Partnership Law

The Law of Partnerships:Scott Osborne The applicable law: Partnership Act 1892 (NSW) The relevant law is contained in the Partnership Act (PA) of each of the jurisdictions. All are based on the PA (1890) UK Act. The contractual nature of Partnerships Partnerships are essentially contractual. Defining a Partnership [s. 1 PA 1892 NSW] The PA defines a partnership as â€Å"the relation which exists between persons carrying on a business in common with a view of profit† Partnerships are unincorporated bodies without any separate legal identity of their own.As Justice Barton put it in Cribb v Korn (1911), â€Å"to be partners, they must have agreed to carry on some business†¦. in common with a view to making profits and afterwards of dividing them, or of applying them to some agreed object†. SO†¦.. whether a particular relationship is, in law, deemed a partnership will depend on the parties showing that it exhibits all THREE ELEMENTS that the PA 1892 require. They MUST show that they are; 1 CARRYING ON A BUSINESS; 2 IN COMMON; 3WITH A VIEW TO PROFIT. Defining â€Å"business† [s. PA 1892 NSW] In Hope v Bathhurst City Council (1980) Justice Mason defined the term business as â€Å"activities undertaken as a commercial enterprise in the nature of a going concern for the purpose of profit on a continuous and repetitive basis†. Difficulties can arise at common law whether a particular activity constitutes â€Å"carrying on a business†. It seems to be a question of fact and degree, for example, Evans v FCT (1989) where Evans won $800k from gambling. FCT said he was â€Å"carrying on a business† for claiming tax from him.Held: Evans had not been â€Å"carrying on a business† of punting as his activities lacked system and organization. Justice Hill made the point that â€Å"all indicia to be considered as a whole†. Defining â€Å"carrying on† Seems to mean that there must be a degree of continuity eith er in fact or intention. Normally an isolated transaction will not be â€Å"carrying on a business† as in Smith v Anderson (1880) where LJ Brett said: â€Å"carrying on implies a repitition of acts and excludes doing one act which is never repeated†.The NSW Supreme Court used similar reasoning in Hitchins v Hitchins (1999) where Justice Bryson said: â€Å"it was characterized as an investment rather than a trade and flow of transactions which could be thought of carrying on a business. BUT– a P CAN be entered into for a single venture if that is what the parties intend as in Minter v Minter (2000) where court said: â€Å"Today, a single purpose joint venture does not escape being a partnership IF otherwise it satisfies the criteria for a partnership in the sense of a commercial enterprise with the object of gain or profit†.SO†¦.. while continuity/repetition of operations may be a strong indication of â€Å"carrying on a business† it is probab ly no longer a â€Å"critical† consideration: Chan v Zacharia (1984), Justice Deane. Contemplated Partnerships A mere agreement to carry on a business as partners at some, (even specified), time in the future does not make the participants partners UNTIL THAT TIME ARRIVES. If one of the intending partners starts the business early without the consent of the others this will still NOT constitute a partnership.Engaging in merely preparatory activities will not constitute â€Å"carrying on a business† : Pioneer Concrete Services v Galli (1985) BUT Everything will depend on whether the activities are really merely preparatory: Khan v Miah (2000) – Lord Millett said, â€Å"they did not merely agree to take over and run a restaurant they agreed to find suitable premises, fit them out as a restaurant and run it once they had set it up. It was what they had jointly agreed to do. Definition of â€Å"in common† There must be some joint participation in a common bu siness: Checker Taxicab Ltd v Stone (1930)A driver rented a taxi from the owner and paid him a % of the fares as commission was held NOT to be carrying on a business in common as no joint participation, no shared rights or duties and each person in reality carried on his own separate and distinct business. The â€Å"in common† requirement does NOT mean that all the alleged partners must take an active part in the business. The test seems to be: â€Å"Does the person who carries on the business do so as agent for the persons alleged to be partners? † – Lang v James Morrison & Co Ltd (1911) Definition of â€Å"with a view of profit†Minter v Minter (2000) made clear that â€Å"a view to ultimate profit is essential in a partnership† BUT noted that it has not