New edition of Geoff Morse's 'Partnership and LLP Law' book

OUP has just published the 9th edition of this established partnership and LLP law text, now co-authored with Thomas Braithwaite. It is available in hardbook or as an e-book. Further details at:

https://global.oup.com/academic/product/partnership-and-llp-law-9780198832799?q=morse&lang=en&cc=gb

A review will be published on this website in due course.

Recent article on Hong Kong's new Limited Partnership Fund Bill

Law firm Baker McKenzie has published a short article on this new draft legislation at:

https://f.datasrvr.com/fr1/520/79229/Limited_Partnership_Fund_Bill_proposes_new_limited_partnership_regime_for_private_funds_in_Hong_Kong.pdf

Recent article on proposed UK subsidy for new partners in medical partnerships

Sophia Fadra of Veale Wasbrough Vizards LLP has provided an update on a new UK government payment which will be available to encourage doctors to join medical practitioner partnerships.  It is available at:

https://www.vwv.co.uk/news-and-events/blog/healthcare-law-brief/new-to-partnership-payment

Recent case on jurisdiction over (and remedies against) an overseas partner of a Scottish limited partnership

Trans-Oil International SA v Savoy Trading LP and Melnykov [2020] EWHC 57 (Comm)

Savoy Trading was a Scottish limited partnership with two partners, both of which were limited companies (Cadwell and Intech). After it notified the applicant that it could not fulfil its contractual obligations, and the applicant discovered that partnership had been subject to a sequestration award and a trustee appointed, it applied for and was granted a freezing order against the partnership. In these proceedings the applicant sought to add Melnykov to the freezing order or, in the alternative, to have him named personally in the penal notice of that order.

As Melnykov had no presence or assets in the jurisdiction, the applicant sought to found English jurisdiction on the basis that he was arguably personally liable on a contract which was governed by English law. The court noted that the opinion of the Scottish Advocate stated that even if an offence (in relation to obtaining credit without the trustee’s permission) had been committed, it would prima facie be committed by the partnership, and even if the general partner had committed the offence, that would not render Melnykov personally liable unless the court were to pierce the partner’s corporate veil which, on the facts, was unlikely. Although Cadwell acknowledged in a Norminee Declaration that its ownership of an interest in the partnership was as nominee and in trust for Melnykov, the beneficiary of a trust did not incur concurrent liability on a contract entered into by the trustee on behalf of the trust. The court concluded that the applicant had entered into a contract with the partnership, and neither the Nominee Declaration nor the fact that Melnykov signed the contract and had a power of attorney for the partnership was sufficient to make him personally liable. It therefore that it had no jurisdiction to make a freezing order against him.

The court held that even if it was wrong on the issue of jurisdiction, a freezing order should not be granted because there was no evidence of a real risk of dissipation of assets by Melnykov as there was little or no real evidence of dishonesty or low standards of commercial morality, beyond the use of the complex partnership structure which might be for good reasons. Surprisingly, the court held that there was no evidence of the strength of the trustee’s suspicions as to Melnykov’s conduct, even though the trustee had reported those suspicions to the police, and despite the background of the current inquiry by the UK’s Department of Business, Enterprise and Industrial Strategy  into the misuse of partnership structures, and in particular the Scottish limited partnership structure.

The court also dismissed the alternative claim for an order that Melnykov be named in the penal notice, on the grounds that he was a de facto partner, a de facto partner was analogous to a de facto director, and CPR 81.4(3) enabled the naming of directors personally in an order made against a company or other corporate body. The court held that there was no basis for extending the rule in CPR 81.4 to partners, and therefore no basis for extending it to de facto partners. Although Lindley & Banks on Partnership noted that the commercial view of a partnership was to treat it similarly to a company, the nature of a partnership was such that individual partners were personally liable for a breach of an order against the partnership without need for a provision such as CRP 81.4, other than where a partnership had separate legal personality.  The latter caveat is another rather surprising feature of this judgment, as is the court’s statement that it was unclear whether a Scottish partnership had separate legal personality. In fact, s4(2) of the Partnership Act 1890 states clearly that it does and it is settled law, but it is also well established that Scottish partners do incur personal liability for the obligations of the partnerships (see further Stephen Chan, A Practical Guide to Partnership Law in Scotland, Ch 4).

