JUDGMENT OF KNELLER, J A
Mehta Patel and Company is or was a partnership that has carried on the business of accountants in Nairobi since 1925. Some of its elderly partners retired in early 1978 leaving behind Thakorbhai Nanalal Patel, a son of the founder partner, and Prabhakarbhai Jivanhbai Patel, his nephew, the first and second respondents, who brought in Narendra Ratanbhai Patel, the third respondent, and Shantilal Khimji Shah, the appellant, and then there were four partners.
The respondents and the appellant signed a deed of partnership on February 15, 1978.
Each respondent gave notice to the other three, Thakarbhai on April 6, Prabhakarbhai on April 9 and Narendra on April 9 all of 1979, under section 36(1)(c) of the Partnership Act (cap 29) the Act that each wished to dissolve that partnership from April 30, 1979, that the partnership under the firm name of Mehta Patel and Company would be dissolved from April 30,1979 and each would like to know how the others proposed to settle the accounts between them of all this dissolved partnership. The first one is three days earlier than the other two.
The appellant thanked the respondents for their letters. He construed them as notices of their intention to retire from the partnership which he accepted. He also observed that they gave notice of their intention to dissolve the partnership which he rejected because, he wrote, he intended to continue the partnership business at the same place and under the same trade name from May 1, 1979. He suggested they all meet soon to take accounts and then the Patel respondents would be paid their dues.
Some or all of these parties had a meeting with an advocate, Mr TG Bakrania, in Nairobi at 11.00 am on Friday April 27, and afterwards Shah wrote another letter the same day to each Patel referring them to clauses 23 and 24 of the deed of partnership and repeating that their retirement dues would be paid when the accounts had been taken and from May 1, 1979 he would take over the partnership business of Mehta and Company. [Clause 23 sets out what happens if a partner dies during the continuance of the partnership and clause 24 says it will be the same if one retires].
On April 30, Mr Bakrania for two Patels, Prabhakabhai Jivanbhai and Narendra, acknowledged Shah’s letters separately and told him the Patels had not retired but each had given notice dissolving the partnership so Shah could not continue the partnership and clauses 23 and 24 of the deed were irrelevant. On the same day another Nairobi advocate, Mr J J Patel, on behalf of Thakarbhai Nanalal, acknowledged Shah’s second letter and replied in the same terms. The partnership was dissolved, he asserted, on April 30, 1979 and Shah’s references to a proper handover after that date were incorrect.
Shah retained an advocate, Mr Kimiti, who wrote to the Patels’ advocate on April 30, stressing that each Patel had dissolved his partnership with the other three partners by retiring from it because it was a settled principle of partnership law that in a partnership existing between more than two partners one of them cannot dissolve the entire partnership. He expanded on that in another letter to his legal brethren on May 7, 1979. Each Patel, he declared, had announced his intention to dissolve his part in the partnership with the other three partners and that is all he could do since this partnership was not a partnership at will. Each Patel had severed his part in the business but the business continued.
The simple issue to them all probably was whether the Patels’ notices dissolved the business so it had to be wound up or just their own links with it and Shah could carry on with it?
Now by clause 29 of their deed these partners had provided that all disputes and questions between them or some of them should be referred to an arbitrator if they agreed on one, or two, one appointed by each party to the dispute, if they did not agree on one. (A three or four cornered dispute must have been considered unlikely so they did not provide for it ).
They agreed to appoint another Nairobi advocate, Mr. S K Guram, and they put before him a submission to arbitration dated December 5, 1979.
The submission set out this background and brought out Mr Kimiti’s assertions that this partnership was not a partnership at will and that section 36(1)(c) of the Partnership Act was irrelevant.
Mr Guram was directed to make his award in the alternative if any question of law arose in the reference. First, he was to prepare a special case for the opinion of the High Court on the question of law. Secondly, he was to provide a final and conclusive award.
There were subtle variations on all that but they do not, in my view, affect the issue in this appeal.
Mr Guram, in obedience to his brief, published his award on July 25,1980 in alternative form.
