Corporate and Partnership Law - Lesson 4

Rights

• Section 21 of Partnership Act (PA) stated that what every thing that have been done by the partner must be based on mutual right either stated in the agreement or inferred from a course dealing

1. Capital and profits

• Section 26 (a) of PA
• This section stated that share, profit and capital must be equally divided
• Nevertheless, by way of agreement, the division can be varied

2. Indemnity

• Section 26 (b) of PA
• This section stated that a person who resolves the liability of the firm has to be indemnify in respect of payments made and personal liabilities incurred to him

Koh Hong Leong & Ors v Seow Koh Cheng & Ors
FACT: The respondent (R) has succeeded in the defence to an action against the firm the firm . It involved a claim amounting to RM4,000 for damages of breach of contract. When the partnership is dissolves, the court ordered that the legal cost incurred by the R is paid from the firm's asset . The order however was objected by the Appellant (A) who then make appeal to the appeal court
HELD: The court held that the firm or the partnership has the duty to indemnify the partner who has paid that amount R

3. Interest on the extra capital subscribed

• Section 26 (c) of PA
• This section stated that when a partner has put on extra capital to the firm, he is entitled to interest of 8% per annum from the date of the payment or advance
• The interest is given due to the fact that the extra capital shall be regarded as loan by the firm

4. Interest on capital subscribed

• Section 26 (d) of PA
• This section stated that in regarding to the payment of interest, the firm need to make a profit first before the interest can be made
• This section is closely related to Section 26 (c) of PA

5. Management of the partnership business

• Section 26 (e) of PA
• This section stated that every partner shall be entitled to be involved in the management of the firm

6. Remuneration

• Section 26 (f) of PA
• This section stated that partner's are not entitled for a salary from the partnership
  Nevertheless, 'salary partner' can exist provided that it was stated clearly in the agreement

7. Introduction of a new partner

• Section 26 (g) of PA
• This section stated that in order for a new partner to be brought into the partnership, consent of all existing partners are needed

Byrne v Reid
FACT: Pursuant to a partnership agreement, a father is empowered to nominate his son as partner. However when the father did so, the other partner refused to accept it
HELD: The court held that the written agreement allowed the son to be the partners in the firm

8. Differences as to ordinary matters

• Section 26 (h) of PA
• This section stated that if there is any differences as to any ordinary matters shall be decided by a majority of the partner
• Nevertheless, if there is a proposal to change the nature of the business, consent from all of the partners need to be obtained first

Highly v Walker
FACT: There are 3 partners who have different views or perspective on how the partnership business should be run. The plaintiff (P) who is one of the partner applied for an injunction to prevent the other 2 partners who had resole to introduce into the partnership is son with a view to venture into new business
ISSUE: Whether the decision relate to an ordinary matter connected with the partnership
HELD: The court held that this matter is in relation on ordinary matter concerning the partnership business and not related to the introduction of a new partner. Hence, the majority of the partner is sufficient because the son will only be needed for his expertise

9. Partnership book

• Section 26 (i) of PA
• This section stated that partnership book need to be kept at the place of the business of the partnership
• Further, every partner shall have the access and rights to inspect or copy it

Bevan v Webb
FACT: The sleeping partner in a partnership decided to sell their interest to the managing partner. For the purpose of valuation, the sleeping partner had appointed a valuer to inspect the book of the partnership. Nonetheless, the managing partner refuse to allow him to have access to it. The sleeping partner then applied for an injunction from the court to allowed the valuer to gain access to the partnership book for the purpose of evaluation
HELD: The court held that injunction will be granted to the sleeping partner and the valuer

10. Expulsion

• Section 27 of PA
• This section stated that a majority cannot expel any partner unless it was stated by an express agreement between the partner
• If there is no agreement made between the partners, the expulsion cannot be made unless the matter are bring to the court

Re a Solicitor's Arbitration
FACT: E, N and S are partners in a legal firm. In the partnership agreement, there was a clause stated that if any partner shall commit or be guilty on any act of professional misconduct, then the other partner may by notice in writing, expel him from the partnership. E served on the other 2 partners a notice to expel both of them from the partnership on the ground of their alleged misconduct
HELD: The court held that E had no power to expel both of them as he is not a majority. Alternatively, E will have to join with any 1 of N and S to expel 1 partner in the partnership

Green v Howell
FACT: there is a clause in the partnership agreement stated tat in the event of any one of the partner breach any duty as a partner, the other partner are not entitled to expel them unless there is a good faith. Subsequently, 1 of the partner had breach the partnership agreement
HELD: The court held that a preliminary warning us needed and meeting must be held before expulsion can be executed. Furthermore, the partner who may be expel need to be given a right to explain himself as stated in the natural justice

Duties

• Duties of a partners are laid down under section 30, 31 and 32 of PA
• Each partner has the duty of good faith to the other partner in the partnership
• Utmost good faith is due from every member of a partnership towards every other member of the partnership and in terms of allegation made by any of the partners stating that the other partners are making benefit to themselves at the expense of the partnership are required to show that not only the law was on their side but his also bear that their conduct are to be tried by the highest standard of honour

