Court Dissolution

Court Winding Up

A partner may apply to the court to have the affairs of the partnership wound up. Unlike the position with a company, the creditors do not have the right to apply to the court to have the partnership wound up under the Partnership Act.

Creditors may apply under the Companies Act to have the partnership wound up as an unregistered company in certain cases. A partnership of eight or more persons may be wound up as a non-registered company under the Companies Act. Certain partnerships formed outside the State may be wound up under the Act, even if they have less than eight members.

On the dissolution of the partnership, the partners are entitled to have the property of the partnership applied towards payment of the debts and liabilities of the firm and have the surplus applied in payment of whatever sums may be due to them as partners. They may require the partnership assets to be sold and realised for this purpose


Further Orders

The partners have a duty to wind up the partnership, upon a dissolution,  whether initiated by notice or court order. If a dissolution and winding up of the partnership is ordered, the partnership property is to be sold, and the debts paid off. This may be done under the direction of the court, but this is not necessarily required. It may be undertaken by agreement.

A partner has a lien on partnership property for these purposes.  The lien is enforceable, only against the partners, their personal representatives, and assignees.  This includes the Official Assignee or trustee in bankruptcy of a bankrupt partner.

Court orders may be required to effect the sale of partnership property if the partners are unwilling, refuse or fail to do so. On dissolution, the court may appoint a receiver and manager, for the purpose of winding up the partnership affairs.

Generally, the court has the power to make such declarations of the rights and obligations of the parties, as is required upon the resolution. This may be under the partnership agreement or under the default legal position.


Application of Assets

Where a partnership is dissolved, accounts must be settled in order to reflect the rights, entitlements, and obligations of the partners and others. The Partnership Act provides that losses, including losses of capital, are paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits:

The assets of the firm including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order:

  • in paying the debts and liabilities of the firm to persons who are not partners in the firm;
  • in paying to each partner rateably what is due from the firm to him for advances as distinguished from capital;
  • in paying to each partner rateably what is due from the firm to him in respect of capital; and
  • the ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible.

Losses are to be borne in the same proportions as profits. Where partners have not contributed capital equally, but share profits and losses equally, losses relating to capital are shared equally. The proceeds of the realisation of the assets are distributed to ensure that capital losses are shared equally.


Insolvent Partnership

An insolvent partnership can be wound up on most of the same grounds, on which an individual may be adjudicated bankrupt. A petition may be presented on a number of bases.

The principal basis is that the partnership has failed to make payment on foot a statutory demand, within three weeks. The debt must be of at least the minimum specified amount. The other most common ground is the failure to satisfy a money judgment, by a failure of sufficient assets to effect.

A joint petition against partners may be made, where the partners as such have committed an act of bankruptcy. A debt owing by the firm is deemed owing by all partners, so that default on it may form the basis of a petition against all of the partners in the firm. The partners may be made bankrupt collectively.

Where the partners are jointly declared bankrupt, all the partnership assets vest in Official Assignee. The Official Assignee does not become a partner. He has an interest in the same way as a deceased partner. He can take action in order to recover the partnership assets.


Some Partners Insolvent

The bankruptcy of a partner leads to the dissolution of the partnership. All of the bankrupt’s assets including the partner’s interest in the partnership, vest in the Official Assignee for the benefits of his creditors. The solvent partners are entitled to get in and to wind up the affairs of the firm and complete transactions.

The Official Assignee can apply to the court to wind up the affairs of the partnership, where this would be in the interests of the bankrupt partner. The Official Assignee may make alternative arrangements with the other partners for the realisation of the insolvent partner’s share, so that does not necessarily lead to the winding up of the partnership.

Presumptively, shortfalls in the capital are borne by partners proportionately relative to their capital contributions and not in equal shares.The solvent partners are to contribute their shares of capital losses in accordance with the prescribed profit-sharing ratios or receive capital rateably, in accordance with their capital contribution.

On the dissolution of the partnership, where one or more partners are insolvent, the solvent partners are obliged ultimately, to account for any shortfall in the partnership assets. Potentially, the last standing solvent partner can be left with full liability for the partnership’s debts and obligations.