First, the Special Case. He listed three questions of law that bobbed up during the reference –
1. Is the partnership created by the deed a partnership at will?
2. Were the Patels’ notices effective as notices of dissolution under section 36(1)(c) of the Act?
3. If so, does the partnership stand dissolved under section 36(1) (c) of the Act?
If I may linger here, I believe I should say, with respect to the learned Arbitrator, that I cannot, for the moment, fathom the difference in the last two questions. And, if there is none, I wonder if the third question of law should have been (for reasons to which I expect to return)-
4. If not, were those notices effective notices of dissolution under the deed?
At any rate, so far as I can understand all this, if a notice dissolves the partnership then the partnership is, willy-nilly, dissolved.
But those three questions of law were not the only ones. There were three more, according to the Arbitrator. Alternative ones. And here they are –
5. If not effective as notices of dissolution under section 36(1)(c) of the Act are they effective as notices of retirement from the partnership?
6. If (and here I shall make it clearer than he did) if they are retirement notices only, do they terminate the partnership between the Patels and Shah?
7. If so, does Shah have the right under the deed to carry on the business?
Again, with respect, the answer to the fourth and fifth questions in my view, would be the same.
Having set out all these legal conundrums, the learned Arbitrator (instead of setting out his own robust final and conclusive award which, I believe, he was invited to do in that submission, and surely that is what an Arbitrator usually does in supposed contradiction to the usual judgements or orders of other courts or tribunals?) went on to his award which has three main clauses, eleven sub-clauses and ten sub-clauses.
But, and I am sure this is so, the issue is whether in fact and in law the Patel by their notices dissolved Mehta Patel and Company or retired from it? In fact and in law must be emphasised because no-one but a lawyer would doubt that the Patels wanted to oust Shah and to erase Mehta Patel and Company.
After the Arbitrator’s Special Case and award (so dependant on the High Court’s opinion on the questions of law he recorded) Shah went to the High Court by way of summons in chambers filed on September 5, 1980 expressed to be brought under section 3 and 3A of the Civil Procedure Act (the refuge of advocates and laymen uncertain of the appropriate provisions of the relevant legislation) order L rule 7 Civil Procedure Rules, section 22 of Arbitration Act (cap 49) and rules 5,6 and 16 of the Arbitration Rules to ask for the High Court’s opinion, and that that opinion should then become the order and decree of the High Court.
This came before Mr Justice Masime on October 3, 1980. Mr Kassam represented Shah and Mr Bakrania the Patels.
The learned judge’s opinion of November 8, 1982 was that the notices the Patels gave were not notices of retirement. He referred to clause 21 of the deed as support for this view. So he went on to decide the questions thus-
(a) This partnership created by the partnership deed was a partnership at will;
(b)The notices of the Patels were effective as notices of dissolution; and
(c)This partnership was dissolved under section 36(1)(c) of the Act
Consequently, the learned judge went on, the learned Arbitrator’s award, on the basis of the High Court’s opinion, and the High Court’s decree would be against Shah. The Patels’ letters were notices of dissolution not retirement. The partnership was dissolved under section 36 (1)(c) of the Act. Shah was not entitled to take over and continue the business. He was not a continuing partner. The partnership business had to be, and would be, wound up from the date of the opinion (ruling, the learned judge, rightly in my view, termed it) in the most detailed convoluted and, I am sure, entirely satisfactory manner painstakingly set out by the learned Arbitrator as his award published, as I have said, on July 25, 1980. Victory for the Patels, and the end of Mehta Patel and Company after fifty-seven (or sixty-five?) years.
Shah was not content with that opinion (or ruling) so the next advocate, Mr Aziz Mohamed, filed a notice of appeal dated May 11, 1983 and thereafter, a memorandum of appeal of January 5, 1984.
On October 22, 1980 this court made Shah (and his advocates ) go back to the High Court for leave to appeal. This is mandatory. See section 22(3) Arbitration Act (cap 29).
The appellant obtained leave and Mr Gautama appeared for Shah and Mr Rana for the Patels.