Vasu Devan & Ors v VA Nair
FACT: A firm was formed by the respondent (R), first appellant (1P) and the second appellant (2P). The business of the partnership however was not successful. It was then being decided that a limited company should be formed to buy over the firm and the 1P are given the directorship of the company. R denied the agreement and also alleged that the buying of the company was made in a fraudulent manner.
HELD: The court held that the 1P and the 2P did not provide an utmost good faith to the R, thus, the agreement was null and void

i. Duty to render true accounts and full information

• Section 30 of PA
• Partners are bound to render true accounts and full information about the partnership business
• In a simple way what ever that you do in the partnership, you need to do it with sincerity, faithful and committed

Law v Law
FACT: The defendant (D) acquired the plaintiff's (P) shares for an amount that is less than what he paid. P then upon realising that the fact then sue D on the ground that he failed to disclosed a number of assets to him
HELD: The court held that D has a duty to disclose all material facts with reference to the assets.

ii. Duty to account for any benefit derived from any transaction concerning the partnership

• Section 31 of PA
• Partners are not accountability for a secret or private profit

Pathirana v Pathirana
FACT: Both plaintiff (P) and the defendant (D) are partners in a partnership. The partnership belonged to a company who has appointed them as an agent of the company. D gave 3 months notice to terminate the partnership, but negotiated a new agreement with the company to transferred the agency into his own name. Not only that, he also continued to trade in the same way at the same premises of the previous partnership
HELD: The court held that P was entitled to a share in the profits form D business. the agency agreement was a partnership asset and D's use of it was a breach of fiduciary duty

iii. Duty to account for profit derived from competing business

• Any profit from a competing business must be credited to the partnership account
• In Trimble v Goldberg, a partners is forbid from withholding from the firm any opportunity of advantage which falls within the scope of its undertakings, and from using for his own exclusive benefits, information, knowledge or resources to which the firm is entitled

Partnership property

i. Section 22 (1) of PA

• The meaning of partnership property is any property that has been brought in originally into the partnership by way of purchase or acquired, and has been used in the course of the partnership business
• The property must be used and applied for the partnership business

Miles v Clarke
FACT: the defendant (D) was a professional photograph who carried on his business at premises which he lease for 7 years from 1948. 2 years later, he entered into a partnership with the plaintiff (P). When the partnership broke up due to a dispute arose between them, P alleged that consumable stock-in-trade, the personal connection brought in by each partner, the lease of the premises and the furniture, fitting, and equipment of the studios shall be regarded as the partnership property
ISSUE: Whether the premises can be considered as the partnership property
HELD: The court held that only consumable stock-in-trade belonged to the partnership property

Davis v Games
HELD: The court held in this case stated that 2 person can be a co-owner of a piece of land and partners at a same time. However they can do business on the land without it forming part of the firm assets

ii. Section 22 (2) of PA

iii. Section 23 of PA

• Property bought using the partnership money is a partnership property unless there is a contrary intention
• In Ponnukon v Jebaratnam, the property was held not to be partnership property because it was not paid for by the funds of the partnership but the funds raised by a partner on his own separate act independently of the other partner or of the partnership

Shares in the partnership and assignment

i. Section 26 (g) of PA

• Who ever wanted to possess any shares in the partnership need to be a partner first

ii. Section 33 (1) of PA

• Assignment is a transfer of right
• The assignee of an assignor shares can only received profit from the shares but not participate in the management or administration of the partnership
• In Oh Kian Loo v Hock Wah Trading Co & Ors, the court stated that the right does not extend to assignees of partnership shares

Dissolution of partnership

1. Court interference/orders

a. Fixed term

• Section 34 of PA
• A partnership can be formed in a limited period, where the term of its existence are put in the agreement
• When the time lapsed, the partnership will be automatically dissolved

b Completion of an event or undertaking

• A partnership may be form in order to served for a certain event or undertaking
• After the event or undertaking is finish, the partnership shall be dissolve

c. Notice

• Section 28 of PA
• Partnership can be dissolve after a notice has been given to the public at large

d. Death or bankruptcy

• Section 35 (1) of PA
• Every partnership will be dissolve as regards regards all the partners by the death or bankruptcy

e. Illegality

• Section 36 of PA
• A business of a partnership that is unlawful in the eye of the law will effect in the dissolution of the partnership

2. With court interference/orders

• Section 37 of PA

i. Insanity
ii. Permanent incapacity
iii.Conduct of a partner that cause prejudice to the business - A religion motivator of a partnership flirting with the people that he motivated
iv. Wilful or persistence breach of the partnership agreement - A partner in a construction company by a cheap and unquality product
v. The business is at losses
vi. When the court feel it is just an equitable to dissolve the partnership

This is the end of Partnership Law. But it will continued with Companies Law. Hope this will teach us a bit about partnership. :-)