THE APPELLANTS' ATTACK ON THE PARTNERSHIP FINDING
28 Dealing then with the appellants' attack on the trial Judge's conclusion that, upon the payment by the respondent of $300,000 on 7 July 2003, a partnership agreement came into existence, it is convenient to commence by setting out the statutory definition of a partnership, and the rules for determining the existence of a partnership, as contained in s 1(1) and s 2(1) of the Partnership Act:
1(1) Partnership is the relation which exists between persons carrying on a business in common with a view of profit and includes an incorporated limited partnership.
…
2(1) In determining whether a partnership does or does not exist, regard shall be had to the following rules:
(1) Joint tenancy, tenancy in common, joint property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.
(2) The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.
(3) The receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business, but the receipt of such a share, or of a payment contingent on, or varying with the profits of a business does not of itself make the person a partner in the business; and in particular:
(a) The receipt by a person of a debt or other liquidated demand by instalments or otherwise out of the accruing profits of a business does not of itself make the person a partner in the business or liable as such:
(b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such:
(c) A person being the widow, widower or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such:
(d) The advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person, that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such: Provided that the contract is in writing and signed by or on behalf of all the parties thereto:
(e) A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by the person of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such.
In the present case, clearly a business was being carried on for profit. What was controversial was whether the respondent was carrying on that business in common with Mr Scotts and/or Momentum.
29 It was agreed that the respondent was to receive a share of the profits in the business of the hotel. In those circumstances, the effect of r (3) in s 2(1) of the Partnership Act was that, prima facie, the respondent was a partner in the business. However, the appellants stressed the second limb of the opening passage of the rule, namely, that the receipt of a share of profits does not of itself make the recipient a partner in the business concerned. That is true, of course, but pars (a) - (e) of the rule show examples of the circumstances in which the receipt of a share of profits need not lead to the conclusion that the recipient is a partner. Paragraphs (a), (b), (c) and (e) refer to situations in which, quite clearly, partnership would be negatived by the context. Paragraph (d) refers to a situation in which monies are advanced on loan, with the lender receiving a share of the profits by way of or in the place of interest. Even then, such an arrangement does not "of itself" make the lender a partner, but only where the contract in question is in writing and signed by or on behalf of all the parties thereto.
30 The present case does not fall within any of the examples of non-partnerships (or not-necessarily-partnerships) set out in r (3). The facts lack any obvious context which would, of itself, tend to negative a conclusion that there was a partnership. From the negotiations to which the trial Judge referred (including the Heads of Agreement), a conclusion that the respondent was going into business, albeit in a limited way, with Mr Scotts and/or Momentum, is as natural as any other. From the outset, Mr Scotts referred to the respondent as getting "a 15% share of the equity of the pub" (per the respondent) or as getting "15%... ownership of the business" (per Ms Dalitz). The Heads of Agreement, drawn by Mr Scotts, proposed that the respondent would "purchase 15% of the … business". Of themselves, these and like expressions used by the parties naturally bespeak an intention to carry on business in common. Against the context of them, there is no reason not to give the evidentiary presumption in r (3) its full operation. The onus was clearly on the appellants to show why the respondent should not be regarded as a partner in the hotel business. They did not do so at trial, but submitted on appeal that her Honour had erred in a number of ways, with respect both to partnership questions as such and to the role of Momentum in the partnership as found below.
31 It was submitted on behalf of the appellants that the respondent had not pleaded, in his third Further Amended Statement of Claim, that Mr Scotts was a party to the relevant contract. The respondent answered this point by referring to the following passage in her Honour's judgment:
In his Third Further Amended Statement of Claim Mr Lewarne pleaded that the parties were Momentum and himself but later he submitted that it was a tri-partite agreement involving Mr Scotts as well. The respondents claimed that the agreement was between Mr Scotts and Mr Lewarne and that Momentum was not a party. What is painfully clear from the evidence is that Mr Scotts referred to himself and to Momentum without apparent distinction and that, even if Mr Lewarne appreciated the distinction, he did not seek clarification of the issue.
The appellants did not seriously contend that her Honour was not entitled to decide the matter according to the submissions made by the parties, rather than to the allegations in the pleading. It was put to us on behalf of the respondent that his case at trial - that there was an agreement involving Mr Scotts as well as Momentum - did not provoke any objection from the appellants based upon want of procedural fairness. Counsel for the appellants did not controvert that assertion, and made no reference to the point in their written reply submissions. In the circumstances, we reject this point.