Both Insolvent

The bankruptcy rules distinguish between partnership assets and partnership liabilities on the one hand and personal assets and personal liabilities on the other. In the first instance, the partnership assets are applied in full towards satisfaction of partnership liabilities.

The separate (non-partnership) assets of the partner are used to meet his own separate (non-partnership) debts and liabilities.A joint (partnership) creditor is not entitled to receive anything from the individual partner’s separate assets until the separate (the individual’s) creditors have been paid in full.

It is only after the debts of the joint (partnership) creditors are paid out of the joint (partnership) estate, that the separate (individual partner’s) creditors are entitled to have recourse to the joint estate (partnership). Similarly, it is only after the separate creditors of the partner’s separate estate are paid, that the joint creditors are entitled to recourse to the individual partner’s separate estate.

If the partnership is not insolvent, the bankrupt partner’s creditors are entitled to his share of the surplus of the partnership assets.


References and Sources

 

Irish Sources

Partnership Act, 1890

Partnership Law 2000 Twomey M.

UK Sources

Lindley & Banks on Partnership: (19th Revised edition) 2016  Banks, Roderick I’Anson

Partnership & Llp Law (8 edition) 2015  Morse, G.

Partnership Law (5th Revised edition) 2015  Blackett-Ord, Mark; Haren, Sarah;


Partnership Act

Dissolution by the Court.

35. On application by a partner the Court may decree a dissolution of the partnership in any of the following cases:

(a) When a partner is found lunatic by inquisition, or in Scotland by cognition, or is shown to the satisfaction of the Court to be of permanently unsound mind, in either of which cases the application may be made as well on behalf of that partner by his committee or next friend or person having title to intervene as by any other partner:

(b) When a partner, other than the partner suing, becomes in any other way permanently incapable of performing his part of the partnership contract:

(c) When a partner, other than the partner suing, has been guilty of such conduct as, in the opinion of the Court, regard being had to the nature of the business, is calculated to prejudicially affect the carrying on of the business:

(d) When a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him:

(e) When the business of the partnership can only be carried on at a loss:

(f) Whenever in any case circumstances have arisen which, in the opinion of the Court, render it just and equitable that the partnership be dissolved.


Right of partners to notify dissolution.

37. On the dissolution of a partnership or retirement of a partner any partner may publicly notify the same, and may require the other partner or partners to concur for that purpose in all necessary or proper acts, if any, which cannot be done without his or their concurrence.


Continuing authority of partners for purposes of winding up.

38. After the dissolution of a partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue notwithstanding the dissolution so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.

Provided that the firm is in no case bound by the acts of a partner who has become bankrupt; but this proviso does not affect the liability of any person who has after the bankruptcy represented himself or knowingly suffered himself to be represented as a partner of the bankrupt.


Rights of partners as to application of partnership property.

39. On the dissolution of a partnership every partner is entitled, as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm; and for that purpose any partner or his representatives may on the termination of the partnership apply to the Court to wind up the business and affairs of the firm.


Apportionment of premium where partnership prematurely dissolved.

40. Where one partner has paid a premium to another on entering into a partnership for a fixed term, and the partnership is dissolved before the expiration of that term otherwise than by the death of a partner, the Court may order the repayment of the premium, or of such part thereof as it thinks just, having regard to the terms of the partnership contract and to the length of time during which the partnership has continued; unless

(a) the dissolution is, in the judgment of the Court, wholly or chiefly due to the misconduct of the partner who paid the premium, or

(b) the partnership has been dissolved by an agreement containing no provision for a return of any part of the premium.


Rights where partnership dissolved for fraud or misrepresentation.

41. Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled—

(a) to a lien on, or right of retention of, the surplus of the partnership assets, after satisfying the partnership liabilities, for any sum of money paid by him for the purchase of a share in the partnership and for any capital contributed by him, and is

(b) to stand in the place of the creditors of the firm for any payments made by him in respect of the partnership liabilities, and

(c) to be indemnified by the person guilty of the fraud or making the representation against all the debts and liabilities of the firm.