Mr Gautama pressed for the appeal to be allowed with its costs to be borne by the Patels jointly and severally. To do this he urged the court to set aside the opinion of Mr Justice Masime and substitute one that declared the Patels retired and did not dissolve the partnership so that clause 7 of Mr Guram’s award would be the basis of the decree.
His argument was that the deed stipulated what happened if a partner died, went bankrupt or retired. The partnership continued. This was different from a dissolution when the business would be wound up. It did not provide for dissolution, so the Patels could only retire from the partnership and Shah did not retire so he was entitled to carry on the partnership alone. It was true that clause 21 of the deed specified that a partner might lawfully retire from the partnership in any year giving not less than a year’s notice but Shah had not insisted on 12 months notice but, instead, accepted only twenty-four to twenty-six days notice. This was not a partnership at will because clause 2 stated the partnership should continue until determined as hereinafter provided, which effectively excluded the provisions of section 36(1) of the Act which dealt with the dissolution by expiration or notice of a partnership ‘subject to any agreement between the parties’. Thus, without the agreement of the Patels together with Shah, this partnership could not be dissolved save by application to the court under section 39(f) of the Act. What happened was that each Patel had determined his own part in the partnership by giving notice in writing which under section 30 of the Act was all he had to do.
Mr Rana for the Patels agreed that this partnership was for an undefined period (clause 2). The death, retirement of bankruptcy of one partner did not extinguish it, and the others or other could carry on the business. There must be, however, other events which of necessity brought the partnership to an end e.g all but one died, left the country. He also could find no clause in the agreement that gave any one partner the right to dissolve the partnership, and then he said clause 27 stuck out like a lighthouse but did not develop that arresting phrase. He also underlined the fact that the Patel’s letters chose the word ‘dissolve’ to describe their intention and not the word ‘retire’. And finally, he enquired: how could one man continue a partnership?
It may not emerge clearly in that summary of their submissions but in fact each advocate found support from them in the agreement and the Act.
Clause 27, the lighthouse one in Mr Rana’s phrase, begins
“27. If the partnership shall be determined by any means
not hereinbefore provided for an account shall be taken
..................”
and then follows the steps to be taken in winding up the partnership. And the next clause flings in the goodwill as an asset of the partnership to be treated in the same manner. So it can be determined, in my view, though not on the death, retirement or bankruptcy of one or two of the four.
All along it has been stressed by Mr Gautama that by clause 2 this Patels- Shah partnership shall not be determined by a simple notice to the partnership from one partner. But that clause 2 (inartistically) began with the phrase.
“Subject to the provisions hereinafter contained .......”
And ended
“ ................. the partnership shall continue until determined as hereinafter provided”
And there, in clause 27, the partnership can be determined (terminated, dissolved, smothered) by any means not hereinbefore provided and these means are not difficult to find just because none is provided in the written agreement. I do not, with respect, find that cut down or affected by reference to one partner being expressly allowed to continue the business under clauses relating to bankruptcy or retirement or death.
The fact that springs to mind is that the Patels and Shah by another written agreement could terminate it, wind it up and distribute its assets. The happening of any event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry on in partnership must dissolve it, and, sure enough, that is made plain in section 38 of the Act, and would be a means of determining the partnership not provided for in the agreement (before clause 27 is read). Like-wise the death or the bankruptcy of any partner would dissolve it according to section 37(1) of the Act save for the fact that the Patels and Shah agreed that it should not dissolve it. Dissolution by the court under section 39 of the Act was not excluded by them and that would cover circumstances when one partner is adjudged to be a lunatic, incapable of performing his part of the partnership contract, has been guilty of such conduct that it affects prejudicially the carrying on of the business or wilfully and persistently commits a breach of the partnership agreement. It also covers the situation when a partnership can only be carried on at a loss. Or, finally, when circumstances have arisen which render it just and equitable that the partnership be dissolved.
