https://www.arthurcox.com/knowledge/irish-investment-limited-partnerships-set-for-reform-as-government-publishes-new-amendment-bill/

Dillon Eustace: https://www.dilloneustace.com/legal-updates/publication-of-irish-investment-limited-partnerships-amendment-bill-2020

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Second Annual Conference of the Partnership, LLP and LLC Law Forum 10 January 2019

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