Right of outgoing partner in certain cases to share profits made after dissolution.

42.—(1) Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or his estate, then, in the absence of any agreement to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since the dissolution as the Court may find to be attributable to the use of his share of the partnership assets, or to interest at the rate of five per cent. per annum on the amount of his share of the partnership assets.

(2) Provided that where by the partnership contract an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as they case may be, is not entitled to any further or other share of profits; but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section.


Retiring or deceased partner’s share to be a debt.

43. Subject to any agreement between the partners, the amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased partner in respect of the outgoing or deceased partner’s share is a debt accruing at the date of the dissolution or death.


Rule for distribution of assets on final settlement of accounts.

44. In settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed:

(a) Losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits:

(b) The assets of the firm including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order:

1. In paying the debts and liabilities of the firm to persons who are not partners therein:

2. In paying to each partner rateably what is due from the firm to him for advances as distinguished from capital:

3. In paying to each partner rateably what is due from the firm to him in respect of capital:

4. The ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible.


Cases

Haughey -v- Synnott

[2011] IEHC 467

Laffoy J.

2.         The application

2.1       By notice of motion dated 12th October, 2011, the defendant sought the following reliefs:

(1)        An order pursuant to s. 28(8) of the Supreme Court of Judicature (Ireland) Act 1877 (the Act of 1877) and/or pursuant to Order 50, rule 6 of the Rules of the Superior Courts (the Rules) for the appointment of a receiver or of receiver and manager in respect of the assets of the partnership the subject of these proceedings.

(2)        An Order conferring on the said receiver or receiver and manager the following powers: –

a.         To get in and sell/realise the assets of the partnership.

b.         To carry on the business of the partnership so far as may be necessary for the beneficial winding-up thereof.

c.         To appoint a solicitor and such other agents as he may consider necessary to assist him in the performance of his duties.

d.         To open and maintain one or more bank accounts in his own name for the purpose of the winding-up of the dissolved partnership.

e.         To compromise with any creditors or debtors of the partnership on such terms as he may consider appropriate in the circumstances.

f.          To do all such other things as may be necessary for winding-up the affairs of the partnership and distributing its assets.

(3)        In the alternative, an order pursuant to s. 39 of the Partnership Act 1890 (the Act of 1890) appointing a receiver to wind-up the business and affairs of the firm, including such directions as to the sale of the assets (including goodwill) of the firm as to the Court seems just.

2.2       It is pertinent to point out that the alternative jurisdictions invoked by the defendant are designed to deal with different situations. Section 28(8) of the Act of 1877 confers on the Court jurisdiction to appoint a receiver –

“by an interlocutory order of the Court in all cases in which it shall appear to the Court to be just or convenient that such order should be made . . .”.

Section 39 of the Act of 1890 deals with the rights of partners as to the application of partnership property following dissolution and provides a remedy in that a partner may apply to the Court on the termination of the partnership to wind down the business and affairs of the firm. Insofar as a court would consider it necessary to appoint a receiver to wind down the business and affairs of a dissolved partnership in reliance on s. 39, it would do so following the substantive hearing, unless the plaintiff on an interlocutory application could make out a case for interlocutory relief, for example, by demonstrating that the firm’s assets were in jeopardy pending the trial of the action. The pertinence of those observations is that there has been a considerable shift in the position of the defendant since this application was initiated as to the role of the receiver, as I propose to illustrate.

2.3       As regards what was envisaged by the defendant as the role and function of a receiver appointed by the Court when this application was initiated, the specific powers set out at (2) in para. 2.1 above suggest that regard was not had to the practical considerations which flowed from the dissolution of the Lawline partnership, the business of which was a solicitors’ practice. From a practical point of view, the plaintiff, who was exclusively dealing with the clients of the firm before 30th September, 2011, had written to each client by letter dated 29th September, 2011 informing each that the two partners in the Lawline Solicitors firm, herself and the defendant, would be pursuing their own individual solicitor’s practices, under new titles, from 1st October, 2011. She requested that each client indicate, by ticking the appropriate box, with which of the two partners the client wished to continue as client. The outcome of that process, which is hardly surprising, given that the plaintiff was exclusively dealing with the clients hitherto, was that 95% of the clients opted to continue as clients of the plaintiff. The defendant quibbles with the form of the letter sent to the clients and, in particular, the fact that a “box ticking” mechanism was deployed. That grievance is for another day.

