A partnership between a group intending to open a restaurant began when the parties joined together the find the premises, and fit it out. The partnership had come into existence even though they had not commenced trading by opening the restaurant. Two partners discovered that the land had been conveyed into the sole name of the third, and the relationships broke down.
Held: Whether a partnership had come into existence, and the property held on trust for the partnership was a question of fact. The question to be answered was whether they had actually embarked upon the venture which they had agreed. ‘The various provisions of the Act which contain the terms to be implied into a partnership unless otherwise agreed are not statutory presumptions but default provisions. Very slight evidence is needed to exclude them.’ Appeal allowed.
Lord Millett said: ‘Whether parties who propose entering into a business venture in partnership together have actually done so is a question of fact into which your Lordships would not normally enter. But the majority of the Court of Appeal did not reverse the judge’s findings of fact. They reversed his conclusions because they considered that there was a rule of law that the parties to a joint venture do not become partners until actual trading commences. They recognised the distinction between a contemplated partnership or an agreement to become partners and the partnership itself. They considered that it was necessary first to identify the business that it was intended or agreed should be conducted by the partnership, and then decide whether that business was being carried on by the partners at the material time. They identified the business of the partnership as the carrying on of a restaurant business from the premises in Newbury, and posed the question, at p 486H: ‘were the four parties . . carrying on a restaurant business at [the premises] prior to 25 January 1994?’. So expressed, the question could only be answered in one way. The restaurant was not open for business. There was nothing for the first defendant to manage, and no function for the two chefs to perform. No food had been bought or bookings taken. Everything that had been done was preparatory to the commencement of trading.
. . There is no rule of law that the parties to a joint venture do not become partners until actual trading commences. The rule is that persons who agree to carry on a business activity as a joint venture do not become partners until they actually embark on the activity in question. It is necessary to identify the venture in order to decide whether the parties have actually embarked upon it, but it is not necessary to attach any particular name to it. Any commercial activity which is capable of being carried on by an individual is capable of being carried on in partnership. Many businesses require a great deal of expenditure to be incurred before trading commences. Films, for example, are commonly (for tax reasons) produced by limited partnerships. The making of a film is a business activity, at least if it is genuinely conducted with a view of profit. But the film rights have to be bought, the script commissioned, locations found, the director, actors and cameramen engaged, and the studio hired, long before the cameras start to roll.
The work of finding, acquiring and fitting out a shop or restaurant begins long before the premises are open for business and the first customers walk through the door. Such work is undertaken with a view of profit, and may be undertaken as well by partners as by a sole trader.
The question in the present case is not whether the parties ‘had so far advanced towards the establishment of a restaurant as properly to be described as having entered upon the trade of running a restaurant’, for it does not matter how the enterprise should properly be described. The question is whether they had actually embarked upon the venture on which they had agreed. The mutual rights and obligations of the parties do not depend on whether their relationship broke up the day before or the day after they opened the restaurant, but on whether it broke up before or after they actually transacted any business of the joint venture. The question is not whether the restaurant had commenced trading, but whether the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage. Once the judge found that the assets had been acquired, the liabilities incurred and the expenditure laid out in the course of the joint venture and with the authority of all parties, the conclusion inevitably followed.’
Judges:
Lord Bingham of Cornhill Lord Steyn Lord Hoffmann Lord Clyde Lord Millett
Citations:
Times 07-Nov-2000, Gazette 23-Nov-2000, [2000] UKHL 55, [2000] 1 WLR 2123, [2001] 1 All ER 20, [2001] 1 All ER (Comm) 282, [2000] All ER (D) 1647
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Citing:
Appeal from – Khan and others v Miah and others CA 3-Dec-1997
An agreement to set up a business, which went as far as including some preparatory acts, was not a partnership until there was some actual trading. Whether a partnership had come into existence was a question of fact in the particular circumstances. . .
Cited – Birmingham and District Cattle By-Products Co Ltd v Inland Revenue Commissioners 1919
A company had not completed a full trade year before the outbreak of the First World War was required to obtain tax relief. . .
Lists of cited by and citing cases may be incomplete.
Company
Updated: 19 May 2022; Ref: scu.82757