been essential that there be a profit-making motive in the short term. This means that even though the partners are carrying on their business in the expectation that there could be losses INITIAL LY – the business will still be carried on â€Å"with a view of profit† IF the parties INTEND that it will ULTIMATELY earn profits. SO†¦.. even where an enterprise does operate at a loss, the parties INITIAL INTENTION will invariably have been to run it at a profit (even if the intention was hopelessly optimistic! N. B. Stekel v Ellice (1973) – parties’ stated intention may be overruled. How the contract of Partnership arises 1. formally by deed; 2. more informally but still in writing; 3. by word of mouth agreement; 4. partly written and partly oral; 5. can be implied from the conduct of the parties; Because partnerships are essentially business contracts the law relating to their formation etc is THE LAW OF CONTRACT. There is NO requirement that a WRITTEN AGREEMENT to evidence parties intention to operate as partners†¦ BUT a formal Partnership Agreement has FOUR clear advantages such as: 1. ritten agreement will set out unequivocally who are p artners; 2. it will clearly detail each partners duties, rights and responsibilities; 3. if a dispute arises the written agreement can be referred to or should prescribe some pre-agreed solution or means or arriving at the solution; 4. the written agreement will allow the parties to make express and undeniable provision for things that are not covered by the Partnership Act or which although provided for in the Act canbe altered by some express agreement to the contrary if the parties choose to do so. Relationship of Partners to Each otherThe relationship is both CONTRACTUAL and FIDUCIARY. 1. partners are not normally permitted to act except for the common good; 2. their relationship is governed mainly by parties’ own agreement rather than Statute. The parties’ fiduciary obligations are subject to their obligations under the Partnership Agreement – Justice Mason in Hospital Products Ltd v United States Surgical Corp (1984) when he said â€Å"the fiduciary relat ionship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have† Duty to act for the common goodMust not carry on another business in competition with the partnership: Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd (2008) BUT If they obtain their fellow partners’ fully informed consent they may retain the benefit for themselves: Farah Constructions Pty Ltd v Say-Dee Ltd (2007) Duration of the â€Å"Duty† Fiduciary duties, in some circumstances, can arise before the partnership formally commences AND they will continue even after dissolution UNTIL the final accounts have been taken. Therefore – the obligation not to pursue personal gain can both pre-date and, to a limited extent, survive the partnership itself as in :United Dominions Corporation Ltd v Brian Pty Ltd (1985) UD and B were partners in a shopping centre development project with a third party SPL. UD was a major financier of th e project and SPL had granted it a mortgage over the land. The mortgage apparently secured not only the borrowings for the shopping centre but also borrowings for other projects in which Brian had no interest whatsoever. The mortgage was granted before the shopping centre partnership had formally come into being but well after negotiations for it had commenced (and at a point when it was clear that B would participate).Notwithstanding this, neither UD or SPL told B of the mortgage’s â€Å"collateralisation† clause. When the shopping centre had been completed and sold UD tried to retain all the proceeds of sale (including all the profit) to reduce SPL’s indebtedness to it for the other loans. B objected. HELD: A fiduciary duty exists between prospective partners. As a fiduciary, UD had a positive duty not to seek a private advantage without B prior knowledge and consent. The same reasoning was applied to: Battye v Shammall (2005) Both parties entered into an agre ement to train and race three horses in partnership.The plaintiff agreed to pay the defendant $25,000 for a half-share in the horses, not knowing that he had bought them for a total of $30,000. He therefore made a secret profit of $10,000. This profit had arisen as a direct result of the defendant’s breach of fiduciary duty and he was therefore liable to account for it to the plaintiffs. In terms of surviving the partnership (until final settlement of the accounts) see: Chan v Zacharia (1984) The parties were partners in a medical practice. They dissolved it in 1981.The premises