32 It was next submitted on behalf of the appellants that her Honour was in error to have found the existence of a partnership agreement by selectively piecing together evidence as to some of the conduct of the parties concerned. It was contended that her Honour had "ignored" the outline agreement referred to in par 14 above and the Heads of Agreement. Her Honour was criticised for having preferred evidence of what had been said in conversations, including conversations which pre-dated these documents. We cannot accept these criticisms of her Honour's reasons. She did not ignore the documents referred to, but she did, as was her obligation, take into account all the facts and circumstances which had the potential to throw light upon the true nature of the consensus between the parties. In this respect we refer to the judgment of the Full Court in Amadio Pty Ltd v Henderson (1998) 81 FCR 149, 172, to which the appellants drew our attention:
The existence of a partnership is determined by reference to the true contract and intention of the parties as appearing from all of the facts and circumstances relevant to the relationship of the parties….
33 In the present case, her Honour held that the essential terms of the agreement between the parties could be identified from the discussions between them, and from "their immediate behaviour" after the creation of the contract. It was the respondent who submitted that the written terms of the agreement were to be found in the outline agreement and in the Heads of Agreement. Her Honour did not accept that submission. She considered that the outline agreement was not an offer capable of being accepted by the respondent but, in any event, that it was effectively overtaken by the Heads of Agreement. As to the latter, her Honour said it was relevant evidence -
… as to the discussions that had taken place between the parties and shows that they had reached an agreement on essential elements of the contract - the amount Mr Lewarne was to pay ($300,000), the form which his investment would take (15% share as a partner in the business of the East Village Hotel) and the manner in which the hotel business would be conducted (with Mr Scotts taking the dominant management role but consulting on strategic decisions).
There is, in our view, no substance in the suggestion that the trial Judge ignored the outline agreement or the Heads of Agreement; or that in any other respect she failed to take account of evidence which had the potential to throw light upon the true nature of the agreement reached between the parties.
34 It was next submitted on behalf of the appellants that the trial Judge "misapplied the principles relating to the formation of contracts other than by offer and acceptance". This proposition was made very briefly in the appellants' written outline, and was the subject of no elaboration in the oral submissions made on their behalf. The outline referred to the survey of the authorities by Heydon JA in Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153, 176-179, and to the judgment of Tadgell J in Toyota Motor Corporation Australia Limited v Ken Morgan Motors (1994) 2 VR 106, 178, where his Honour referred to a passage where it was stated that "cases where offer and acceptance are lacking are so rare that for purposes of general discussion they may be disregarded". The error of the trial Judge in the present case, according to the appellants, was that her Honour "showed none of the caution displayed by Tadgell J". We reject this cursory and, we are bound to say, quite unsophisticated, criticism of her Honour's reasons by the appellants. In the first place, it would rarely be a legitimate basis of appellate criticism merely to contend that the court below had omitted to show the degree of caution which had been evident in the reasons of a different Judge in a different case. In the second place, and more importantly, the appellants' brief criticism of her Honour's reasons does less than justice to the actual terms thereof. As it happens, her Honour referred both to Brambles and to Toyota, as well as to a number of cases in which the observations of McHugh JA in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110, 11,117 had been approved. Her Honour relied upon the judgment of Tadgell J in Toyota as support for the view that, where there was no clear evidence of offer and acceptance, it was necessary to look to the conduct of the parties to determine if they had agreed to incur reciprocal promissory obligations. Her Honour accepted the remark by McHugh JA in Integrated Computer Services that the approach which his Honour there endorsed was not "a licence to dispense with the well-established hallmarks of a contract". Her Honour held that it was always necessary for the essential elements of a contract to be established, "even if not with textbook precision". In other words, her Honour displayed every bit as much caution as was appropriate in the circumstances confronting her.