4.         The application of partnership law

4.1       I think it is important to record accurately the premise on which the defendant brought this application. He did so on the basis that, having regard to what has occurred since 30th September, 2011, he must accept that the Lawline partnership is at an end. He also accepts that, in the event that the Court should find that there was a written partnership agreement which bound the defendant in the manner he contends, that his remedy against the plaintiff sounds in damages only. To put it another way, the defendant accepts that the Lawline partnership has been dissolved, subject to his right to argue at the trial of the action that the plaintiff ought to have adhered to what he contends were the terms of the written partnership agreement, which he contends was in place, and that he is entitled to damages for the loss he has suffered as a result of her failure to do so. It was made clear in the oral submissions by counsel for the defendant that the defendant is not making any concession that the notice of dissolution served by the plaintiff was valid.

4.2       The position, accordingly, is that the defendant’s ground for seeking the appointment of a receiver and manager is to protect his share of the assets of the partnership which are to be distributed on its winding up, but he goes further and envisages the receiver and manager appointed by the Court having the extensive and, it appears, definitive and binding powers, which are set out in his final affidavit and in Mr. Russell’s affidavit.

4.3       I have already quoted the passage from Lindley and Banks (at para. 23 – 153) in relation to the purpose of appointing a receiver and manager. The editor goes on to comment later in that paragraph as follows:

“Even before the advent of the Civil Procedural Rules, the courts had regard to the potentially disproportionate expense of appointing a receiver and it would now seem likely that an application for such relief will be subjected to particularly careful scrutiny in terms of the overriding objective. In addition, it would seem that the court will not, in general, favour a receivership which will have an extended duration. For this reason, the current editor is fortified in his view that the appointment of a receiver (or a receiver and manager) should normally be regarded as a remedy of last resort.”

4.4       The Court has been furnished with a plethora of authorities by counsel on both sides going back as far as 1815, many of which are cited in Twomey on Partnership Law at para. 20.69 et. seq. The only authority which I propose to refer to is a decision of the Court of Appeal (Civil Division) in England: Toker v. Akgul [1996] CLY 1733. 4.5  The decision in Toker v. Akgul concerned an appeal against an order made at first instance appointing a receiver and a manager of a partnership business with express power to sell. The business in question could hardly be further removed from the business at issue in this case. It was the operation of a kebab restaurant. Evans L.J. identified the dispute as being essentially a financial one; the plaintiff wanted to recover his investment, however much it was, and the outcome would be a financial settlement which might or might not involve the business being sold to a third party, rather than being continued by the defendant and his wife. This led Evans L.J. to pose a rhetorical question, in the following passage:

“Why then, one asks, should a receiver and manager with a power of sale be appointed as distinct from requiring a proper valuation of the partnership assets and a proper settlement of the partnership account? The appointment of a receiver and manager is bound to be cripplingly expensive and, as the learned Judge observed, the cost had to be assumed to be wholly disproportionate to the nature of the business.”

Later, Evans L.J. stated that, insofar as the intended receiver was also to act as manager of the restaurant business, that was barely defensible as a practical solution, because the most that might be expected would be that the accountant appointed receiver would employ the defendant to act as the manager. Evans L.J. later considered whether there was an alternative available to the “nuclear weapon” of the appointment of a professional accountant as the receiver and manager of the business, and he stated as follows:

“The alternative which is available to the court is formally to direct an inquiry as to the partnership assets and their value and generally to settle the partnership accounts. Machinery exists for such an inquiry to be ordered. [Counsel for the respondent] has said that that is an expensive procedure – as no doubt it is – and would exceed even the costs of the appointment of a receiver and manager as was ordered here. But the sensible answer to that, in my view, is to say that if an efficient but at the same time less expensive machinery is sought, then it is readily to hand, and the parties can themselves agree that an independent person suitably qualified shall act either as arbitrator or as valuer for that limited purpose. If such was agreed as it must be between the parties, then the court can easily order a formal stay of these proceedings or at least of that issue in these proceedings pending the arbitrator’s award or the valuer’s certification of the amounts in question.”