was leased and the option to renew the lease had to be exercised by the doctors jointly. After dissolution, but before final settlement of accounts, Dr Chan not only refused to join Dr Zacharia inexercising the option, he actively sought and gained a new lease of the premises in his own name alone. Because consulting rooms were difficult to obtain in the area and because the renewal was therefore a ve ry valuable asset Dr Zacharia sued for a declaration that Dr Chan held his interest under the new lease as constructive trustee for all members of the former partnership.HELD: Because their fiduciary obligations continued after dissolution, at least as far as was necessary to wind up the firm’s affairs, Dr Chan had NOT been entitled to usurp for his own private profit an asset and opportunity which had properly belonged to the partnership as a whole. He was, therefore, required to account for that private profit. In terms of once the partnership’s affairs have been completely wound up and final accounts have been taken: Metlej v Kavanagh (1981) The parties had practiced as solicitors in a partnership.They had used rental premises and, when they dissolved their partnership, they agreed to continue occupying the premises together but to operate separate practices. Kavanagh subsequently bought the premises and Metlej sued arguing that he was entitled to participate and to buy a one-half interest in the property. HELD: While Kavanagh would have been liable to account to Metlej for the opportunity during their partnership – he was NOT LIABLE after its dissolution. The same reasoning was applied to:Sew Hoy v Sew Hoy (2001) Bindingness of the Partnership Agreement [s. 5 PA 1892 NSW] + [ss. 6-9] The Partnership Agreement is only binding on the partners themselves SO the terms in it do not normally have any effect on the rights or entitlements of third parties doing business with the firm. EG: a Partnership Agreement states that any one partner can sign partnership cheques UP TO $50,000 but cheques in excess need to be counter signed by another partner – That provision would have no effect on the rights of the erson who accepted the cheque for more than $50,000 bearing only ONE signature UNLESS he had been made aware of the restriction before accepting it. TWO KEY POINTS HERE : Restrictions in Partnership Agreements have this limited effect on third parties because of the doctrines of: 1. Privity of Contract; 2. Ostensible (apparent) Authority Under the doctrine of Privity of Contract the terms of the Partnership Agreement (the contract) are only binding on and CAN ONLY BE ENFORCED by the actual parties to that contract i. e. the partners.Under the doctrine of Ostensible (apparent) Authority third parties are entitled to assume that those who occupy positions that normally carry certain authority will have that authority UNLESS there has been some express notification to the contrary. Each partner is the de jure agent of his fellow partners for the purpose of doing those things that are usual for carrying on the business of the partnership in the normal way – therefore each partner has ostensible authority to do everything that might be regarded as part of the everyday normal functioning of the business.THIS CONCEPT IS NOW ENCAPSULATED IN THE PARTNERSHIP ACT (1892) NSW s. 5 BUT – knowledge of the third pa rties IS relevant : Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) Construction Engineering contracted to build houses for Tambel on land that Tambel appeared to own. Construction Engineering was not aware that Tambel was in partnership with Hexyl Pty Ltd. However, their partnership agreement specifically said Tambel was to negotiate and sign the building contract as sole principle (not as agent for Hexyl or the partnership) and that the partnership’s legal interest in the property was not to arise until after he completion of the building. When a dispute arose about payment Construction Engineering alleged that Tambel had entered into the contract on behalf of the partnership and therefore both Tambel AND Hexyl were liable. Held: Hexly was not liable – while partners can bind one another in contract Tambel had been EXPRESSLY PROHIBITED from entering into the building contract as the firm’s agent. AND – partners’ actions must be wit hin the type of business carried on by firm: Polkinghorne v Holland (1934)Thomas Holland and his son Harold and Louis Whitington were partners in a law firm. Claimant Florence Polkinghorne was one of Thomas Holland’s long time clients but much of her business was attended to by his son Harold Holland. Harold advised Florence Polkinghorne to invest money in a Trust Investment Company that he had formed (which he knew was little more than a shell). Harold later advised her to lend ? 