Valencia v Llupar

A partnership can arise without a written agreement, but only if the parties intend the legal relationship to exist. An express subject to contract qualification ordinarily shows that negotiations remain incomplete and prevents an unconditional partnership from arising before formal execution. Money paid in anticipation of the proposed contract is recoverable when no formal contract is concluded, because the basis for payment has failed. Detailed alternative allegations of misrepresentation need not then be determined.

Mr Llupar paid £80,000 to Ms Valencia after discussions about investing in her North London restaurant businesses in return for a 40% share and accommodation. He worked at Tropical Taste for a short period. Solicitors’ letters described the proposed partnership agreement as subject to contract; no written agreement was prepared or signed. He sought repayment or damages for misrepresentation. Ms Valencia contended that they were partners at will and counterclaimed for an account and damages.

HHJ Cowell ordered repayment of £80,000, with interest and costs, and made an interim charging order. The appeal challenged the findings that no partnership at will existed and that the claimant was entitled to recovery. The central issue was whether the parties’ conduct had created binding partnership rights despite the unexecuted formal agreement.

The Court of Appeal, in the judgment of Mummery LJ, with Black LJ and Dame Janet Smith agreeing, dismissed the appeal.

1. Partnership formation. The court accepted that it is legally possible for a partnership to arise before a formal written agreement is executed or without any formal document. This accords with the general principle discussed in Khan v. Miah [2001] 1 WLR 2123. The absence of writing is therefore not decisive by itself.
2. Effect of subject to contract. The contemporaneous letters, including two headed Partnership Agreement-subject to contract and a further letter referring to an unfinalised contract, showed that the parties did not intend the legal relationship of partnership to exist unless and until a formal written agreement was executed. The claimant’s payments and temporary work at Tropical Taste did not convert that conditional arrangement into an unconditional agreement or an actual partnership. No partnership rights or obligations arose.
3. Restitution. Money paid in anticipation of a formal binding contract on a subject-to-contract basis is ordinarily recoverable when the formal contract is never concluded. The payment was made on a basis that failed, making the defendant’s retention of the £80,000 an instance of unjust enrichment.
4. Appeal and alternative issues. The trial judge’s credibility findings were based on the evidence and his considered assessment of the witnesses. No proper basis for disturbing them or finding a misdirection was established. Since no binding partnership existed, it was unnecessary to determine the detailed submissions on misrepresentation. The order for repayment, interest, costs and the interim charging order stood.

1. Court of Appeal (Civil Division): On 30 March 2012, dismissed the appeal and upheld the order for repayment of £80,000, interest and costs, together with the interim charging order.
2. Central London Civil Justice Centre: HHJ Cowell’s order dated 22 June 2011 required Ms Valencia to repay £80,000, with interest and costs, and charged her beneficial interest in property by way of an interim charging order.