Miah & Ors v. Khan

The House of Lords considered whether parties who agreed to embark on a joint venture became partners before the venture commenced trading. The court held there is no rule of law requiring actual trading to have begun before a partnership can exist; instead the question is whether the parties have actually embarked upon the particular commercial activity agreed. The judge's factual finding that the parties had embarked upon the venture by acquiring assets, incurring liabilities and expending money with the authority of all parties supported the conclusion that a partnership existed prior to the restaurant opening.

The respondents (the proposed manager and chefs) and the appellant agreed to set up an Indian restaurant in Newbury. The agreement provided that the appellant would provide most of the initial capital, the first respondent would manage the restaurant, the second respondent and the appellant's brother would serve as chefs, and a third respondent later joined as a "sleeping partner." Substantial expenditure (circa £51,000) was incurred before trading began: premises were found, planning permission obtained, a lease and freehold purchase agreed, contractors engaged and equipment ordered. The trial judge found that these acts were carried out with the authority of all parties and that they had thereby embarked on the joint venture and formed a partnership.

The appellant challenged the trial judge's finding in the Court of Appeal which by majority held that the parties had not become partners because the restaurant had not commenced trading before the relationship broke down. The House of Lords allowed the appellant's appeal.

Nature of the claim/application: The respondents sought declarations and accounts that a partnership existed and that the appellant was entitled to a 50 per cent share, together with consequential orders for accounts, inquiries and sale/distribution of assets.

Issues framed by the court:

• Whether the parties had in fact carried on business in partnership prior to 26 January 1994.
• Whether there is a rule of law that partners cannot be said to have become partners until actual trading has commenced.
• Whether the trial judge's factual findings as to the conduct and expenditures of the parties supported a finding of partnership.

Court's reasoning: The Law Lords rejected the Court of Appeal majority's narrow view that the partnership could only arise on commencement of trading. They emphasised that the relevant question is whether the parties had embarked on the agreed commercial venture, not whether the business had reached the stage of serving customers. Pre-trading acts that form part of the commercial activity agreed (such as acquisition and fitting out of premises, incurring liabilities and authorising expenditure) can constitute carrying on the venture. Because the trial judge found that these acts were done by all parties with authority, the conclusion that a partnership existed prior to opening was open to him and should be restored. The House of Lords declined to remit unresolved subsidiary issues (not raised by cross-appeal) back to the Court of Appeal.

The appeal was allowed. The House of Lords held that there is no rule of law that partnership cannot exist until a business begins trading; the relevant question is whether the parties have actually embarked upon the agreed commercial venture. The trial judge's factual findings that the parties had acquired assets, incurred liabilities and expended money with the authority of all parties supported the conclusion that they had embarked on the joint venture and were partners. The trial judge's orders were restored.

Trial: Judge Rich Q.C. at first instance found a partnership and ordered accounts and sale of premises. Court of Appeal (majority Roch and Thorpe L.JJ., Buxton L.J. dissenting) reversed the finding on the basis that the restaurant had not commenced trading [1998] 1 W.L.R. 477. Appeal to the House of Lords allowed [2000] UKHL 55; [2000] 1 WLR 2123.