1000 to another of his companies called Secretariat Ltd (which again was little more than a shell).Finally, he persuaded her to become a Director of Secretariat Ltd and to guarantee an overdraft in exchange for a share of the profits. All investments failed! Mrs Polkinghorne lost the ? 5000 that she invested plus ? 5475 for which she became liable under her guarantee. Harold disappeared! Mrs Polkinghorne sued his father Thomas Holland and Louis Whitington alleging that as partners they were liable f or her losses. They argued they were not liable because giving financial advice was not part of the â€Å"ordinary course of the business of the firm†.Held: Harold’s partners were liable for the ? 5000 she had lost in the investments BUT NOT LIABLE fir the ? 5475 she had lost by guaranteeing the overdraft. They were liable for the first loss as providing advice WAS a normal part of the business of the firm. They were not liable for the losses on the guarantee as this had NOT INVOLVED HAROLD ACTING IN HIS PROFESSIONAL CAPACITY – THEREFORE NOT IN THE ORDINARY COURSE OF THE BUSINESS OF THE FIRM. BUT – partner’s actions will be looked at subjectively AND objectively when courts decide whether the other partners are liable:There are two limbs: 1. The subjective test is – what kinds of business does this firm actually carry on (and then look at any actions taken by a partner that were not actually authorized) 2. The objective test is – what kinds of business do other firms actually carry on in the same line of business (a sort of reasonable expectation point) It seems that the courts have favoured this approach as in: Mercantile Credit Co Ltd v Garrod (1962) Garrod and Parkin operated a garage in partnership. Parkin ran the business.Garrod was a sleeping partner with no interest in the firm’s day to day running. Their agreement specified that buying and selling cars was NOT to be part of the firm’s activities. In breach of their agreement and without authority from Garrod Parkin fraudulently sold a car to Mercantile Credit who discovered the fraud and sued for the return of its ? 700 purchase price. Garrod denied liability arguing that Parkin had had no actual or ostensible authority as selling cars was not â€Å"business of the kind carried out by the firm†. Held: Garrod WAS liable.Even though what Parkin had done had been without Garrod’s authority (thereby eliminating any liability under the first limb it was AN ACT WITHIN THE SCOPE OF THE FIRM’S BUSINESS. Therefore, Parkin had had the necessary OSTENSIBLE AUTHORITY and both partners were liable under the second limb. Justice Mocatta looked at the type of business that could be expected in garages generally. â€Å"Holding Out† as Partners [s. 6(1) PA 1892 NSW] Authority of those held out as partners Even non-partners can bind the firm if the firm or some of its members hold them out as partners (this is part of the Doctrine of Ostensible Authority).By representing that a particular person is a partner, the partnership is effectively saying, either to the world or to an individual that the person has all the powers of a partner and that he has authority to bind the firm. If someone then deals with that person (in the belief that they are a partner) the firm may not disassociate itself from liability just because that person was not, in fact, a partner. By representing that that person was a partner the firm becomes liable for any actions which it would have been reasonable for him to have taken as a partner: s. 6(1) PA 1892 NSW. Liability of those â€Å"held out† as Partners s. 4 (1) PA 1892 NSW Third parties deceived by a holding out can therefore sue not only the real partners but also all those who were held out, exactly as if they had been real partners, provided they had at least acquiesced in the holding out. Estoppel Those who allow themselves to be held out as partners, knowing or suspecting that this might induce third parties to alter their position in reliance on that representation, will be estopped from denying the fact of partnership if the denial is to avoid liability to those third parties as in: Waugh v Carver (1793) Liability in General Liability of â€Å"general† partnersA general partners liability is unlimited – liable to the full extent of their personal resources for partnership debts and obligations. If called upon they can ONLY seek a contribution