This agreement provides, among other things, that the death, retirement or bankruptcy of a Patel or Shah would not determine the partnership (clause 3). Any of them could lawfully retire if he gave not less than twelve months notice in writing to the rest (clause 21). If any of them was adjudicated bankrupt he is deemed to have retired from it on the date of the adjudication (clause 22). If one retired or was adjudicated bankrupt or died his share in the capital had to be purchased from the retiring partner or deceased partners’s personal representatives or bankruptcy trustee by the surviving partners or partner (clauses 23, 24). These do not, in my judgment, affect or infect clause 27 which refers to determination.
Clause 26 was not, I think, mentioned by Mr Gautama or Mr Rana. This deals with notices of determination of the partnership by retirement or otherwise being advertised in the Kenya Gazette.
The law cited by Mr Gautama and Mr Rana was limited to the provisions of the Act, three English authorities, namely Jones v. Lloyd [1874], 30 LT 487, Moss v. Elphick [1910] 1 KB 465 (KBD) 846 (CA) and Abbott v. Abbott [1936] 3 All ER 823 (Ch D) and a text book called Lindley on Partnership 14th edition 1979. There are, apparently, no local reported decisions or text books on the relevant law so it is proper and helpful to see what English courts and authors have made of almost the same Act and its sections.
From these I extract the following points. The Act (like the English one) is intended to deal partly with matters of procedure and partly with the problems which arise from the relation of partners in the usual incidents of the partnership business.
A partnership is the relation which subsists between persons carrying on a business in common with a view of profit. Section 3(1) of the Act (cap 29). Prima facie partnerships are at will. Lindley on Partnership, 14th edition, [1979] p 159. A partnership at will is one that can be determined by any party. Section 30 of the Act. But this is subject to any agreement between the parties section 36 (ibid). These two sections overlap, which is unfortunate, but if there are two sections that deal with the same matter, one unqualified and one qualified, effect must be given to the section containing the qualification. Moss v. Elphick [1910] 1 KB 465. Darling and Pickford, JJ. I will set them out later.
There is, however, an agreement in this instance. It is a formal document and drawn by an advocate so it cannot be ignored. Jones v. Lloyd (1874), 30 LT 487, Sir George Jessel MR. Much will depend on its construction.
The circumstances in which the deed was executed would have been material. Thus in Abbott v. Abbott [1936] 3 All ER 823 Clauson J said.
“It is not very businesslike for a father to throw his assets (which belong to him alone) into a partnership with the result that he becomes the owner of it as to only one fifth and that at a moments notice one son can bring the business to an end and take away one fifth of it.”
Or, as in Moss v. Elphick, the fact that Moss paid £250 to Elphick in August 1902 (a considerable sum according to Vangham-Williams LJ at p 847) to become a sleeping partner in Elphick’s tobacconist’s business in Brighton was a relevant circumstance that made it unlikely the parties contemplated their partnership should be dissolved by one of them at anytime.
Then, on the same issue, the agreement must be examined to see on the true construction of it what is the fair meaning to give it? Does that exercise reveal that one of the partners can bring it to an end at any moment? Or is there some agreement inconsistent with that being done? For example, the death of a partner or retirement of one would bring it to an end if the partnership is a partnership at will. Clause 2 of the Abbott v. Abbott agreement stated neither event would end it, so it was not a partnership which one son could dissolve by his simple say so. Another clause that would be alien to the conception of a partnership at will would be one that provides for (or contemplates as Clauson J put it) circumstances in which the partnership may have to be determined by the court.
So the agreement has to be scrutinized for any indication that it is one for a fixed term and if there is none the effect of section 30(1) and 36(1) (c) is that it is one which is entered into for no fixed time or for an undefined time so any partner may determine it by notice. Now there was an event on the happening of which the partnership in Moss v. Elphick would come to an end. It was when both partners consented to a dissolution. An agreement for dissolution by mutual consent cuts out any notion that one partner could determine it by notice.
A partnership that was to continue for so many months, or that was to come to an end on a specified day, would be one for a fixed term or a defined time.
Put in yet another way, the agreement should be checked for a clause that prohibits the partnership being dissolved save by mutual consent or one that prevents one partner from determining it by notice.