Finally, the court held that even if CPR 81.4 applied, Melnykov was not a de facto partner. In HMRC v Holland [2010] UKSC 51 Lord noted that there was no single test for a de facto director but referred to factors such aswhether he was held out as a director or purported to act as a director. It was not clear whether such authorities applied to partners, but in any event Melnykov was not held out as a partner and did not act as such. The Advocate’s opinion was that Cadwell was the general partner and liable as such, and the court concluded that Melnykov did not act as a general partner but pursuant to a power of attorney.

Two recent UK cases on issues arising on the transfer of the partnership business to a company set up for the purpose

Razaq v Baig [2019] EWHC 3490 (Ch)

The parties had been in partnership repairing tyres and servicing motor vehicles, Razaq carrying out the work and Baig contributing the use of his premises. They then formed a company which carried on the same business with the help of a third participant, until the company was dissolved in 2018.  Razaq wished to continue the business and entered into negotiations with Baig for a new lease of the premises, but negotiations  eventually broke down and Baig took possession of the property.

The court considered that there was no seriously arguable case that the partnership could continue beyond Razaq’s exclusion from the property, given that s32 of the Partnership Act 1890 allowed a partnership to be terminated by notice of intention to dissolve, and the exclusion implied the giving of such notice. However, this did not resolve the issue because, as established in Lie v Mohile [2014] EWHC 3709 (Ch), a partner who owned the premises from which the partnership business was carried out was taken, after a dissolution, to have granted a licence to the other partner to enter the premises for the purposes of the partnership business. Dissolution would not terminate the licence since the business itself was not thereby terminated but continued for the purpose of winding up. However, Lie did not mean that a former partner had the right to occupy the premises forever. The court therefore ordered that Razaq must be allowed a reasonable period to wind up the business and dispose of the assets.

 

Boyle v Burke and Cave [2019] EWHC 3364 (Ch)

Boyle was a retired partner entitled to a pension from the partnership. He claimed that the partnership had dissolved when the business was transferred to a company set up for the purpose, and that event triggered an entitlement under the partnership agreement to a lump sum to cover future pension benefits.  The defendant partners argued that the partnership had continued despite the transfer of the business.

The court noted that in NatWest v Jones [2001] BCLC 98, in which a partnership business was transferred to a company set up for the purpose, and the only possible ongoing business was the collection of rent under a farm tenancy granted by the partners to the company, it had been held that the mere fact that the partners ceased trading did not end the partnership. Similarly, in Chahal v Mahal [2005] BCLC 655 it had been held that although it could be inferred from the transfer of all the assets and operational activities of the partnership to a company, that the partners had actually agreed to end the partnership, such an inference would not always be possible.

The court emphasised that the definition of a partnership in s1 of the Partnership Act 1890 – two or more persons carrying on a business in common with a view of profit – need only be satisfied in order for the partnership to be formed; it was not a continuing requirement and a partnership could only end through dissolution, and not through failure to satisfy the requirements of s1. It therefore concluded that mere cessation of the partnership’s business here was insufficient to establish that the partnership had dissolved, and there was no evidence of any agreement by the defendants to dissolve it. The provisions of the partnership agreement as to the provision of a lump sum pension entitlement on dissolution therefore did not come into force.

Summaries of partnership regulation in India, Mexico, Saudi Arabia and Switzerland

Lexology has published some potentially useful summaries of partnership regulation (as opposed to structures, as per some previous posts) in different countries.

India - https://www.lexology.com/library/detail.aspx?g=1d4476df-14a7-461a-bcf7-654a9dabe92e&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2019-12-20&utm_term=

Mexico - https://www.lexology.com/library/detail.aspx?g=8b15290e-9ba8-4cf2-ab0f-4616f477947c&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2019-12-20&utm_term=

Saudi Arabia - https://www.lexology.com/library/detail.aspx?g=7bcc1b84-3116-4201-a5ce-34f6813abb15&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2019-12-20&utm_term=

Switzerland - https://www.lexology.com/library/detail.aspx?g=739d5a84-1e0a-47cf-a66c-551b28be25dc&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2019-12-20&utm_term=

(if you need to subscribe to Lexology to access it, it is free do do so - see further https://www.lexology.com/account/rss)

Summaries of partnership regulation in Brazil, Colombia and France

Lexology has published some potentially useful summaries of partnership regulation (as opposed to structures, as per some previous posts) in different countries.

