Questions about the Partnership Act 1890

Discussion in 'UK Accountancy' started by SteveR, Jul 10, 2005.

  1. SteveR

    SteveR Guest

    For those on, I'm sorry to bother you all about this again -
    I'll be putting something back into the group later today. I'd love to
    put this thing to bed permanently and I don't want anyone thinking I'm
    obsessed with it - I've been busy with other things recently which is
    why I haven't been posting over the last few weeks. I just feel a sort
    of sense of responsibility to do what I can to prevent "business A" from
    doing the same sort of thing to other people that she did to me.

    I have a bit of a lengthy question about the Partnership Act 1890. I am
    a layman and I have been researching it as much as possible but I'm not
    certain about the meaning of some of the information I have and also
    where I should go from here.

    I, a consumer, successfully petitioned for the bankruptcy of a business
    that wouldn't pay me a refund. As the bankrupt didn't have many
    apparent assets, I am now busy trying to persuade the Official Receiver
    to investigate the matter properly. In the course of my investigations,
    I have turned up evidence that the business, I sued, which I will call A
    to keep it simple, may be in partnership with another business, B. I
    have brought this evidence to the attention of the Official Receiver
    but, as he wishes to wash his hands of the matter because he doesn't
    think he is going to find very many assets, he hasn't looked into the
    matter properly.

    I have been doing some research into the Partnership Act 1890 and have
    found some case law that suggest that there is a very good case that the
    two businesses are in partnership. First, here is the documentary
    evidence I have found:

    (1) Business A and B use the same domain name for their web pages. Prior
    to May of this year, they used a domain name which was the name of
    business B; the domain name was owned by business B. As of 9 May this
    year, they now use a different domain name, which is neither of the
    names of their businesses, with each business being a subdomain of the
    same web site; the domain name is owned by business B. They both linked
    their web sites to the new domain name at the same time.

    (2) On the part of the web site linked to business B, business B has a
    button simply marked 'Uniforms', which, when clicked, takes the visitor
    to the part of the web site linked to business A. This arrangement has
    been in place for at least a year. This arrangement gives the
    impression that business A is a part of business B which provides a
    complementary service.

    (3) I had contracted with business A to make me a suit; the fittings
    for the suit took place not at business A's premises, but at the
    premises of business B. She had the use of a shed used as a workshop
    and she seemed to have full run of the premises, which are at a private

    (4) In January 2001, business A posted messages on several newsgroups
    announcing an award won by business B.

    (5) On the part of the site linked with business A, on the press
    cuttings page, is an article written in 1996 that describes the two
    businesses as being in partnership. This article also makes it clear
    that the two businesses shared premises at that time.

    (6) The trader trading as business A has called business B her partner.
    Given the ambiguity in the usage of the term today, what she meant by
    that is unclear, but it is clear that the two of them have a commercial
    relationship. She used this term in court and I have a transcript
    showing that she used this term.

    (7) The trader trading as business A has stated that she regularly
    travels about 200 miles from where she lives to stay at the premises of
    business B.

    (8) The Official Receiver himself has acknowledged that the two
    businesses work in close conjunction and have had a long established

    Setting against this evidence that they may have a partnership
    relationship, as I wish to be fair, there is also this information that
    they may not be:

    (1) Both have claimed not to be in partnership when asked by the
    Official Receiver.

    (2) When I made the contract with business A, I never even knew of the
    existence of business B. When I went to the premises of business B,
    which are at a private house, the trader trading as business A never
    said one way or the other why she had the use of the house, and I
    received a sort of impression that it might be just a friend's house,
    but nothing definite was said.

    (3) Business A has listed business B as a creditor and business B says
    that he is a creditor. I suspect that they have said this to cover up
    their partnership relationship and that they could even use a loan as a
    cover to share profits (via interest) or for business A to move money to
    business B so that it couldn't be taken by her creditors, and, as she
    had quite a bit of notice about the impending bankruptcy, by the
    Official Receiver. I suspect, but, of course, have no proof, that
    business B acts as the 'clean part' of the partnership, that is, he has
    no blemishes on his credit record (that I can find) and so can get
    credit easily if the partnership needs it, while she takes the hit of
    any problems on her credit record.

    The essence of the matter, from my research, appears to whether they are
    working together with a 'view of profit'. The Official Receiver says
    that they are not because they say they invoice separately. Looking at
    the law, this appears to be a red herring because the Partnership Act
    itself is silent on how profits are to be shared, and, in fact, joint
    invoicing would only be proof of sharing gross receipts, not profits. I
    have been dealing with several people in the Insolvency Service about
    other matters to do with the case and have found that when they don't
    wish to deal with a matter of law, they redefine the law to suit
    themselves and so it is in this matter as well.

