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JANICE OOI
FACULTY OF LAW
PARTNERSHIP LAW
Partners’ Relations with Each Other
Section 11
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Partnership as branch of agency

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Partnership as branch of contract

•

Mutual rights and liabilities are to be decided by contract whether implied or expressed
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right to restrict partners from doing any other business
...


•

Contradiction the contractual obligations and Law of Partnership – Partnership Act to
prevail

(INDIAN CONTRACT ACT, 1872=ICA,)

MALAYSIA
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



Sec 26 -‘subject to any agreement’
- secondary in nature

Tan Eng Choon v Foo Kai Yuen
Mutual duties & rights maybe set up in the partnership agreement
...
Capital and profits


Section 26 (a) of PA, Subject to any agreement express or implied between the
partners, all the partners are entitled to share equally in the capital and profits of the
business, and must contribute equally towards the losses of capital or otherwise
sustained by the firm



This section stated that share, profit and capital must be equally divided



Nevertheless, by way of agreement, the division can be varied

JANICE OOI
FACULTY OF LAW
BINNEY V MUTRIE
Held: In the absence of the agreement to the contrary the partner must divide the profit
and shared the losses equally
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If one of the
partners could not paid off his liability (maybe due to insolvency), the other partners are
under no duty to pay/make contribution for him
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A deficit arose by default of
one partner who failed to contribute his share of deficiency- I
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a deficit arose
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Further held nothing in PA 1890 which hold a solvent partner liable to contribute for an
insolvent partner who failed to pay his share
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Indemnity


Section 26 (b) of PA, Subject to any agreement express or implied between the
partners, the firm must indemnify every partner in respect of payments made and
personal liabilities incurred by him



Firm will indemnify any payment/liabilities incurred:
- In the ordinary and proper conduct of the firm’s biz or
- Is necessary to preserve the business or property of the firm



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

MATTHEW V RUGGLES
A lease hold was given to C & M (partners)
...
C died and followed by M
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The firm was insolvent and the action was settled by
surrender of the lease and payment of a certain amount
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Held: Action succeeded
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JANICE OOI
FACULTY OF LAW
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
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When the
partnership is dissolves, the court ordered that the legal cost incurred by the R is paid from the
firm's asset
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ONG KENG HUAT V HONG KONG UNITED CO LTD
Facts: Parties formed a p’ship for the purpose of operating a cinema
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was entrusted
with the management of the cinema
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The other 2 parties sued the appellant for breach of duty
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The
App
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3
...




Lord Lindley: Such an advance is not treated as an increase of capital but rather as a loan
on which interest ought to be paid
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Interest on capital subscribed


Section 26 (d) of PA, Subject to any agreement express or implied between the
partners, a partner is not entitled, before the ascertainment of profits, to interest on the
capital subscribed by him
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Management of the partnership business


Section 26 (e) of PA, Subject to any agreement express or implied between the
partners, every partner may take part in the management of the partnership business
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Remuneration


Section 26 (f) of PA, Subject to any agreement express or implied between the
partners, no partner is entitled to remuneration for acting in the partnership business
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

If a partner has to do all the work due to death, sickness, retirement etc –
entitle to a remuneration

AIREY V BONHAM
Upon death of another partner, he becomes an executor – NOT entitle for a
remuneration

7
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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
Clause in the partnership provides ‘ a partner has power to nominate his son as a partner’

JANICE OOI
FACULTY OF LAW
A partner did so but other partners refused to accept him
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The partners are considered to have
consented in advance to the sons nomination
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Differences as to ordinary matters


Section 26 (h) of PA, Any difference arising as to ordinary matters connected with the
partnership business may be decided by a majority of the partners, but no change may
be made in the nature of the partnership business without the consent of all existing
partners



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



Decision making:
Differences as to ordinary matters;
-by majority
Changing the nature of the business;
-consent by all

Highly v Walker
FACT: There are 3 partners who have different views or perspective on how the partnership
business should be run
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Hence, the majority
of the partner is sufficient because the son will only be needed for his expertise
Tham Kok Cheong v Low Pui Heng
One of the partners in the firm was not inform in the sale of the partnership
...
e
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Held: As the plaintiff had not consented and aware of the sale of the partnership
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Partnership exist until the date when the plaintiff was informed
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Partnership book