35 The appellants' next ground lay at the centre of their case on appeal, and much was made of it in their oral submissions. It was submitted that "mutuality" was an essential aspect of any contract of partnership, yet it was lacking from the agreement between the parties in the present case. First, it was said that, in the conduct of the business, the parties were not doing so as agents for each other. Secondly, it was said that, although the parties had agreed to share in the profits of the business, they had not agreed to share in the losses. Thirdly, it was said, in effect, that the obligations of the respondent and of Mr Scotts under the agreement between them were asymmetrical: the respondent's only obligation was to contribute $300,000, while Mr Scotts "had nothing to contribute and had no obligations" because all the obligations which related to the conduct of the business were imposed upon Momentum. Fourthly, it was said that the respondent had no right "to partake in the management of the venture". Fifthly, it was said that the respondent had no say on the matter of the admission of new equity participants in the business. We shall address these points in turn.
36 The existence of agency, it was submitted, was an essential aspect of a partnership. As we understand it, the appellants proposed that it was an indispensable part of any conclusion that parties carry on business in common that it be shown that they were the agents of each other, relying in this respect upon the judgment of Griffith CJ in Lang v James Morrison & Company Limited (1911) 13 CLR 1, 11 and upon that of the Full Court of the Supreme Court of South Australia in Duke Group Limited (in liq) v Pilmer (1999) 153 FLR 1, 205-206. Uninstructed by authority, we would take the view that agency should be regarded as one of the incidents of a partnership, rather than as an essential defining element thereof. We would, with respect, associate ourselves with the sentiments expressed in the 18th edition of Lindley (I'Anson Banks, RC, Lindley & Banks on Partnership, 18th Ed., 2002). The author warns of the "danger that what are, in truth, normal incidents or characteristics of partnership are wrongly perceived as prerequisites to the existence of that relationship …." After a brief reference to the judgment of Lord Coulsfied in Dollar Land (Cumbernauld) Ltd v CIN Properties Limited [1996] SLT 186, 195, he continues (at 14):
Thus, whilst mutual agency may properly be regarded as a central feature of the law of partnership, it is clearly something which flows from the partnership relation, not the other way around.
In this respect the author refers, with approval, to the judgment of Cleasby B in Holme v Hammond (1872) LR 7 Ex 218. Are we obliged by Lang v James Morrison and Duke Group to take a different view? That is to say, in addition to the requirements set out in s 1(1) of the Partnership Act, is it necessary to establish that the putative partners were the agents of each other in order to conclude that were in fact in partnership?
37 In Lang v James Morrison the plaintiffs, London merchants carrying on the business of receiving and disposing of frozen meat from abroad, had obtained judgment in the Supreme Court of Victoria against the appellant, TS Lang. The Supreme Court accepted evidence from which it concluded that, in relation to a contract made by communications between the plaintiffs and one JW McFarland (trading as Thomas McFarland & Co), McFarland was the partner of Lang and of one Keates, and that there was relevantly, therefore, contractual privity between the plaintiffs and Lang. It seems that the contract related to a joint venture between the plaintiffs and McFarland at least for the shipment of frozen meat from Victoria to London and for its sale there. The High Court upheld Lang's appeal, reversing the Supreme Court's conclusion as to the existence of a relevant partnership. In the course of his reasons for judgment, Griffith CJ said (13 CLR at 11):
Now in order to establish that there was a partnership it is necessary to prove that J.W. McFarland carried on the business of Thomas McFarland & Co on behalf of himself, Lang and Keates, in this sense, that he was their agent in what he did under the contract with the plaintiffs - not that they would get the benefit, but that he was their agent. That appears from Ex parte Tennant; In re Howard 6 Ch. D., 303, particularly the judgment of Cotton, L.J. 6 Ch. D., 303, at p. 317.
38 Lang v James Morrison was not a case in which the members of an alleged partnership were disputing as between themselves whether the partnership existed. Rather, it was a case in which third parties who had contracted with one of the persons alleged to be a partner (McFarland) were alleging that a partnership between him and other persons existed. The plaintiffs made this allegation since, by the time of the judgment of the Supreme Court, both McFarland and Keates had become insolvent. At its highest, the evidence established that McFarland had spoken separately to Lang and to Keates about carrying on business together. There was no partnership document, and the three men had never met together to form a consensus as to the existence, or nature, of the alleged partnership. The character of the dealings between McFarland, Lang and Keates was rendered the more ambiguous by reason of the circumstance that they were, in fact, in a separate partnership, as McFarland, Lang & Co, but it seemed clear that that firm was not concerned in the line of business in which Thomas McFarland & Co engaged in its relevant dealings with the plaintiffs.