from the other general partners. Their rights against the limited partners are restricted to the limited partners’ agreed contribution. A general partner CAN change status to become a limited partner SO LONG AS there is still at least ONE GENERAL PARTNER left. Liability of â€Å"limited† partners Only liable for the firms debts and obligations to the extent of his contribution or agreed contribution to the firm’s capital : ss. 0, 61 and 65(2) PA 1892 NSW. In NSW they can either be in cash or property valued at a stated amount. (In QLD those contributions must be in cash). THIS LIMITED LIABILITY ONLY RELATES TO LIABILITIES THE PARTNERSHIP OWES THIRD PARTIES. THE LIABILITY TO THE OTHER PARTNERS IS GOVERNED BY THE PARTNERSHIP AGREEMENT AND THE RELEVANT PARTNERSHIP ACTS. Losing Limited Liability Can and will be lost – 1. if there are defects in the Partnership Agreement; 2. if the limited partners participate in management; 3. if a limited partn er’s contribution to capital is withdrawn; 4. if the partnership ceases to be a limited partnership . if there is a failure to describe the partnership as a â€Å"Limited Partnership† in business documents; Key point about limited partnerships: They must be registered : s. 50 PA 1892 NSW Terminating a Partnership Can be dissolved in any number of ways. They may terminate their relationship: 1. by agreement; 2. or if they have provided for it in their original Partnership Agreement – one partner may simply give notice of termination; 3. court intervention (in the event of relationship breakdown. Remember†¦. because partnerships are contractual relationships any change in the composition of the partnership (i. e. ny change in the â€Å"parties†) will technically terminate it: Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd (2003). If some or all of the remaining partners want to continue after a change they can – provided there is both an appropri ate agreement and some arrangement to pay out those partners who are leaving. N. B. any continuation will involve a new partnership; the old partnership will have terminated when the change took place. Therefore – at its lowest level termination will occur whenever there is any voluntary (or involuntary) change in the composition of the partnership whether or not the busiess continues after the change.Such changes include changes initiated by: 1. the death of a partner; 2. the expulsion of a partner; 3. the retirement of a partner; or 4. the introduction of a new partner Dissolution and Winding Up At its severest level termination can involve a formal dissolution of the partnership followed by a winding up of the partnership’s affairs. Winding up means that the partnership’s assets are sold, its debts are paid and any residue that remains is then split among the (now former) partners in accordance with either the terms of their Partnership Agreement or the provi sions in the Partnership Act: s. 4 PA 1892 NSW. Difference between â€Å"Dissolution† and â€Å"Winding Up† Critical difference between dissolution and subsequent winding up is described in: Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd (2003) . Death of a Partner s. 33(1) PA 1892 NSW The PA 1892 NSW provides that: â€Å"subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death of any partner† SO†¦. in the absence of a contrary agreement, the death of any partner must automatically bring the partnership to an end.The firm’s business may then be formally wound up, its assets and undertaking may be sold, its debts will be paid and any balance will be distributed between the deceased’s estate and the surviving partners in accordance with either the terms of the partnership agreement or, if there are no specific terms, the provisions of the Act. Why automatic dissolution? It is designed to protect the deceased’s interest in the partnership. N. B. The Partnership Agreement can stipulate by agreement that the death of a partner is not to result in automatic dissolution.Expulsion of a Partner s. 25 PA 1892 NSW s. 25 PA 1892 NSW provides that: â€Å"no majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners† The â€Å"express agreement† referred to, while it need not be in writing, should be part of the original Partnership Agreement. Partners have no inherent right to expel co-partners. It is not enough that all the partners get together and agree agree to put a power of expulsion into their agreement just to get rid of the disfavoured partner.The â€Å"normal† way of resolving irreconcilable differences is to dissolve and wind up the partnership. There are a number