Brazil - https://www.lexology.com/library/detail.aspx?g=39f1c99d-a58b-4324-badd-96b98c83b5dc&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2019-12-13&utm_term=

Colombia - https://www.lexology.com/library/detail.aspx?g=6223b6f9-2670-4566-ad34-ae8980010670&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2019-12-13&utm_term=

France - https://www.lexology.com/library/detail.aspx?g=a56c3f11-48a5-4e09-b6bd-ef0da92479cb&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2019-12-13&utm_term=

(if you need to subscribe to Lexology to access it, it is free do do so - see further https://www.lexology.com/account/rss)

US case on derivative claims on behalf of LLCs

In the recent US case of Hopkins v Ackerman the court ruled that derivative claims* could not be brought on behalf of an LLC which had been cancelled.**

Commentary on the case by US law firm Patterson Belknap can be found at:

https://www.pbwt.com/ny-commercial-division-blog/commercial-division-closes-door-to-derivative-claims-on-behalf-of-cancelled-llc/

* A derivative claim is one brought by a member of a firm on its behalf when a wrong has been done to the firm but the firm itself has not taken action against the wrongdoer (often because the wrongdoer controls the firm). In the UK, a derivative claim may be brought in the name of an LLP pursuant to the exceptions to the rule in Foss v Harbottle, or in the name of a company pursuant to ss260 et seq of the Companies Act 2006 - provisions which have not been applied to LLPs, hence the continued application of the common law).

** Cancellation is the final stage in the termination of a US LLC after dissolution and winding up.

UK case on duration of a partnership, partnership property and unjust enrichment of one partner at the expense of another

Smith and Patrick v Crawshaw [2019] EWHC 2507 (Ch)

This case involved a property development partnership which was carried on between the  testatrix and the defendant. It was dissolved by the death of the testatrix, and the executors of her estate brought a number of claims against the defendant. The following elements of the judgment are of particular interest to partnership lawyers.

First, the court held that there was only one partnership. There was no evidence of any dissolution of the original partnership after the first development project had been completed, and a number of other projects were carried out subsequently under the provisions of the original agreement. The fact that a new agreement was reached subsequently was not inconsistent with a continued partnership.

Second, the property acquired in the defendant’s sole name was a partnership asset because the purchase money came from partnership funds and s21 of the Partnership Act provided that unless the contrary intention appeared, property bought with partnership money was deemed to be bought on its account.

Third, the court rejected the defendant’s claim for restitution for unjust enrichment for his work for the partnership, because s24(6) of the Partnership Act provided that in the absence of any contrary agreement no partner was entitled to remuneration for acting in the partnership business, and in any event the enrichment here was not unjust because the defendant’s services were specified in the agreement and had been remunerated by the profit share set out in that agreement.

New case on winding up of qausi-partnership companies

Tarloch Singh Badyal v Malkiat Singh Badyal and others [2019] EWCA Civ 1644

This case involved an appeal against the refusal of the High Court to order the winding up under s122(1)(g) of the Insolvency Act 1986 (IA 1986) of a ‘quasi-partnership’ company (i.e. a company that was in substance, though not in form, a partnership) owned by three brothers and their father.

The Court of Appeal noted Lord Lindley’s comments in his Treatise on the Law of Partnership cited in Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426, that the court must be satisfied that that it was impossible for the participants to place the confidence in each other which they had a right to expect, and that such impossibility had not been caused by the person seeking to take advantage of it. A breakdown in mutual trust and confidence was only one of three relevant factors referred to by Lord Wilberforce in Re Westbourne Galleries [1973] AC 360, and the appellant’s behaviour lacked the other two, probity and good faith, principally because of his involvement in a competitor company. Where a petitioner was solely responsible for a breakdown in confidence because of his own misconduct, he did not qualify for relief under s122.

Note also David Milman's recent article ‘Legal characterisation of commercial relationships in the UK: the quasi-partnership example' (2019) 40(10) Company Lawyer 312.

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

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