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Partnership Dispute

Partnership Dispute

QBM Lawyers can assist clients in partnership disagreements and partnership disputes.

What is a partnership?

A partnership is generally an arrangement made between two or more people or companies to carry on a business of some sort (including in some cases, owning property).

Partnerships can be between companies, or between the trustees of trusts, or between individuals, or any combination of these, and sometimes the partners will appoint an agent to represent them and hold property, such as a company owned by the partnership.

This however has to be distinguished from people participating together to operate a company. In some cases, individuals operating a company together will be taken to be a “quasi partnership”, in particular where the identity of the participants are critical to the venture itself. In other cases however, a person’s rights if participating in a venture conducted by a company are rights that are derived only from their shareholding or directorship of the company itself, and partnership concepts do not apply.

While partnership agreements can be in writing, partnerships can exist by spoken agreement or the exchange of correspondence, or by conduct.

In Queensland, the Partnership Act 1891 sets out at section 6 a number of rules for deciding whether a partnership exists. 

Those rules include:

That jointly owned property does not of itself mean that there is a partnership between the owners regardless of whether the profits are shared;

The sharing of gross returns does not of itself mean that there is a partnership;

Receipt of a share of profits of a business tends to suggest that the person is a partner in the business (subject to a number of exceptions).

Importantly, partners are jointly liable for debts of the partnership and for the wrongs of the partnership (sections 12 and 13 of the Partnership Act), subject of course to a number of provisions. It is accordingly critical that the partners can trust each other, and this relationship of trust is the cornerstone to the “fiduciary duties” that exist between partners.

Partnership disputes

Written partnership agreements will often set out a number of issues of critical importance – for example – when a partnership can be terminated, what is to happen if the partnership is to be terminated, and processes to resolve disputes.

Disputes are frequent in partnerships for various reasons. Partners owe to each other duties of good faith – or fiduciary duties – such that partners cannot take advantage or exploit their relationship, or take opportunities away from the partnership to benefit themselves in most cases without the fully informed consent of their partner. In some cases, a fiduciary duty may forbid the fiduciary from profiting from a transaction even with the consent of the beneficiary, eg a lawyer buying a property from a financially distressed client at a discount from true value.

Many partnership disputes start from a partner acting inconsistently with their fiduciary obligations to their partners, for example:

Taking for themselves – or someone associated with them – a benefit or opportunity that ought to have been the benefit or opportunity of the partnership – eg a partner in a toy distribution business receives a communication from a new toy manufacturer, and then negotiates for exclusive rights to distribute those toys to be given to a company associated with his wife. That opportunity was one which should have been for the partnership to accept, and in that case, the partner may have breached his duties to his partners, and his wife and her company will potentially be liable for participating in that breach;

A party to a proposed partnership using information acquired in discussions with his intended partner to benefit himself – for example – two real estate agents have advanced discussions about operating a business in partnership. In the course of that, Partner B becomes aware of the identities of Partner A’s commercial property management clients and the amount of management fees that they are paying. Partner B withdraws from the negotiations and approaches Partner A’s clients and offers management fees at a discounted price. This is potentially a breach of fiduciary duties;

A partner borrows money against the security of property owned in its own name, but in fact owned by the partnership, without the consent of his partners;

A partner pays their personal expenses with partnership money;

A partner (without permission) uses partnership property for their own benefit;

A partner receives property that is due to the partnership and does not account to his partners for it.

The breach of these fiduciary duties will often start in a relatively small way, but then if unchecked, snowball into a significant amount of money, and fracture the relationship between the partners, resulting in a partnership dispute.

QBM Lawyers have extensive experience in litigating partnership disputes and their resolution. For advice in respect of partnership disputes and dispute resolution, contact our lawyers Justin Mathews at justinm@qbmlaw.com.au or Peter Muller at peterm@qbmlaw.com.au

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