4.6       Having regard to the analysis of the final affidavit sworn and filed on behalf of the defendant and the affidavit of Mr. Russell, the reality of the situation, in my view, is that what the defendant perceives Mr. Russell doing, if he is appointed as receiver, is what the independent valuer Evans L.J. had in mind in that passage would do, that is to say, to certify the value of the partnership assets.

5.         Conclusions

5.1       I consider this application to be misconceived on a number of grounds.

5.2       The reality of the situation is that what the defendant wants, and what he is entitled to, is that the plaintiff account to the partnership for the value of the tangible assets which she has taken over from the partnership, for instance, the leasehold premises, furniture, equipment and suchlike, so that he gets the value of his entitlement on the dissolution of the partnership, on whatever basis the Court ultimately determines his entitlement, in the absence of agreement. As regards the intangible assets, which are obviously the assets which have a real value, being, primarily, the work in progress, the outlay and the debtors, it is clear from the defendant’s final affidavit and, indeed, from the affidavit of Mr. Russell, that what the defendant wants, and what he is entitled to, is to have those assets valued with a view to the cash value of his entitlement on the dissolution of the partnership being measured, also on whatever basis the Court ultimately determines his entitlement, in the absence of agreement. The appointment at this interlocutory stage of a receiver under the equitable jurisdiction of the Court, who acts under the supervision of the Court, is definitely not the appropriate mechanism by which the defendant can achieve his objective.

5.3       The application is also misconceived because this is an interlocutory application. On my reading of the final affidavit of the defendant and the affidavit of Mr. Russell, what the defendant seeks is to have the assets of the dissolved partnership definitively valued by his nominee and disbursed by his nominee. Although at the outset, the defendant clearly perceived the application being an interlocutory application, in that he averred to the necessity for an order to preserve the assets pending the determination of the proceedings, given the manner in which the matter evolved, as reflected in his final affidavit and in the affidavit of Mr. Russell, on my interpretation of his position, he is now not merely seeking that the status quo be maintained pending the trial of the action. It is interesting to note that in the Toker v. Akgul case, Evans L.J. observed that the application at first instance had essentially been an interlocutory application and that the plaintiff had been required to give an undertaking as to damages as part of the order at first instance, which led to his conclusion that the primary consideration was whether the order was necessary or desirable to safeguard the interests of both parties pending the trial of the action. No undertaking as to damages was proffered by the defendant on this application.

5.4       If the parties cannot by agreement between them put in place a mechanism or process outside the Court to value the assets of the partnership as at the date of dissolution, then that will have to be done by the Court following the hearing of the action, although it may be necessary for the Court to direct that accounts or inquiries be carried out by the office of the Examiner of the High Court. What the Court cannot do at this juncture, or at all, is to appoint a professional person, for example, an accountant, and confer on that person the function of determining the amount of the fees due to the partnership on each file in a manner which would bind the plaintiff against her will and the power to disburse the assets in accordance with his evaluation.

5.5       There are various mechanisms or processes by virtue of which what the defendant wishes to achieve could be achieved outside the Court proceedings, provided agreement could be reached between the plaintiff and the defendant in relation to the mechanism or process. One such process is that suggested by Mr. Peelo, namely, that each of the parties appoint an accountant experienced in the conduct of the business of a solicitors’ practice, who, hopefully, would come to an agreement on the assessment of the value of the assets of the partnership. However, there would have to be some default mechanism to address the possibility that agreement could not be reached, for example, referring the matter back to Court or to arbitration. An alternative approach would be for the parties to agree to have the valuation of the partnership assets referred to arbitration, which would probably be a less costly process than prosecuting these proceedings. Another alternative, although one which I think it is unlikely that the parties to these proceedings would agree to, would be to appoint an expert or a certifying valuer. If the parties were to agree to a process outside Court, these proceedings could be adjourned pending the outcome of the process, in the manner suggested by Evans L.J. in Toker v. Akgul.

