Partnership Firm

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Partnership Firm

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Partnership Firm

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Question:
Was there a Partnership between Chas, Dave, Sally and Lindy? Provide arguments for and against.

Answer:

Issue
The central concern is to determine if there is a partnership existing between Chas, Dave, Sally and Lindy.
Relevant Law
A partnership firm may be defined as follows.
“An ordinary partnership is a partnership composed of definite individuals bound together by contract between themselves to continue combined for some joint object, either during pleasure or during a limited time, and is essentially composed of the persons originally entering into the contract with one another” – James LJ in Smith v Anderson[1].
As per s.1 of the Partnership Act 1892, the following three conditions need to be satisfied in order to ensure that there is a partnership.
The business being carried on – This typically emphasis on the underlying business activity being of continuous nature rather than being an isolated activity as indicated by the verdict in the Smith v Anderson[2]. Isolated undertakings are commonly referred to as joint ventures. However, in the recent times, even partnerships formed for isolated events or transactions have also been termed as partnership taking into consideration the underlying scope and nature of the activities[3]. This is apparent from the verdict of the United Dominions Corporation Ltd v Brian Pty Ltd[4] Further, in the verdict of Television Broadcasters Ltd v Ashton’s Nominees Pty Ltd[5], it is apparent that in case of joint venture, there is absence of any agreement (whether oral or written) which tends to lead to mutual obligations and this critically separates a joint venture from a partnership[6].
The carrying of the business must be in common – This implies that the business activity must be carried by partners and in their respective names. Further, the partners jointly need to be responsible for the actions undertaken by the firm and the consequent profits or losses resulting from the same[7]. The common involvement of the partners is adjudged from their respective rights and obligations rather than the actual words used in the partnership agreement, This has been highlighted in the verdict of the Re vs Ruddock[8] where due to the conduct of the parties and their respective rights, it was opined by the honourable judge that a partnership existed[9].
The profit motive has to be present- It is imperative that the underlying activities indulged into by the partnership should be with the profit motive and not for charity. This essentially separates a partnership from charities, clubs and associations which are not driven by profit. It is noteworthy that the Partnership Act does not define the profits and the same is taken as addition of value[10].

Application
Based on the given information, it is apparent that the given activity in which the business engaged was essentially an isolated event which was not replicated by the concerned individuals i.e. Chas, Dave, Sally and Lindy. Additionally, there was no partnership agreement between the four individuals specifying the actual rights and obligations. Further, post the organization of the event, there was no attempt by the individuals to initiate another event and later there was no dissolution of the partnership as Chas, Dave returned to US. This indicates that there does not seem to be any formal relationship between the given individuals which binds them together as partner. There also seems to be lack of fiduciary duty arising towards each other in the given scenario as there is no mention of the same.
However, the event was organised with the profit motive which is one of the conditions required for partnership. Further, all four individuals were together involved in the cooking and selling of the food which highlights the possibility of the partnership. Also, isolated transactions can be termed as partnership also which further indicates the possibility of partnership. These facts indicate the possibility of the existence of a partnership between the concerned individuals. There is possibility of all the necessary conditions for a partnership being fulfilled.
Conclusion
But clearly, in the given case, there does not seem to be a partnership considering the lack of mutual relationship between the partners which is also apparent from their respective activities after the event. Also, there is no information provided with regards to mutual obligations and fiduciary duties that the individuals have towards each other which are not reflected in their actions or any agreement (verbal or written). Hence, it may be inferred that there is no partnership relation existing between the given individuals.

References
Books
Andy Gibson, Douglas Fraser, Business Law (Pearson Publications., 8th e, 2014)
Callie Harvey, Foundations of Australian law (Tilde University Press, 3rd ed, 2009)
Robert Bryan Vermeesch, Kevin Edmund Lindgren, Business Law of Australia (Butterworths, 12th ed. 2011)
Shayne Davenport, Business and Law in Australia (Thomson Reuters, 4th ed, 2012)
Case law
James LJ in Smith v Anderson (1880) 15 Ch D 247 at 273
Re vs Ruddock (1879) 5 VLR (IP & M) 51
Smith v Anderson (1880) 15 Ch D 247
Television Broadcasters Ltd v Ashton’s Nominees Pty Ltd (1979) 22 SASR 552
United Dominions Corporation Ltd v Brian Pty Ltd and others (1985) 157 CLR 1
James LJ in Smith v Anderson (1880) 15 Ch D 247 at 273
Smith v Anderson (1880) 15 Ch D 247
Vermeesch Robert Bryan, Lindgren Kevin Edmund, Business Law of Australia (Butterworths, 12th ed. 2011) 201-1.
United Dominions Corporation Ltd v Brian Pty Ltd and others (1985) 157 CLR 1
Television Broadcasters Ltd v Ashton’s Nominees Pty Ltd (1979) 22 SASR 552
Harvey Callie, Foundations of Australian law (Tilde University Press, 3rd ed, 2009) 701-11.
Ibid 2.
Re vs Ruddock (1879) 5 VLR (IP & M) 51
Davenport Shayne, Business and Law in Australia (Thomson Reuters, 4th ed, 2012) 40-2.
Gibson Andy, Fraser Douglas, Business Law (Pearson Publications., 8th ed. 2014) 84-7

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