GARY JAMES KEANE v DAVID SARGEN and Ors

A partnership may arise from an express or implied agreement, including one evidenced by conduct, where the parties carry on a business in common with a view of profit. The court must assess the parties’ relationship objectively, while recognising that contractual obligations are not implied lightly.

An agreement concerning equal participation in a business may remain operative alongside a later written agreement where the documents are inter-linked and the later agreement cannot sensibly be construed in isolation. An absolute contractual discretion to determine when and in what amount a debt is repaid does not ordinarily permit the decision-maker to refuse repayment indefinitely. The discretion must be exercised rationally, in good faith and by reference to relevant considerations.

The claimant joined a financial-services business operated through a limited liability partnership. The defendants owned the shares in the company which became a member and service company of the LLP. The claimant alleged that an agreement for equal participation was implemented through a partnership holding the beneficial interest in the company’s shares.

The defendants contended that the claimant had rejected an offer of equity for tax reasons, that the LLP Agreement alone governed the parties’ relationship, and that later member-interest purchase agreements and a deed transferring the business settled the claimant’s claims. The court determined the existence and terms of the shareholding partnership, the effect of the purchase agreements, the repayment of loans, and the claimant’s current-account entitlement.

1. Partnership. The court found that the defendants had formed a partnership by 4 April 2012 to hold the beneficial interest in the company’s shares. On 18 June 2012, the claimant and the defendants entered into a further partnership. Its business was holding that beneficial interest as an investment with a view of profit. The absence of a final partnership deed or partnership accounts did not prevent the partnership arising.
2. Inter-linked agreements. The LLP Agreement and the earlier agreed package were to be construed together. The claimant’s statement that he would not accept shares carrying a significant tax liability did not reject or terminate the agreement for equal participation. It led to an investigation of alternative implementation, including a proposed partnership structure. The claimant remained entitled to share equally in the shareholding partnership’s profits and any residue on winding up. The question whether value should be credited to his capital account for an initial one-fifth interest was adjourned.
3. MIPAs. The interests transferred under the member-interest purchase agreements did not include the company’s interest in the LLP or the claimant’s interest in the shareholding partnership. The loans credited under the agreements were due and owing. The contractual discretion concerned the timing and amount of repayment, not an absolute power to refuse repayment. A demand for repayment was sufficient to engage the discretion, which had not been exercised.
4. Deed of Asset Transfer. The deed transferred the LLP business and the claimant’s 4.5% LLP interest. It did not transfer or release his interest in the shareholding partnership. An account of sums due on his LLP current account was appropriate if the LLP was restored to the register.