5.6       It is clear from the defendant’s final affidavit that he has taken a pragmatic, and I have no doubt commonsense, view in relation to some of the assets of the partnership, for example, the leasehold interest in the office premises at Christchurch Hall, the furniture and equipment and suchlike. Obviously, the plaintiff must account to the partnership for the value of those assets, which must be determined by agreement, or by some agreed mechanism or by the Court. There is also the question of the discharge of the partnership liabilities. In relation to dealing with that obligation, the defendant’s distrust of the plaintiff, whether justified or not, could be obviated if the two accountant approach recommended by Mr. Peelo is adopted.

5.7       If the parties cannot agree to have their differences dealt with outside these proceedings, then the proceedings will have to be case managed with a view to bringing them to an early hearing, to alleviate the defendant’s concerns arising from the degree of control the plaintiff has over the assets of the partnership.

5.8       In conclusion, there are a number of matters which I consider it important to clarify. First, in addressing the issue on this application, I have formed no view as to whether any allegation or counter-allegation made by one party against the other is well founded. Secondly, I have not formed the view that it would never be appropriate to appoint a receiver or a receiver and manager in the winding up of a solicitors’ practice under the supervision of the Court. Indeed, counsel for the defendant referred the Court to Ray v. Flower Ellis (1912) 56 Sol. Jo. 724 CA, in which, in an action for dissolution of a partnership between solicitors, a receiver had been appointed to get in outstanding costs due from clients. Thirdly, notwithstanding my observations at para. 3.2 above in relation to the application or otherwise of clause 7.6 of the Law Society’s Guide, given that the change of solicitor was not instigated by the clients or because of the conduct of the clients, but was a consequence of the dissolution of the Lawline partnership, I have formed no view as to whether there is a crystallised and currently enforceable obligation as between the plaintiff and the defendant as regards the files transferred to their sole practices respectively, on the one hand, and the partnership, on the other hand, entitling the partnership to fees due on a quantum meruit basis for work done by the partnership up to 30th September, 2011. Whether there is such an obligation may have to be decided by the Court. If there is, how it is discharged, whether by payment, undertaking or otherwise, may have to be decided by the Court, if agreement cannot be reached between the parties.

6.         Order

6.1       There will be an order dismissing the defendant’s application. However, when the parties have had an opportunity to consider this judgment, I will hear further submissions as to the manner in which the matter should proceed.


Murph’s Restaurant Ltd., Re

[1979] IEHC 1

McWILLIAM J :

46. One other signpost is significant. The same words ‘just and equitable’ appear in the Partnership Act, 1892 s. 25, as a ground for dissolution of a partnership and no doubt the considerations which they reflect formed part of the common law of partnership before its codification. The importance of this is to provide a bridge between cases under s. 222 (f) of the Act of 1948 and the principles of equity developed in relation to partnerships (at p. 374).

47. Before proceeding further with consideration of the speech of Lord Wilberforce it would be helpful to refer at this stage to what was said by Lord Cross of Chelsea:

48. In some of the reported cases in which winding up orders have been made those who opposed the petition have been held by the court to have been guilty of a ‘lack of probity’ in their dealings with the petitioners (at p. 383).

49. He then cites two examples and then goes on to say:

but it is not a condition precedent to the making of an order under the subsection that the conduct of those who oppose its making should have been unjust or inequitable. This was made clear as early as 1905 by Lord M’Laren in his judgment in Symington v Symington’s Quarries Ltd (1905) 8 F 121,130. To the same effect is the judgment of Lord Cozens-Hardy MR in Yenidje Tobacco Go Ltd, In re [1916] 2 Ch 426, 431-432. It is sometimes said that the order in that case was made on the ground of ‘deadlock’. That is not so.