of â€Å"fiduciary safeguards† which include: 1. the expulsion must be exercised in good faith and it must not be improperly motivated; 2. any power to expel a partner will be strictly construed; but 3. unless the Partnership Agreement expressly or impliedly provides for it, a partner being expelled need not generally be told the reason for the proposed expulsion nor given an opportunity to speak in his defence. How the good faith requirement operates is well illustrated in:Blisset v Daniel (1853) – â€Å"where a power of expulsion exists it must be used for the benefit of the partnership as a whole and not for the benefit of particular partners†. Retirement of a Partner s. 26 PA 1892 NSW The effect of one partner retiring (as with death or explulsion) is to dissolve the partnership in its then form. This is the case even so the business of the firm may continue :Hadlee v Commissioner of Inland Revernue (1989). The practical effect raises some sort of indebtedness between all or some of the continuing partners (those who are buying out the retiring partner).The retiring partner loses all rights to have any continuing say in how the business is run. If the firm is going to continue as a new firm after the partner has retired they may well incur an obligation to indemnify the retiring partner against any action by the firm’s creditors after the effective date of his retirement. This will be important to the retiring partner because under the PA NSW he remains liable for all debts and obligations of the partnership before the effective date of retirement unless the remaining partners and the firm’s creditors agree otherwise : s. 7(3) PA 1892 NSW. The Introduction of a New Partner s. 24 (1)(7) PA 1892 NSW s. 24 (1)(7) PA 1892 NSW provides that: â€Å"no person may be introduced as a partner without the consent of all existing partners† This provision follows naturally from the fact that partners have an unlimited liability for partnership debts and obligations and therefore there is a mutual trust, confidence, understandi ng and goodwill presumed to exist. Incorporated Limited Partnerships s. 49 PA 1892 NSW defines them as â€Å"an incorporated limited partnership formed in accordance with the Act† – NOT VERY HELPFUL!Better defined as, â€Å" an association of persons carrying on business as partners where the liability of at least one of them is limited and the funds and business are managed by one or more general partners for the benefit of all the partners collectively† – s. 995-1(1) Income Tax Assessment Act 1997 (Cth). SO†¦these partnerships have a corporate identity, a separate legal personality and perpetual succession. ONLY the limited partners are protected though – unlike all limited liability companies! Therefore the general partners remain liable without limit!Why have an Incorporated Limited Partnership? (ILP) ILP’s were the direct result of the Commonwealth Government’s Venture Capital Act 2002 (Cth) to facilitate non-resident invest ment in Australia. The Act provides concessional tax relief!! This is restricted to those involved in venture capital investments AND REGISTERED under the Act. Limited Liability Issues Normal (unincorporated) limited liability partnerships do not provide VC with the certainty of limited liability as they are NOT incorporated and have no independent legal status. Formation of an ILPThey MUST be REGISTERED – in NSW the Registrar of Business Names. How to Register [s. 54 PA 1892 NSW] Must lodge an application with above signed by existing or proposed partners detailing: 1. that the partnership is to be registered as an ILP; 2. the firms name, address and principle office; 3. full name and address of each partner; 4. status of each partner i. e. â€Å"general† partner or â€Å"limited† partner; 5. for registered VCLP either evidence of registration or a statement outlining the intent; 6. anything else prescribed as required, under regulation or otherwiseOnce REGISTE RED an ILP is in most cases will be subject to the rules of the Corporations Act 2001 (Cth) regarding matters such as directors’ duties and the prohibition of disqualified persons taking part in management. Assumptions those dealing with an ILP are entitled to make: The PA 1892 NSW provides a number of assumptions that those who deal with an ILP are entitled to make (UNLESS they know or suspect that the assumption is incorrect! ) These assumptions are: 1. the Partnership Agreement has been complied with; 2. anyone on Register as a â€Å"general† partner has authority to perform duties; 3. nyone held out as a â€Å"general† partner