    The Official Receiver is basically saying that there has to be proof
    that the two are sharing a profit, otherwise, the two are just working
    closely, that is, are engaging in some joint venture. The case law to
    which I have found references suggests that this isn't the case, but I
    am not certain and I have a few questions to ask (note: I haven't read
    either of the cases I mention below, because I couldn't find them on
    line, but I read reports and sites mentioning them and some of their

    (1) Does the effect of Khan v Miah [2001] mean that no profit sharing
    has to be shown, just possible?

    (2) Does the effect of Newstead v Frost [1980] mean that only if there
    was no motive to make a profit or if it could be shown that there was
    some other reason for the sole purpose of the creation of the
    partnership mean that if there is or could be a profit motive for the
    two business working together, that they are in partnership?

    The other questions I have are:

    (1) Is there a case for the Official Receiver investigating the matter
    more carefully or am I just reading too much into things? I wish to be
    fair here.

    (2) If the Official Receiver should agree, finally, to properly
    investigate the matter, and if he finds that the two businesses are in
    partnership, should I just let the Official Receiver sort out getting
    money from business B (which means I wouldn't probably get any money,
    but I'm not really worried about that, it's more about not letting
    business A get away with possibly concealing assets)?

    (3) If the Official Receiver investigates and finds that the two are in
    partnership, should I sue business B myself for the money owed to me? If
    so, would I have to prove to the court that there was a partnership or
    would the Official Receiver's findings be good enough for the court? I
    am owed less than £5000, so the matter would end up in the small claims

    (4) I have a feeling that the HM Revenue and Customs might be interested
    in the relationship between the two businesses. Should I tell them now
    or should I wait to see whether I can convince the Official Receiver to
    investigate the matter properly?

    (5) The trader trading as business A has said that she is claiming
    benefits, in particular, income support. If the two businesses are in
    partnership, it may be that she was claiming money to which she wasn't
    entitled. Should I tell the benefits agency now or wait to see whether
    I can convince the Official Receiver to investigate the matter properly?

    I really don't want to go to court again, so I am hoping that I can just
    convince the Official Receiver to investigate the matter and deal with
    it himself. I am not concerned about the money owed me because I
    frankly do not expect to ever get it, but more about protecting the
    public. If business A gets away with just walking away from her debts
    then I think she will treat her customers even worse than she treated
    me. I have good reason to believe this: in the course of my research I
    found that in 2000, the Office of Fair Trading found that all but two of
    her contract terms were unfair. She gave the OFT an unofficial
    undertaking to withdraw those terms. She, however, went back to using
    those *exact same terms* and she uses them even today. I informed the
    OFT of this, but it is understaffed and overworked and nothing happened.

    As I said at the beginning, I'm not really certain where to go from
    here. I have looked up as much about the case law as I can find
    on-line. I'm just a layman I don't even know where to look for the
    actual cases if they aren't on-line.

    I have found, on Amazon, a book called _The Law of Partnership_ by
    Geoffrey Morse, which looks good, but I don't know whether it will
    answer my specific questions, particularly about the case law. I have
    found in my research into various matters about the case much variation
    between legal books. For instance, the book I have on contract law goes
    into great detail about case law but the book I have on insolvency law
    assumes that the reader will look up the case law himself and only
    mentions it in passing. Given this is it a good idea for me to get a
    copy of _The Law of Partnership_?

    There are other matters in this case into which I am trying to convince
    the Official Receiver to investigate, such as the bankrupt stating, in a
    letter, that she was paying her other creditors when she wouldn't pay
    me, but I'll leave these for the moment so I can deal with this issue.

    Oh, and by the way, looking at the Partnership Act 1890, that's one
    scary act. Stephen King could learn a few things reading UK statute and
    case law.