50. Having explained why he takes that view he goes on to say:

51. People do not become partners unless they have confidence in one another and it is of the essence of the relationship that mutual confidence is maintained. If neither has any longer confidence in the other so that they cannot work together in the way originally contemplated then the relationship should be ended -unless, indeed, the party who wishes to end it has been solely responsible for the situation which has arisen. The relationship between Mr Rothman and Mr Weinberg [the names of parties in the case under his then consideration] was not, of course, in form that of partners; they were equal shareholders in a limited company. But the court considered that it would be unduly fettered by matters of form if it did not deal with the situation as it would have dealt with it had the parties been partners in form as well as in substance.

52. Turning again to the speech of Lord Wilberforce I draw attention to the nature of the submissions made to the court in that case as summarised in the speech of Lord Wilberforce and the manner in which he expressed his opinion on these matters following examination of a number of cases dealing with the partnership features of companies. He then says:

53. My Lords, in my opinion these authorities represent a sound and rational development of the law which should be endorsed. The foundation of it all lies in the words ‘just and equitable’ and, if there is any respect in which some of the cases may be open to criticism, it is that the courts sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more then a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The ‘just and equitable’ provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust or inequitable, to insist on legal rights, or to exercise them in a particular way (at p. 379).

54. Lord Wilberforce then gives examples of circumstances in which relations of a special personal character may be essential to the members of a company with particular reference to mutual confidence. He goes on to say:

55. My Lords, this is an expulsion case, and I must briefly justify the application in such cases of the just and equitable clause. The question is, as always, whether it is equitable to allow one (or two) to make use of his legal rights to the prejudice of his associate(s). The law of companies recognises the right, in many ways, to remove a director from the board. S. 184 of the Companies Act 1948 confers this right upon the company in general meeting whatever the articles may say. Some articles may prescribe other methods: for example, a governing director may have the power to remove (compare in Wondoflex Textiles Pty. Ltd, In re [1951] VLR 458). And quite apart from removal powers, there are, normally provisions for retirement of directors by rotation so that their re-election can be opposed and defeated by a majority, or even by a casting vote. In all these ways a particular director-member may find himself no longer a director, through removal, or non-re-election: this situation he must normally accept, unless he undertakes the burden of proving fraud or mala fides . The just and equitable provision nevertheless comes to his assistance if he can point to, and prove, some special underlying obligation of his fellow member(s) in good faith, or confidence, that so long as the business continues he shall be entitled to management participation, an obligation so basic that, if broken, the conclusion must be that the association must be dissolved. And the principles on which he may do so are those worked out by the courts in partnership cases where there has been exclusion from management (see Const v Harris [1824] Tur. and Rus. 496,525) even where under the partnership agreement there is a power of expulsion (see Blisset v Daniel (1853) 10 Hare 493; Lindley on Partnership 13th ed. (1971) pp. 331, 595) (at p. 380).

56. I make one final quotation from this speech which concludes as follows:

57. I must deal with one final point which was much relied on by the Court of Appeal. It was said that the removal was, according to the evidence of Mr Nazar , bona fide in the interests of the company; that Mr Ebrahimi had not shown the contrary; that he ought to do so or to demonstrate that no reasonable man could think that his removal was in the company’s interest. This formula ‘bona fide in the interests of the company’ is one that is relevant in certain contexts of company law and I do not doubt that in many cases decisions have to be left to majorities or directors to take which the courts must assume had this basis. It may, on the other hand, become little more than an alibi for a refusal to consider the merits of the case, and in a situation such as this it seems to have little meaning other than ‘in the interests of the majority’. Mr Nazar may well have persuaded himself, quite genuinely, that the company would be better off without Mr Ebrahimi, but if Mr Ebrahimi disputed this, or thought the same with reference to Mr Nazar, what prevails is simply the majority view. To confine the application of the just and equitable clause to proved cases of mala fides would be to negative the generality of the words. It is because I do not accept this that I feel myself obliged to differ from the Court of Appeal (at p. 381).

