Ilott v Williams & Ors

A partnership under section 1(1) of the Partnership Act 1890 requires an actual carrying on of business in common with a view to profit. Actual trading is unnecessary, and preparatory work may amount to carrying on business. The parties must nevertheless have actually embarked on their agreed venture; a decision to create a business, without more, does not suffice.

Whether sufficient steps have been taken is an evaluative judgment. An appellate court will not interfere unless the trial judge was clearly wrong. Contractual profit-sharing terms must be given their agreed effect. The court will not create an entitlement to apportioned profits where the agreement makes no provision for calculating them after removal.

The appellant and three individual respondents developed a proposed asset-management business. They later joined arrangements within the BlueCrest organisation. A side letter provided for a collective allocation of profits while each individual remained a limited partner and had not received a notice of removal.

After the appellant received notice of removal shortly before the end of the financial year, he claimed shares of profits for that and two later years. He advanced alternative claims against the other individuals on the basis of an alleged partnership, and against BlueCrest LP and BlueCrest LLP under the side letter.

At first instance, Anthony Elleray QC, sitting as a deputy High Court judge, rejected the claims. The appeal raised whether a partnership had been formed during the preliminary work, whether the side letter required profit apportionment on removal, and whether the removal power had been exercised irrationally.

1. Appeal dismissed. Arden LJ, with whom Kitchin LJ and Sir David Keene agreed, upheld the dismissal of all claims.

2. There was no partnership between the four individuals. Under section 1(1) of the Partnership Act 1890, partnership requires actual carrying on of business in common with a view to profit. The rule explained in Khan v Miah permits preparatory work to be part of a business before trading begins, but the parties must actually have embarked on the agreed venture.

   The trial judge had correctly treated the question whether sufficient steps had been taken as an evaluation of the facts. The Court of Appeal could interfere only if that evaluation were clearly wrong. The absence of a settled business vehicle, funding, regulatory approval, significant property or financial commitment entitled the judge to find that the parties had not yet become partners.

3. In any event, any such partnership would have ended when the BlueCrest arrangements began. The business was thereafter that of the BlueCrest organisation. The side letter's collective payments were an administrative convenience and did not establish a separate partnership whose business consisted solely of receiving distributions.

4. The side letter did not oblige BlueCrest LP or BlueCrest LLP to allocate and apportion profits up to the date of a removal notice. It contained no machinery requiring a separate set of accounts for a broken accounting period. Although the result was harsh, the court was required to give effect to the parties' agreement and could not rewrite it on grounds of fairness. The appellant was therefore not entitled to profits for the current or subsequent financial years after receiving notice of removal.

5. The court did not decide whether the removal power was subject to an implied rationality term. Assuming such a term, no breach was shown. The decision followed an investigation of irreconcilable differences and a commercial assessment of the partnership's interests. Those reasons were capable of being rationally regarded as supporting removal.

• Court of Appeal (Civil Division) — dismissed the appellant's appeal: [2013] EWCA Civ 645.
• High Court of Justice (Chancery Division) — Anthony Elleray QC, sitting as a deputy High Court judge, rejected the appellant's alternative claims. The judgment appealed from is not cited in the judgment.