    (throw away the dustbin, send to stever@... instead)

    Humans are way too stupid to be dumb animals.
    SteveR, Jul 10, 2005
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  2. SteveR

    troysteadman Guest

    Surely it isn't the least bit unusual for people to run several
    businesses at the same time, to be married to or associated with people
    who are running businesses, or for businesses to share premises and

    A suit measured up in a shed? C'mon!
    troysteadman, Jul 11, 2005
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  3. SNIP very long post
    For there to be a partnership there has to be some intention set up business
    jointly. Even if there is common interest there may be other legal
    relationships consider the example of a pub: -

    The brewery can own the pub and employee the licensee (managed pub).
    The brewery can own the pub and rent it to the licensee (tenanted pub).
    The licensee can own the pub, but in exchange for capital assistance (in
    purchase or improvements) agree with the brewery to preferentially market
    its beers (tied pub)
    The licensee can own the pub and sell what s/he likes (free house)
    Someone else can own the pub and agree to share the profits with the
    licensee who does the work (partnership)
    A couple can own the pub (joint owners)
    A [limited] company can own the pub and the licensee [shareholder] receive
    dividends ([joint stock] company).
    and probably a few variations I have not thought of.

    Just because two businesses share premises, marketing and provide goods and
    services to each other does not mean that they are a partnership.

    You have lost money by dealing with an insolvent [personal] business. All
    you are trying to do attack the assets of someone else so you can get
    preferential treatment as a creditor.

    IMHO the issues you cite stack up to very little. Indeed the only one the
    authorities might be interested in is if one of a couple was [improperly]
    claiming benefits when the other had income. OTOH if they live 200 miles
    apart I doubt they are cohabiting and this still doesn't make any businesses
    they might have a run a partnership.
    R. Mark Clayton, Jul 11, 2005
  4. SteveR

    Andrew McGee Guest

    [long intro snipped]

    The Official Receiver says
    evidence, but not conclusive
    they have to be 'carrying on business in common'

    which would not be the case if they simply shared premises or if one helped
    the other or supplied goods/services to the other. the 'in common' bit is
    profit sharing is very strong evidence of a partnership, but not crucial.

    this is back to 'carrying on business in common with a view of profit'.
    there must be a profit motive, though of course there may be no actual
    there seems to be a case, but the evidence you present is at best ambiguous.

    do you have a claim against B? if it was in p'ship with A, then presumably
    so, and you could and should sue.

    OR's findings would be evidence, but not conclusive.
    nothing to lose by telling them
    again, nothing to lose by telling them now
    it is

    but I don't know whether it will
    but it mat not go into this much detail. Anyway, iy seems to me that your
    issues are factual rather than legal. it all depends on the actual
    relationship between A and B, and you have only limited evidence as to that.
    I have
    I doubt it, for the reasons given abiove.
    If you think that's scary, try the Companies Acts sometime.

    Andrew McGee
    Andrew McGee, Jul 11, 2005
  5. You risk a hernia just trying to pick them up...

    Even before the recent doses (1985...) the statute law shelf in the library
    was revealing - most years in the 20th century 1 volume thinner or thisker
    depending on events (like was there a war going on), and then 1948 - two
    thick volumes, the larger part of which was the Companies Act 1948.
    R. Mark Clayton, Jul 11, 2005
  6. SteveR

    Andrew McGee Guest

    some years ago, when the term 'Greenhouse Effect' was first becoming common
    currency, an academic colleague of mine identified the 'Company Law
    Effect' - he had calculated that if company law statutes and SI's went on
    increasing at the same rate as they had done in the previous ten years, then
    by 2047 the entire Earth's surface would be covered in company law.

    Andrew McGee
    Andrew McGee, Jul 11, 2005
  7. I think they have speeded up - SI's, regulation etc.. OTOH new law is
    available on the web e.g. so the problem of running
    out of trees might be avoided.
    R. Mark Clayton, Jul 11, 2005
  8. SteveR

    Peter Saxton Guest

    What about running out of internet?
    Peter Saxton, Jul 11, 2005
  9. SteveR

    SteveR Guest

    Yes, that's true, but the partnership law (statute/case) will sweep up a
    fair few of them, especially in the latter case. It's astonishingly
    easy to be judged to be in a partnership (well, I was astonished,
    anyway), hence my confusion and my questions.
    It's true! Sounds silly, I know, but it was large enough that I could
    stand there while she took measurements. The shed was clean, and
    clearly was used as a workshop rather than as storage for the lawnmower.
    There was even an in-use PC in there!

    (throw away the dustbin, send to stever@... instead)

    Humans are way too stupid to be dumb animals.
    SteveR, Jul 11, 2005
  10. SteveR

    SteveR Guest

    I agree. From my reading of the law, partnership is judged based on a
    totality of factors rather than any one of them. This is why I am
    confused - how much (or little) does it take to be judged to be a
    partnership. Some of the web sites I've seen make it clear that it is
    very easy to be unintentionally judged a partnership, as in the example
    of the MoD working with contractors (long URL):
    No, actually, I'm not. Perhaps you missed what I said before:

    "I am not concerned about the money owed me because I frankly do not
    expect to ever get it, but more about protecting the public."