39 Both Griffith CJ and Barton J held that the evidence would not sustain the plaintiffs' case that, when the contract between them and McFarland was entered into, the latter was relevantly in partnership with Lang and Keates. The case was decided substantially because of the incomplete, ambiguous and altogether unsatisfactory nature of the evidence upon which the plaintiffs relied to support their allegation of partnership. Part of that evidence related to a conversation in which McFarland and Lang discussed the line of business being proposed by the plaintiffs. According to McFarland's evidence (which was accepted in the Supreme Court), Lang asked him whether he thought that it was a safe business. McFarland replied that he thought it was. Lang asked what was "the most you can lose"; McFarland said that he hoped to make Ł1,000; and Lang said that, if the worst came to the worst, "Ł500 ought to cover all the losses". According to McFarland, he and Lang agreed to cable the plaintiffs that they would go on with the business on their terms.
40 In the course of giving his reasons for judgment, Griffith CJ made the statements to which we have referred in par 37 above. Although his Honour said that it was "necessary to prove" that McFarland carried on the business on behalf of himself, Lang and Keates in the sense that he was their agent in what he did under the contract with the plaintiffs, we do not read this passage as proposing that, in any case in which the existence of a partnership is sought to be established, it is an essential part of the case of the party seeking to do so to prove separately that each putative partner was the agent of the other. Put another way, we do not think that the Chief Justice had it in mind, for example, to suggest that a statement of claim on behalf of such a party might be struck out as not disclosing a reasonable cause of action if it omitted to allege that each of the proposed partners was the agent of the other. Rather, in the light of the unsatisfactory facts in Lang v James Morrison, we consider that the Chief Justice was concerned only to provide content to the concept of "carrying on business" in the context of partnership law, and to distinguish a partnership from the kind of arrangement with which his Honour considered the facts in that case were equally consistent, namely, the giving to Lang and Keates of an interest in McFarland's share in the joint venture with the plaintiffs.
41 In Duke Group, it was contended that the members of otherwise separate firms operating in different Australian cities were members of a single national partnership, because, for some purposes, they had adopted such a style, and a single name which applied in all places. Under the heading "Carrying on business in common", their Honours in the Supreme Court of South Australia said (153 FLR at 205):
In order to meet this criterion, it is not necessary that each of the alleged partners should take an active part in the direction and management of the firm. The business may well be carried on by or on behalf of the partners by someone else. The person carrying on the business must be doing so as agent for all the other persons who are said to be partners.
Their Honours referred to the speech of Lord Wensleydale in Cox v Hickman (1860) 8 HL Cas 268, and to the words of Griffith CJ in Lang v James Morrison to which we have referred. Their Honours said (at 206) that the requirements of agency and mutuality were reflected in ss 5 and 6 of the Partnership Act 1891 (SA) "as being the consequences of entering into a partnership". They said that, unless there was the "mutuality" implicit in ss 5 and 6, there could be no partnership. On the facts in Duke Group, the agreement between the separate firms contained an express term that the authority granted to each "participating firm" would "in no way render any participating firm the agent of any one or more of the other participating firms or of any one or more of the members thereof…." (153 FLR at 194). In the light of this provision, it is, with respect, unsurprising that their Honours in the Full Court held that the parties concerned were not carrying on business in common.
42 The proposition which the appellants sought to extract from Duke Group - that, before there can be a partnership, there must be mutual agency - cannot, however, be dismissed merely by referring to the term in the parties' agreement to which we have referred. Their Honours relied for that proposition upon judgments of high authority, particularly Cox v Hickman which is a pillar upon which much subsequent partnership law has been built. In that case, certain of the creditors of a firm which had become embarrassed carried on the business of the firm as trustees. One of them, Cox, never acted as such, and another of them, Wheatcroft, acted for six weeks and then resigned. Subsequently, the continuing trustees became indebted to Hickman in the course of carrying on the business of the firm, and gave him bills of exchange. Hickman later sought to sue Cox and Wheatcroft on the bills, upon the proposition that they were partners in the firm. The House of Lords held that he could not. In a speech with which Lord Brougham agreed, Lord Campbell said (8 HL Cas at 303):
But I am of opinion that the creditors of the old firm cannot be considered, by executing the deed, as having authorised the trustees astheir agents either to purchase the goods or to accept the bills.