58. I accept the statements of principles given in the Lords’ speeches in that case as the correct guidance for my consideration of the questions before me on this petition.


Horgan v. Murray

[1999] IEHC 65

O’Sullivan J.

“1. The Plaintiff claims that in 1974 he was approached by the first Defendant with a view to establishing a public relations business. They agreed to establish a partnership and that the second Defendant should be a partner in that business. They then agreed that their partnership business would be conducted through the medium of a company (“MCL”). All went well for some twenty years. The business thrived and expanded, moved to a new premises and changed its name.

10. Mr. Gardiner B.L. relies in particular on Irish Press Plc -v- Ingersol Irish Publications Ltd and Ors [1995 2:ILRM:270] in which the Supreme Court held (per Blayney J. at page 269):-

“The relief which may be given under the section is that the Court may make such order as it thinks fit ‘with a view to bringing an end to the matters complained of’. The Court is not at large as to what it may do. Whatever order it makes must have this object. It must be made with a view to bringing

an end to whatever it was that was causing the oppression”.

12. In response to this Mr. Gallagher S.C. submits that any alleged damaging consequences occasioned to the assets of the company by reason of the alleged wrongdoing of the Defendants will be taken into account in the oppression petition and that any suggestion which may arise from Irish Press Plc v. Ingersol Irish publications Ltd to the effect that a petitioner in a Section 205 case might also be entitled to claim damages against the parties involved in that petition, begs the question whether there is a statable cause of action which can be made in the first place giving rise to such damages. He submits that there is no statable cause of action in the present case, not only because of the rule in Foss -v- Harbottle but also because on the pleadings and the case as presented, there is no separate partnership agreement which subsists independently of the relationship between the parties as fellow shareholding members in the company MCL. He submits that in every case where a company is formed there must be some prior agreement between the individuals forming the company so to do. This does not mean that such prior agreement amounts to a partnership. On the contrary, Section 1(2), where relevant, of the Partnership Act, 1890 effects just the opposite when it provides:-

“(2)      But the relation between members of any company or association which is –

(a) registered …

(b) …

(c) …

is not a partnership within the meaning of this Act”.

13. He relies on the following observation of Murphy J. in Crindle Investments -v- Wymes [1998:4:IR:567 at 576]:-

“Whilst I recognise that the original enterprise, and perhaps even the

litigation following upon it, was something in the nature of a joint enterprise,that undertaking was conceived and consciously promoted in the form of a company incorporated under the Companies Act, 1963, and it was the requirements of that legislation which governed the relationship between the parties. Whilst I have already indicated that I accept that duties may be imposed or accepted by parties above and beyond those derived from particular offices or status, I believe that the presumption must be that parties who elect to have their relationship governed by corporate structures rather than, say, a partnership, intend their duties – and where appropriate their rights and remedies – to be governed by the legal provisions relating to such structures and not otherwise. It would require, in my view, reasonably clear evidence to impose obligations on directors or shareholders above and beyond those prescribed by legislation or identified by long established legal principles”.

14. The case presented by the Plaintiff is that the three parties to these proceedings agreed that their partnership business would be conducted through the medium of a company, namely, MCL. This was the entire of their relationship and therefore there is no other relationship which could comprise a partnership. That being the case, there is no factual basis to support a partnership relationship which exists independently of the basis comprising the relationship between the parties as fellow shareholding members of MCL, upon which can be founded a separate and independent claim for breach of that relationship. If it be correct, therefore, that the only relationship between the parties to these proceedings is as fellow shareholding members of MCL, and given that Mr. Gardiner does not contend that the Plaintiff brings these proceedings on the basis of one of the exceptions to the rule in Foss -v- Harbottle , these proceedings should be dismissed as an abuse of the process of the Court because all complaints relied on will be taken into account and remedied either in the Section 205 petition or in the wrongful dismissal proceedings.

15. A possible exception to this is the claim for damages for defamation but, as pleaded, this arises from an allegation of “insulting, threatening, hurtful and degrading” treatment which cannot give rise to a claim for defamation.