Section 26 (i) of PA, Subject to any agreement express or implied between the partners,
the partnership books are to be kept at the place of business and every partner may
when he thinks fit, have access to and inspect and copy any of the them
...
”

Bevan v Webb
FACT: The sleeping partner in a partnership decided to sell their interest to the managing
partner
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Nonetheless, the managing partner refuse to allow him to have access
to it
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Right of inspection could be delegated to an agent provided:
i)

He was a person accepted by all partner (no reasonable objection frm them)

ii)

Undertake that he will not use the information gather for any other purposes

Gan Khuan v Tan Jin Luan
the above decision was approved
Facts: An independent accountant was appointed by a partner
Held: An agent of a partner has a right to inspect and make copies of the firm’s book if…

10
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

If there is no agreement made between the partners, the expulsion cannot be made
unless the matter are bring to the court

JANICE OOI
FACULTY OF LAW
Re a Solicitor's Arbitration
FACT: E, N and S are partners in a legal firm
...
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
...
A clause in PA provides “If any partner shall commit or be guilty
of any act of professional misconduct…the other partners may by notice in writing given to
him …expel him from the partnership” One of the partners served on the other two partners a
notice that expel them on the ground of misconduct
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He must join with anyone of the other two partners
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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
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Blisset v Daniel
‘power of expulsion should be exercised in good faith’
H: Notice of expulsion was invalid – not in good faith
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The majority expelled B but give no detail about the
act complained of
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Good faith requires that B should be informed about the cause
of complaint and he should be allowed to answer the allegation
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The facts provided that the act of expulsion was done in good
faith
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JANICE OOI
FACULTY OF LAW

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



To do things in the interest of the firm, not personal interest
...




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

R v Lee Kiong Kiat
Terrel J:
One has to remember what a partnership is
...

Vasu Devan & Ors v VA Nair
FACT: A firm was formed by the respondent (R), first appellant (1P) and the second appellant
(2P)
...
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
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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
Mohamed Azmi J:

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Duty to render true accounts and full information


Section 30 of PA (there must be full disclosure)



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

JANICE OOI
FACULTY OF LAW


Example: Sale of shares from a partner to another
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Vasu Devan v V A Nair,
the court held that duty of good faith is a mutual duty owed towards each other
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Maddeford v Austwick
Held: Purchase of a share in the firm without disclosure of material facts with reference to the
partnership assets would render the transaction voidable
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Law v Law
FACT: A partner sold his share to another partner
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He would have known about it if the existence of certain securities of the
partnership had been revealed to him
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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
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However in this case a settlement of the claim
had been made and the partner had elected to be bound by it
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ii
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

Every partner must account to the firm for any benefit derived by him without the
consent of the other partners from any transaction concerning the partnership, or from
any use by him of the partnership property, name or business connection
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without the consent of other partners



Good faith requires a partner not to obtain any private advantage at the
expense of the firm
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Example: If a partner is selling or buying for the firm, he cannot sell to it or
buy for it at a profit for himself
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The partnership
belonged to a company who has appointed them as an agent of the company
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Not only that, he also continued to trade in the same
way at the same premises of the previous partnership
Partnership selling Caltex oil(agent of Caltex)
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Before the notice expired, without the
knowledge of other partners he entered into an agreement with Caltex and carried on the
business of selling Caltex oil by himself
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The other partners claimed for the profits
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the agency
agreement was a partnership asset and D's use of it was a breach of fiduciary duty
Bentley v Craven, bentley, craven and two others were partners in a sugar refinery
...

The other partners later found out that he had been buying and selling the sugar to them on his
own behalf
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It would have made no difference
if the other partners could not have obtained a discount so that in fact they suffered no loss
since they would have to pay the market price anyway
...
Therefore the partners are not accountable

JANICE OOI
FACULTY OF LAW
Boston Deep Sea Fishing & Ice Co v Ansell, a case involving a director who made personal profit,
the court held that even though the company could not have obtained the discount, the director
had to account for it as a personal profit
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All the
partners agreed that such selling will be divided equally
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The court held that the profit from the selling of the property must be divided equally among
partners
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•

To illustrate, Clegg v Fishwick
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She commenced proceedings against the surviving partners some years after the date of
the death
...