Lord Cranworth said (at 304-305):
The liability of one partner for the acts of his co-partner is in truth the liability of a principal for the acts of his agent. Where two or more persons are engaged as partners in an ordinary trade, each of them has an implied authority from the others to bind all by contracts entered into according to the usual course of business in that trade. Every partner in trade is, for the ordinary purposes of the trade, the agent of his co-partners, and all are therefore liable for the ordinary trade contracts of the others. Partners may stipulate among themselves that some one of them only shall enter into particular contracts, or into any contracts, or that as to certain of their contracts none shall be liable except those by whom they are actually made; but with such private arrangements third persons, dealing with the firm without notice, have no concern. The public have a right to assume that every partner has authority from his co-partner to bind the whole firm in contracts made according to the ordinary usages of trade.
His Lordship held that the trustees had not made themselves partners in the firm in this sense. Lord Wensleydale said (at 312-313):
A man who allows another to carry on trade, whether in his own name or not, to buy and sell, and to pay over all the profits to him, is undoubtedly the principal, and the person so employed isthe agent, and the principal is liable for the agent's contracts in the course of his employment. So if two ormore agree that they should carry on a trade, and share the profits of it, each isa principal, and each isan agent for the other, and each is bound by the other's contract in carrying on the trade, as much as a single principal would be by the act of an agent, who was to give the whole of the profits to his employer. Hence it becomes a test of the liability of one for the contract of another, that he is to receive the whole or a part of the profits arising from that contract by virtue of the agreement made at the time of the employment. I believe this is the true principle of partnership liability.
His Lordship thought it impossible to say that the trustees' receipt of profits in the firm was, in the circumstances, such as to constitute the relation of principal and agent between Cox and Wheatcroft on the one hand and the trustees on the other. Lord Chelmsford concurred generally with the other judgments.
43 There are two observations we would make about Cox v Hickman, and its relevance to the circumstances of the present case. The first is to point out that the judgment of the House of Lords pre-dated the first modern legislation regulating partnership in England (the Partnership Act 1890 (UK)), and pre-dated by five years the first legislative treatment of partnerships (Bovill's Act, 28 & 29 Vict. c. 86). Notwithstanding the high authority of that judgment, whether a partnership exists must now be determined by reference to provisions corresponding to ss 1 and 2 of the Partnership Act. The second observation is that Cox v Hickman was not what might be called a conventional case of parties going into business together with a view of profit. The parties alleged to be partners were in fact creditors who had undertaken, as trustees, the burden of carrying on a struggling business with a view, apparently, to having their debts repaid from the profits of the business. It was a very special context, and it was not, with respect, surprising that their Lordships would have tested the question whether a partnership existed by reference to the relationship of principal and agent.
44 In our view, the emphasis which one sees in the authorities, including Lang v James Morrison and Duke Group, upon agency as an indicator of partnership is referrable to the element of carrying on business in common. What that requires is that the persons concerned be principals in the business. It is not sufficient that one be the employee of the other, or that the business be carried on by one for the benefit of (eg as trustee for) the other (see Cox v Hickman). If two or more persons are principals in this sense, each will be bound by transactions into which one of them enters in the name of the business. It will thus often be convenient to analyse the facts of a particular case with reference to the question whether the agreement is such as would make the acts of one of the persons binding on the others. If so, it would tend to show that each such person participates in the business in question as a principal, rather than in some other capacity, and that they are all, therefore, carrying on the business in common. However, we do not read the authorities relied on by the appellants as going further than this. We do not read them as requiring proof of agency over and above the matters to which s 1(1) of the Partnership Act refers.
45 Returning to the context of the present case, the trial Judge approached the question of partnership with a keen eye on the significance of agency and a mutuality of rights and obligations. Her Honour followed Duke Group in this respect. She summarised her conclusion in the following terms:
The relationship between Mr Lewarne and Mr Scotts was accepted by them as involving a mutuality of rights and obligations that was consistent with them being in partnership as that relationship is defined in the Partnership Act.
Her Honour held that "the conduct and communications of the parties at the time evince an intention that Mr Scotts would act as agent for all, and that each party to the agreement would have rights and obligation to each other under the agreement". Her Honour said that evidence to that effect was "largely uncontested". Further, our attention was drawn to the following passage in the cross-examination of Mr Scotts:
[T]hat you decided that you would all be involved in this business and work co-operatively together?---Yes.
