Bristol and west building society v mothew 1998

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LAW00004 Company Law

SCHOOL OF LAW & JUSTICE

Session 2, 2018

TOPIC 1 cont.

Partnership Law

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PARTNERSHIPS AIM: At the end of this topic you

should understand:

•  Essential elements of a partnership ✓ •  Formation and dissolution of a partnership •  Relationship between partners – rights and liabilities •  Relationship with third parties

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Partnership Act 1892 (NSW) A link to the Partnership Acts can be found in the study guide.

E-copy - GO TO www.austlii.edu.au NSW Legislation New South Wales Consolidated Acts ‘P’ PARTNERSHIP ACT 1892

Table of provisions, familiarise self with contents Note ‘Parts’ & ‘Divisions’ & integrate with the material in Topic 1. See comparative table; Text pp 80-81.

© John ORR

Re-cap from last week •  Definition of partnership, section 1(1) “Partnership is the relationship which exists between persons

carrying on a business in common with a view of profit…” •  Essential elements

•  the carrying on a business •  in common •  with a view of profit

•  Rules for determining existence of partnership, section 2

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Relationship between partners

• Contractual obligations

• Fiduciary obligations • Statutory rights and obligations

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Study guide p 17-18 quote from Millett LJ in Bristol & West Building Society v Mothew [1998] Ch 1> •  Trust and confidence •  Loyalty • Act in good faith • Not profit as result of trust • No conflict of interest • Not act for own benefit

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Fiduciary duties between partners

Hospital Products Limited v United States Surgical Corporation [1984]

The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations: •  trustee and beneficiary, • agent and principal, •  solicitor and client, • employee and employer, • director and company, • partners

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Fiduciary Relationship of Partners •  Fiduciary features apply to the relationship of

partners as an accepted fiduciary relationship • Distinguishing feature of the partnership relationship is

that the duties are mutual. •  Both parties are in a sense at the same time both

vulnerable and ascendant.

Source: Trinkler v Beale [2009] NSWCA 30 [46] (MacFarlan JA)

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Fiduciary duties between partners Study Guide p 17 & 18 Turner & Trone 26.240 PA sections 28, 29 & 30 Partners are bound to exercise the utmost good faith in their dealings with one another, creating: • a fiduciary relationship of trust and confidence; which in turn gives rise to

• a duty of full disclosure towards each other. Fiduciary - acts in the interests of a person who has placed trust or confidence in them

Partners as fiduciaries Critical features: • fiduciary undertakes or agrees to act for or on behalf of or in interests of another person • in the exercise of a power or discretion • which will affect the interests of that other person in a legal or practical sense. • relationship gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position Hospital Products v United States Surgical Corporation (1984) 156 CLR 41, 97-8 (Mason J) cited in Trinkler v Beale [2009] NSWSC 30

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Fiduciary duties between partners • Can not compete with the partnership • Must disclose if personal interest conflicts with interest of the partnership

• Can not make private gains from partnership property

• Can not take personal advantage of partnership opportunities

• Must act in good faith towards other partners Birtchnell v Equity Trustees ... (1929) 42 CLR 384 (HCA) Chan v Zacharia (1984) 154 CLR 178 (HCA)

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Statutory fiduciary obligations to protect partnership business

• Section 28 Duty of partners to render accounts

• Section 29 Accountability of partners for private profits

• Section 30 Duty of partner not to compete with firm

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Full information • Duty to disclose any information or opportunity relevant to the firm’s business to other partners - section 28

• Opportunities are anything which may fall within the business of the firm - Birtchnell

• Even when firm is being set up or wound up

To account for profits

• From a like business which competes with the firm - section 30

• Like = same nature • Compete in fact •  In a way which has a substantial effect on the firm

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Personal benefits • Must account for any personal benefit from an association with the partnership - section 29

• Using anything within the scope of the firm’s business - name, assets, business connections and information obtained from the relationship with the firm - Birtchnell's Case

• During set-up, continuation and winding-up (dissolution)

Knowledge and Consent A duty is not breached if the other partners •  know about it; and • consent to it • Must give full and frank disclosure to gain fully

informed consent.

Effect of breach

• Any profit or gain made must be shared with the others

•  If the partnership agreement so states, expulsion may be justified

• A Court may use it as a ground to order dissolution - section 35(d),(f)

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Rights and duties of partners

• Rights and duties of partners are usually set out in the terms of the partnership agreement

• Where no agreement is made by the partners, section 24 Partnership Act NSW* set out rules to determine the rights of the partners.

• But note: rights in section 24 can be overridden by an express or implied