    When I first raised the issue of partnership with the OR's staff, they
    just asked the bankrupt if she had a partnership with the other
    business, and because she said that she did not, that was that as far as
    they were concerned. I didn't think that this was a satisfactory
    investigation, as you might expect, and since then I've been pushing on
    the point, and more information *has* emerged, adding to the "score" in
    favour of there being a partnership.

    If there was a partnership involved, and in the unlikely event
    thereafter that I went to court against the other business, I wouldn't
    be doing it for the money so much as to redress the anti-preferential
    treatment I had received as a creditor in amongst the initial legal
    action. The bankrupt (then only a debtor) admitted in a letter to my
    (then) solicitors that she had been paying other creditors in preference
    to me (i.e. she had been paying them something (she said), but she had
    not been paying me anything).
    Both the Benefits Agency and HMRC seemed quite interested when I told
    them about this case, especially the part about the bankrupt travelling
    down on a fairly regular basis to the other business's premises in

    (throw away the dustbin, send to stever@... instead)

    Humans are way too stupid to be dumb animals.
    SteveR, Jul 11, 2005
  11. SteveR

    SteveR Guest

    First of all, thanks for your in-depth and useful response.

    I see your point here. Here's a (probably incomplete) list of evidence
    that points toward there being an 'in common' part:
    * A shared web domain
    * Specific links from one web site to the other (not just on the "links"
    page, but on the main page itself)
    * Assistance at trade fairs
    * Announcements of awards to the other
    * Clear supportive statements in web and other forums
    * Evidence provided by the bankrupt (with other intent) that shows them
    working closely together to supply a single order for a single client
    (sorry, I had forgotten about this one previously)
    * Provision to the bankrupt of access to the other business's premises
    for business purposes

    Fair enough. It's very confusing based on the sites I've seen and the
    other material I've read. It's certainly possible (see my list above),
    and it's definitely not on for the OR's staff to simply take the
    bankrupt's word for it, which is what they had done.
    I don't know whether there is any partnership, and finding a critical
    piece of evidence is pretty unlikely, so it's unlikely to arise.

    This raises an interesting question: If I can prove that there is a
    partnership, then, given that I have a proven debt owed by the bankrupt
    to me, can I just proceed directly to issuing a Statutory Demand on that
    basis? I apologise if this is a stupid question, but the grinding of
    the Mill of the Law is so mysterious at times, and this whole area of
    partnership and debt law is one of them.

    I've told both HMRC and the Benefits Agency, and they were both very
    interested, especially in the bankrupt's use of the second business's
    premises. They asked a lot of hard questions at the beginning (to make
    sure I'm serious and talking to them about a specific real person, I

    Eek. It sounds like lawyers could tell some pretty good scary stories
    around the campfire. :)

    (throw away the dustbin, send to stever@... instead)

    Humans are way too stupid to be dumb animals.
    SteveR, Jul 11, 2005
  12. SteveR

    Tim Guest

    Perhaps they think that she should be classed as "employed", and they have
    not been paying full (e-ee & e-er) NI ... ?
    Tim, Jul 12, 2005
  13. Remember that even if they are working together as a partnership, that
    doesn't mean that yours is a partnership debt.

    Did you contract with the "partnership", or did you contract with Costume
    Woman herself?
    Jonathan Bryce, Jul 13, 2005
  14. SteveR

    SteveR Guest

    This is a fair point, I suppose. I had no idea that there was a
    partnership at the time when I placed the initial order. She has in
    fact gone to considerable lengths to conceal whatever relationship she
    has with the other business, and that other business may have been
    responsible for work that was meant to be done on my costume.

    However, we do need to consider the 1908 case of Pillans Brothers v
    Pillans. One of the partners in a business that manufactured nuts and
    bolts bought another nut and bolt factory a few miles away and began
    operating as a sole trader. The court held that he had to share profits
    with the partnership. Presumably, then, the other partners had to take
    on a "share" of the liabilities connected with the new factory.

    I've read that the members of a band are considered a partnership, and I
    can imagine that makes the legal implications of starting a solo career
    a bit interesting, especially when, as some of them do, the would-be
    soloist continues working with the band...

    (throw away the dustbin, send to stever@... instead)

    Humans are way too stupid to be dumb animals.
    SteveR, Jul 16, 2005
  15. SteveR

    Peter Saxton Guest

    Most would get contracts as soon as things like that happened.
    Peter Saxton, Jul 16, 2005
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