Even though you had the day to day management responsibilities, you were all together there in common to make the business profitable and work?---Yes.
And they were relying on you as you understood it to be effectively their agent in relation to the dealings with the outside world in respect of the pub?
---I assume so. Yes.
It was submitted on behalf of the appellants that this evidence did not go far enough for the respondent's purposes, for two reasons. It was said, first, that, to the extent that she did so, her Honour was wrong to rely upon the use of the term "agent" as used by a lay witness, when the question before her was whether the legal relation of agency had been established. It was said, secondly, that it was not sufficient merely for Mr Scotts to have been the agent of his brother and the respondent: the relation of partnership required that there be mutual agency, implying that Mr Scotts' brother and the respondent were likewise the agents of Mr Scotts.
46 We recognise that it is a mistake unthinkingly to give a legal connotation to the use of the word "agent" in a business or commercial context: see International Harvester Company of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Company (1958) 100 CLR 644, 652-653. As there pointed out, in the world of business, an "agent" may be a person or company which has, for example, the distribution and service rights for particular products within a particular locality. However, the context in which Mr Scotts gave the answers to which we have referred above, and to which her Honour referred in the extract from her judgment most recently quoted above, was not that of a distribution or service agent at all. Neither Mr Anthony Scotts nor the respondent was the principal of a separate business, in relation to which Mr Scotts was their agent in the sense of being a local representative. There was only one business in question, Mr Scotts was intended to be the hands-on operative in that business, and the other two were proposed to have minority proprietorships of some form. The only sense in which Mr Scotts could have understood the questions put to him in cross-examination was that in which the term "agent" refers to a person who acts on behalf of another.
47 We also accept, as we must, that the legal characterisation of the relationship between the parties in the present case was not to be determined by the say-so of one of them, even if it appeared to be an admission against interest in the course of cross-examination. Whether a partnership exists is a mixed question of fact and law, and the same might be said of the question whether one of the incidents of an existing relationship between persons is that each is the agent of the other. So we accept that the matter of agency is not concluded adversely to the appellants simply by the answers given by Mr Scotts to which we have referred above. But the respondent did not need to base his case upon Mr Scotts' evidence in this regard. His receipt of a share of the profits in the hotel business made him, as a matter of evidence, prima facie a partner in that business. It was for the appellants to show that the whole of the facts and circumstances were inconsistent with such a conclusion. However limited was the use to which her Honour was entitled to put these answers by Mr Scotts, they did tend to confirm, rather than to contradict, the statutory presumption. As we read her Honour's judgment, she used Mr Scotts' evidence in this sense, and we believe that she was entitled to do so.
48 The appellants effectively invited us to accept that it could never have been the respondent's intention that he be bound, personally, by any engagement into which Mr Scotts entered in the name of the hotel; or, for that matter, that it could have been Mr Scotts' intention to be bound by engagements entered into by the respondent (or by Anthony Scotts) in the name of the hotel. We do not regard these propositions as self-evident and, save for the fact that the respondent and Anthony Scotts wanted to have little or nothing to do with the day-to-day operation of the hotel, there is nothing in the findings of her Honour which would sustain them. The limited extent of the respondent's participation in the day-to-day operations, of course, was wholly consistent with the minority nature of his interest in the business. It is a commercial commonplace that some partners participate in this limited kind of way.
49 The appellants next submitted that the respondent had not agreed to share in the losses of the business. The agreement between the parties said nothing on the matter of losses, one way or the other. If that agreement were one of partnership, the respondent would have no option but to share in the losses: see Partnership Act, s 24(1)(1). However, it was submitted on behalf of the appellant that there were positive indications that the respondent had no intention of sharing in the losses, and made that clear to the other parties.
50 The appellants submitted that the respondent had given "express instructions" to Mr Dempsey that "he did not want any exposure to the debts of Momentum". However, the evidence showed (as her Honour noted) that the respondent was concerned about the previous trading record of Momentum - or about Momentum's "skeletons in the closet" as the respondent put it - and for that reason never wanted to be a director of Momentum, nor even (on a later occasion) a shareholder. This concern on the part of the respondent was quite another thing from a reluctance on his part to participate in any losses made by the East Village Hotel during the period that he was co-proprietor (if he was).
