Howdy Partner

Tuesday 22 May 2012

A partnership is one of many options available when running a business. Partners will frequently share profits and losses and will usually be bound by a Partnership Agreement which will govern their relationship. Partnership disputes are common and can be complicated by the lack of a formal Partnership Agreement. In some circumstances this can even lead to parties disputing the very existence of a partnership.

In the case of Geary v Rankine the Court of Appeal considered whether a former couple who had run a guest house business together were in partnership.

Section 1 of the Partnership Act 1890 provides the definition of a partnership; that is persons carrying on a business in common with a view to making a profit.

In the Geary case, the parties had lived together and had a child. They were not married because the Claimant was still married to her previous husband. The Defendant had purchased a guest house with his own money, with the property being registered in his sole name. The bank account for the guest house was also in his sole name. The Defendant ran the business. The Claimant assisted at the guest house by carrying out cleaning and accounting tasks.

During the course of their relationship, the Defendant had clearly stated that he did not wish the business or the property to be in their joint names, in case the venture failed. He had also confirmed that he would not alter his Will to include the Claimant or support her financially whilst she remained married to her husband.

The relationship between the parties broke down and the Claimant sought a declaration from the Court that she had a beneficial interest in the guest house and that the parties had operated the business under a partnership.

The Judge rejected the claim on the basis that there had been no common intention that the guest house had been jointly owned or that the business had been run as a partnership. The Claimant appealed.

The Court of Appeal upheld the decision and concluded that a partnership had not existed between the parties. This was on the basis that there was no evidence that a partnership had been intended; there was no joint bank account, no shared profits and the accounts were drawn up in the name of the Defendant. Furthermore, the Defendant had expressed clear views regarding his Will and the marital status of the Claimant. This all led the Court to conclude that there had been no intention to create a partnership.

As the Defendant had purchased the guest house in his own name and with his own funds, there was no intention that the property would be held on a joint basis. The Claimant was therefore not entitled to any beneficial interest in the property.

Individuals operating within a partnership should have a professionally drafted Partnership Agreement to protect them in the event the relationship breaks down. That Agreement will reflect clearly the intentions of the partners and avoid the uncertainty and costs associated with the Court having to interpret the intentions of the parties after the event.

The dissolution of a partnership can raise some difficult issues in respect of which legal advice should be sought at an early stage, particularly where there is a risk of one partner dissipating assets of the partnership.