Khan v Miah

A partnership may arise before a business begins trading. The question is whether the parties have actually embarked upon the commercial venture which they agreed to conduct for profit. The venture must be identified as a whole, without artificially confining it to its eventual trading activity. Acquiring premises, undertaking their conversion, obtaining equipment, incurring liabilities and making agreed expenditure may therefore be part of the partnership business. Where those activities have been undertaken pursuant to the joint venture and with all parties’ authority, a partnership may already exist.

The parties agreed to establish and operate an Indian restaurant. Before it opened, they acquired premises and the freehold reversion, arranged finance, commissioned building works, bought equipment and incurred substantial expenditure from a partnership bank account.

Judge Rich Q.C. held that a partnership existed and ordered partnership accounts. The Court of Appeal, by a majority, reversed that conclusion because the restaurant had not begun trading: [1998] 1 W.L.R. 477. The appellant appealed to the House of Lords.

The central issue was whether the parties had become partners before the restaurant opened, or whether actual trading was indispensable.

1. Appeal allowed unanimously. Lord Millett delivered the substantive speech. Lords Bingham, Steyn, Hoffmann and Clyde each expressly agreed with it. The House restored all the trial judge’s orders.
2. Lord Millett held that the Court of Appeal had adopted an artificially narrow description of the agreed enterprise. The parties had not simply agreed to run an already established restaurant. They had agreed to find premises, convert and equip them, and then operate the restaurant for profit.
3. There is no rule that partners in a joint venture arise only when actual trading starts. The correct inquiry is whether the parties have actually embarked on the business activity which they agreed to undertake together. The acquisition and fitting-out of premises, the purchase of equipment, and the incurring of liabilities can be business activities conducted in partnership where they form part of the agreed profit-making venture.
4. On the trial judge’s findings, the assets, liabilities and expenditure had all been incurred in the course of that venture with the authority of all four parties. The conclusion that a partnership existed therefore followed. It was immaterial that the restaurant had not yet opened to customers when the partnership at will ended.
5. Lord Millett further observed that the implied terms in the Partnership Act 1890 are default provisions rather than statutory presumptions. This was an alternative observation when declining to remit the unresolved issue concerning the appellant’s 50 per cent share. The trial judge had been entitled on the evidence to find that share allocation.

• House of Lords: Allowed the appeal unanimously and restored the trial judge’s orders.
• Court of Appeal: By a majority, held that no partnership had arisen because the restaurant had not commenced trading, and reversed the trial judge: [1998] 1 W.L.R. 477.
• Trial judge: Judge Rich Q.C. declared that a partnership existed, held that the appellant had a 50 per cent share, and ordered partnership accounts and consequential relief.