in, or as agent of, an ILP is a â€Å"general†partner and has such powers/authority; 4. the â€Å"general† partners, and agents of, an ILP properly perform their duties to the ILP; 5. that a document executed by an ILP has been duly executed; 6. that a â€Å"general† partner in an ILP who has authority to issue a d ocument on its behalf has authority to warrant that the document is genuine or a true copy. How are ILP’s Regulated? Not governed by the general partnership rules! Most important perhaps is when it comes to joint/several liability.Partnership Act NSW provides that general law of partnership does NOT apply to ILP’s OR to the relationship between the ILP and its partners: s. 1(C) PA 1892 NSW. Partnerships & Companies – Generally The reason for the distinction between P and C is quite simple. A P is an ASSOCIATION of persons ACTUALLY â€Å"carrying on a business†. Together the partners decide what business will be carried on, they are usually entitled to get involved in the day-to-day operations and they are personally liable for the partnership’s debts and obligations. With C this is not the case.C are INDEPENDENT LEGAL ENTITIES WITH A PERPETUAL EXISTENCE. They obtain their funds from shareholders who are generally, both in fact and in law, passive i nvestors. The difference between P and C can be very important even in small closely held companies where the directors are also the company’s sole shareholders and operate like a P – the legal position is that they are not a P and therefore have NO right to be treated as such by the law. This can have very unfortunate circumstancesas in: Friend v Brooker (2009) The parties incorporated a company and they were equal shareholders.Brooker borrowed funds personally to help the business. The C later went into liquidation and there was not enough money to repay the loan. Brooker claimed that the C had merely been a corporate vehicle for a P between the two men and therefore P law should apply. Held : Brookers action failed. Court said he and Friend had taken a deliberate commercial decision to adopt a corporate structure for their business instead of operating as a partnership therefore no fiduciary duty owed. Advantages of Partnerships Simple and cheap to set up Can be sim ple and cheap to dismantle ConfidentialityParticipation in management and decision-making Flexibility Partners owe a fiduciary duty to one another Can be used to reward and retained skilled/valued staff Disadvantages of Partnerships Have no separate legal existence Continuity problems Limited numbers Capital may be more difficult to raise Unlimited liability Statutory Agency Partnership interests are not freely transferable Some Partnership decisions require unanimity Partnership In Tort [PA 1892 NSW ss. 10-13] The basic provision concerning the way in which tortious (and criminal) wrongs committed by a partner are to be treated reads as follows: where by any wrongful act or omission of any partner†¦. acting in the ordinary course of the business of the firm, or with the authority of the partner’s co-partners, loss or injury is caused to any person not being a partner of the firm, or any penalty is incurred, the firm is liable therefore to the same extent as the partner so acting or omitting to act†. Therefore, all partners will be collectively liable but that is not all. The PA 1892 NSW makes clear that partners’ liability is both joint and several s. 12 PA 1892 NSW – therefore the injured party can sue the whole firm OR partners that he chooses.If he sues only some of the partners – THEY WILL BE PERSONALLY LIABLE (they will also be entitled to seek a contribution from the other partners). If recovery in full cannot be obtained from the sued partners by the injured party they may later sue partners who were not sued for the shortfall!! Breaches of Contract – the partners are simply â€Å"jointly† liable for the firm’s debts and obligations so the injured party generally only gets one opportunity to sue collectively : Kendall v Hamilton (1879) – partners are â€Å"jointly† liable for partnership debts.To succeed the injured party must prove FIVE things: 1 . there was a wrongful act or om ission; 2. it was committed by a partner; 3. partner was acting in ordinary course of firms’ business or with actual or implied or apparent authority of his co-partners; National Commercial Banking Corp of Australia Ltd v Batty (1986) 4. injured party suffered loss or injury; 5. loss or injury resulted from the wrongful act or omission. Also see: Polkinghore v Holland (1934) – SEE ABOVE FOR FACTS AND DECISION