51 Our attention was also drawn to the following passage in the cross-examination of the respondent:
Now, you did not want to be a director of Momentum because you felt that would put your head on a chopping block as a director?---They weren't my exact words, but that is correct. I did not want to be a director of Momentum; that is correct.
Because it would expose you to some kind of liability?---That is correct.
From your own general knowledge as a director of several companies you would have less liability if you were a shareholder of Momentum?---That is correct.
You would also know that as a partner with Momentum your head is back on the chopping block?---That is correct, yes. I could not have been in a worse position.
Than?---Than being a partner of Momentum.
You did not want to have your exposure to liability?---That is correct.
So you were saying you wished to be a shareholder?---No. Not a shareholder of Momentum, but a shareholder of the hotel.
But the hotel is business activity carried on by whom?---Momentum.
I see. And you wished to be a shareholder of the person carrying on the business?---No, of the actual East Village or---
At this point, her Honour intervened. We do not consider that this evidence demonstrated a reluctance on the part of the respondent to share in the losses of the business. He did not want his head to be on the chopping block, as he considered would be the prospect if he became a director of Momentum or, as he put it, a partner of Momentum. But he did want to be a "shareholder" of the hotel. There is undoubtedly a deal of ambiguity in all this, but on no view does it justify the conclusion that the respondent was not consciously hazarding his $300,000 against the risk that the hotel business might make trading losses, or was not intending to bear his 15% responsibility in those losses.
52 Turning next to the applicant's point about asymmetry, we do not consider that there is anything in it at all. As a matter of principle, there is no reason why partners might not agree to make contributions which differ both in kind and in quantum. In some cases, a partner who has contributed capital might thereafter do nothing, but remain as a "silent partner". As a matter of fact in the present case, her Honour below said:
In cross-examination, Mr Scotts assented to the proposition that the parties agreed that Mr Lewarne, Mr Anthony Scotts and he would 'all be involved in this business and work co-operatively together' and to the further proposition that even though he had 'day to day management responsibilities' the parties were 'all together there in common to make the business profitable and work'. Indeed, it was part of the respondents' defence in this proceeding that Mr Scotts had various responsibilities relating to the day to day running of the business and that Mr Lewarne had initially agreed to carry out the work necessary to extend the hotel into the adjoining premises. Mr Scotts also agreed that he understood Mr Lewarne and Mr Anthony Scotts to be relying on him to act as their agent in relation to dealings with the outside world in respect of the hotel.
The circumstances to which her Honour referred are in no sense inconsistent with the relation of partnership. We would only add that, to the extent that this point raised by the appellants was tied to the role of Momentum and its relationship with the human parties, we shall deal with it below in the context of a number of the appellants' issues which concern that role.
53 The trial Judge did not find, and we would not accept, that the nature of the agreement between the parties was such that the respondent had no right to partake in the management of the business. Her Honour found, and it was clearly established on the evidence, that Mr Scotts would consult with his brother and with the respondent on strategic decisions, but would himself have the final say, as befitted someone with an 80% equity share. There is also the evidence of Mr Scotts as referred to by her Honour in the passage set out at par 52 above, namely, that it was intended that the three men would all be involved in the business and work co-operatively together. We therefore reject the proposition that the respondent's only role was to contribute $300,000 to the business, and that thereafter he had no right to participate in the management thereof.
54 It is true that the respondent had no say as to the admission of new equity participants in the business (save for having a first right of refusal), but this is no more than a comment on the terms of the agreement between the parties. It is in turn no way inconsistent with that agreement being one of partnership. We are unaware of any rule of law that prevents parties, otherwise uncontroversially in partnership, from agreeing that one or more of their number shall have the final say on such matters. Indeed, when the one with a final say also represents a majority of the equity in the firm, it is not at all surprising that such an agreement might be made.
55 From our own reading of the factual findings made by the trial Judge, together with the limited additional evidence to which the appellants referred us on appeal, we consider that an intended participation which included the respondent and Anthony Scotts as principals in the hotel business is the most obvious and natural interpretation to be put on the communications between the parties leading up to 7 July 2003, and is not contradicted by the communications which they had immediately after that date. We reject the appellants' case that the parties did not have this kind of relationship in mind.