Gregory Wild v Malcolm Wild, Jean Wild and Abigail Wild [2018] EWHC 2197 (Ch)
The claimant and the first defendant were brothers who had been partners in a dairy farm, and associated retail milk business. The partnership had been established in 1978 by their late father (who had inherited the farm from his parents) and the first defendant, and was dissolved in 2016. The claimant alleged that the farm was partnership property. The defendants disputed this but argued that the claimant’s milk round, which he continued after the dissolution, was a partnership asset even though the first defendant had stopped supplying him with milk from the partnership herd.
Section 20(1) of the Partnership Act 1890 provides that ‘property and rights and interests in property originally brought into the partnerships stock….are called in this Act partnership property, and the question therefore arose whether the father had brought the farm into the partnership stock. The court held that the key issue was whether the partners had agreed or consented to the property becoming partnership property. However, although the relevant agreement or consent could be inferred or arise by implication, no more agreement should be inferred by the court than was absolutely necessary to give business efficacy to what had happened (Miles v Clarke [1953] 1 WLR 587 at 540). The fact that a particular item of property was used by a partnership for the purposes of its business did not necessarily give rise to an inference that the partners had agreed that the item was to be a partnership asset, and the implication of such a term was not normally necessary to give business efficacy to the partnership. This was particularly so in the case of land used by a farming partnership (Ham v Bell and others [2016] EWHC 1791). Nor was it determinative that the item had been included in the partnership accounts.
The court concluded that it would have been surprising had the father made the farm an asset of a partnership which he had just formed with his 16 year old son when the farmhouse was his home, the first defendant was not his only child, and the partnership was created for tax purposes. It was therefore not open to the court to infer an agreement or imply a term that the farm was brought into the partnership stock. However, the claimant’s milk round was a partnership asset despite the fact that the first defendant had ceased to supply the claimant with partnership milk, because the claimant continued to use a milk float which was a partnership asset, and the goodwill in the customers of the milk round was a partnership asset.
Milne, Liquidator of Premier Housewares (Scotland) LLP) v Rashid [2018] CSOH 23
The liquidator of an LLP sought an order against the respondent, who was a member of the LLP, under s214A of the Insolvency Act 1986 (IA 1986). In the event of an insolvency, the LLP Regulations 2001 create an additional sanction for LLP members which is not applicable to companies, the so-called ‘clawback’ under s214A IA 1986. This provides that in a winding up of an LLP the court can order an LLP member to make a contribution to the LLP’s assets if, within two years before the commencement of the winding up, that member withdrew LLP property (described in Milne as ‘limb 1’), and it is proved to the court’s satisfaction that he knew or had reasonable grounds for believing that the LLP was at the time of the withdrawal unable to pay its debts within the meaning of s123 IA 1986 or would become so unable after that withdrawal (‘limb 2’). Section 214A further provides that the court may not make an order unless the member knew or ought to have concluded that after the withdrawal there was no reasonable prospect of the LLP avoiding insolvent liquidation, taking into account his actual knowledge, skill and experience and that reasonably to be expected of a person carrying out the same functions as him (‘limb 3’). In Milne, the court was concerned with the Scottish version of s214A but the minor differences between that version and the English version were not at issue.
It was undisputed that limb 1 of the test was met, and the court also held that limb 2 was met because s123 deemed an LLP to be unable to pay its debts in certain circumstances, including it being unable to pay its debts as they fell due, which did not mean that a business which was currently paying its debts as they fell due could not be deemed to be unable to pay its debts since it was concerned not only with debts presently due, but also those due from time to time in the reasonably near future; and its assets being less than its prospective and contingent liabilities, although it was not conclusive that liabilities exceeded assets at a particular point in time but whether the LLP could reasonably be expected to meet its prospective and contingent liabilities. Although the respondent in Milne did not know, nor ought he to have concluded, that the LLP was unable to pay its debts as they fell due, he knew or ought to have concluded that the LLP could not reasonably be expected to meet its liabilities and therefore had reasonable grounds to believe that the LLP was unable to pay its debts. However, the fact that limb 2 was met did not did not mean that limb 3 was also met, and the court concluded that it was not. There was a reasonable prospect of the LLP avoiding insolvent liquidation and so the respondent could not have known, nor ought he to have concluded, that there was no such prospect. A s214A contribution order should therefore not be made against him.
Cheema v Jones and others [2017] EWCA Civ 1706
Cheema and Jones were doctors who had practised in partnership together and had subsequently invited three more partners to join them. Negotiations on the terms of the new partnership continued after the three new partners had started work. When the relationship between Cheema and Jones broke down, Jones sought to prevent Cheema from practising as a doctor at the practice. Cheema claimed that the partnership of five partners had never been formed and was granted an interim injunction to restrain Jones from preventing him exercising his rights under the original partnership agreement. Jones then purported to give notice dissolving the partnership at will between the five partners.
The Court of Appeal held that a new partnership at will between the five partners had come into existence when the three new partners had joined the original two, and that this had been validly dissolved by the giving of notice. Since the discussions about the new partnership were focussed on a new agreement and there was no reference to the old agreement as a fall-back position, it was to be inferred that Jones and Cheema intended to abandon the old agreement and enter into a new contractual relationship which would supersede the old partnership. The fact that no new agreement was signed did not affect that inference. Although dicta in Austen v Boys suggested that if a new partner was taken into a partnership without specifying the terms on which he became a partner, the original partnership agreement would govern the new relationship, that dicta concerned the different situation of a new partner being admitted in the absence of any intention by either the existing or the new partners to enter into a new agreement. Here,` there was no evidence that the new partners intended to be bound by the original agreement, or even that they had all seen it.