•

It was held that the lease was the foundation for the new lease and that where parties
are jointly interested in a lease, some of them cannot take the benefit of a renewal to
the exclusion of the others
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Duty to account for profit derived from competing business


Any profit from a competing business must be credited to the partnership account



A partner must not compete with the firm in the business of the same nature
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

a partner should avoid CONFLICT OF DUTY AND INTEREST



3 elements:
same nature of business
competing with the firm’s business
without the consent of the other partners
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The dfdt was a member of a firm of shipbrokers dealing with the chartering of the
vessel
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He used information and experience gained as a shipbroker in the
promotion of the company
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The other partners sought to claim an account of the fee and the salary
...



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
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The purchase of the property
was not within the scope of partnership nor was it in rivalry with the partnership
...


JANICE OOI
FACULTY OF LAW
Partnership property
Importance & meaning
(i) as between the partners themselves
(ii) as between the persons who take a deceased’s partners’ real estate and partner;
(iii) as between the persons who take a deceased’s partners’s real estate and those who
take his personal estate
i
...
e brought as the capital
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

Acquired by purchase or otherwise for the purpose and in the course of partnership
business
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

If the partnership agreement fails to identify which is pp then reference has to be made
to sec 22 as a guidance
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

Freehold/leasehold is fixed capital – might have problem
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#2 &3 – purpose (matter of convenient) and mode in which it has been dealt with
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

every partner is consider to have interest in the pp
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

Thus pp must not be used for private purposes
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JANICE OOI
FACULTY OF LAW
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
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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
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B
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K was the tenant-living in Johore and
M managed the restaurant
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Issue: Who was the tenant K or P’ship?
H: K had not assigned the tenancy to the partnership
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Not PP
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Thus tenancy was not
PP
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Privy Council in Gian Singh:Property used for partnership purpose was not necessarily PP
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The facts of the case showed that the partner through out the period had regarded the premise
to be inseparable from his business and he had accordingly treated his tenancy as partnership
asset after he formed the partnership
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The p’ship failed to obtain bank loan to buy the land
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The App sought a declaration that
the land was held in trust for the partnership
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The fact that the
object of p’ship was land development, did not necessarily mean that the land must be owned
by the firm
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JANICE OOI
FACULTY OF LAW
Tay Guan Ho
F: Prop
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Treated it as his own & tranferred to App
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H: Not PP
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ii
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•
•

Where partners are co-owners of a land which is not PP, but share the profits from
the land as p’ners & later bought other land using the shared profits and used in
the same manner
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Davis v Davis
F: A father left freehold business premises to his son
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H:There was a partnership in the business, but not the premises
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Exception
However if the land heavily involved with the partnership business it is regarded as PP
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Devised all his property to his three sons
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Later one of the sons died
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H: All the land (left by the will & later purchased) – PP
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Basis: in a nursery gardening business it is impossible to separate the land from the business
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The sons took the business and carried it in partnership
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A trading business was left to them and the land was necessary for that trade
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Section 23 of PA


Property bought using the partnership money is a partnership property unless there is a
contrary intention
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(Deemed: raised the presumption
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Refers to money which is actually PP
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H: Since the property(shop) had been acquired out of the partnership profits and used for
partnership business, it was PP
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Later the
partners bought few properties paid out of the partnership assets
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Issue: The identity of WW, firm or individual
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It was conveyed to the partnership
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Devolution of Partnership Property

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Section 24, Where land or any interest therein has become partnership property, it
shall, unless the contrary intention appears, be treated as between the partners
(including the representatives of a deceased partner), and also as between the
heirs of a deceased partner), and also between the heirs of a deceased partner and
his executors or administrators, as personal and not real estate
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Procedure against Partnership Property

•
•

Section 25(1), Writs of execution
A writ of execution shall not issue against any partnership property except on a
judgment against the firm

Peake v Carter
F:P&B-partners, bought some property which include a machinery
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C obtained judgment against B in respect of a debt
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P claimed it was his
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•
•

s 25(2), Charging order/ personal debt of a partner
A private creditor may apply for court order:
1)To charge that partner’s interest in the PP

JANICE OOI
FACULTY OF LAW

2)Appoint a receiver for that partner’s share of profits
3)To direct all account and inquiries
...
Section 26 (g) of PA


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

ii

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