Returning, at last, to the particular facts in this appeal when those principles of law are applied to them the answer to the issues raised earlier emerge as these.
These partners began their association with a formal document drawn by an advocate. We do not know, if the two new younger partners brought ‘a considerable sum’ (as Moss did) into it for the privilege of joining it but it would be most unbusinesslike for the two older ones to invite another Patel and a Shah to join, so that their half shares in the assets of the business became quarters, or at any rate less than half, if in a trice the Shah or a Patel could bring the whole business to an end and take away one fifth of it. And the death, retirement or bankruptcy was specifically not going to determine it (clause 3). The continuing ones would just purchase his share of the capital. All that is clear.
Yet, on the other hand, studying that agreement, the charter of the partnership, it is beyond the peradventure that –
( i ) this is not a fixed term partnership or one for a defined term;
( ii ) there is no clause that prohibits the partnership being dissolved save by mutual consent; and
(iii) none that prevents three of them from doing so by notice.
And, anyway, if three dissolve it or retire from it then it would seem that by section 3(1) of the Act it could not be carried on by Shah alone because a partnership is the relation which subsists between persons carrying on a business in common with a view of profit. Clauson J in 1936 in Abbott v. Abbott had no doubt that there could not be a partnership carried on by one person. I agree that one of the former partners can carry on business in the same name and style of the partnership if the agreement provided for this.
So I would hold that notice by three of the partners to the fourth dissolving the partnership is one of the means not provided for by the agreement before its clause 27 but then covered by it in that clause. The lighthouse clause. And the fact that that leads to a result consistent with the word ‘dissolved’ used in those notices and saves them from being construed as ‘retirement’ notices, ones that do not even comply with clause 21 which requires them to give twelve months notice, is a comfort for it is based not only a proper construction of the agreement but is the fair meaning of it and, on the balance of probabilities, what was in their contemplation when the agreement was executed.
Then, going back to the Act again, there is section 30 which provides that
“30(1). Where no fixed term has been agreed upon for the duration of the partnership, any partner may determine the partnership at any time on giving reasonable notice of his intention to do so to all the other partners.
(2) Where the partnership has been originally constituted by deed, a notice in writing signed by the partner giving it, shall be sufficient for this purpose.”
The marginal note to this section refers to “Retirement from partnership at will” as it does for section 26 of the English Act but it is mis-leading. The power given is to dissolve the firm, not to retire from it.
And look at section 36(1)(c) which reads as follows:-
“36(1). Subject to any agreement between the parties a partnership is dissolved-
( a )
( b )
( c )if entered into for an undefined time, by any partner giving notice to the others of his intention to dissolve the partnership.”
Here, the Patels and Shah entered into a partnership where no fixed term had been agreed upon (that is the phrase in section 30) or for an undefined time (that comes from section 36) so any partner could give notice to the other or others of his intention to dissolve it (that is in both sections 30 and 36) subject to any agreement between the parties (which begins sections 36 – and it is a shortened version of subject to any agreement to the contrary) and there is no such agreement to the contrary in their deed.
I would dismiss the appeal with costs.
Gachuhi Ag JA has reached the same result, so the order of the Court is that this appeal is dismissed with costs.
Orders accordingly.
GACHUHI Ag JA. The appellant and the respondents entered into a partnership agreement dated February 15, 1978 to carry on a business of accountants under the business name of Mehta Patel and Company. The said business is said to have started on July 1, 1977.
There occurred differences between the appellant and the respondents thereafter, which made it impossible for the partners to get on together. The respondents, individually, wrote to the appellant and each other what purported to be notices of dissolution of the partnership. The first respondent gave notice on April 6, 1979 while the other two respondents gave their notices on April 9, 1979. The content of one of the three letters which are identical reads:
“Re: Our partnership under the firm name or style of “MEHTA PATEL and COMPANY”
I, Prabhakas Jivanji Patel, a partner with you all in the above mentioned partnership firm, hereby give you notice under section 36(1) (c) of the Partnership Act (chapter 29) that I wish to dissolve my partnership with you all with effect from 30th April 1979. Now therefore take further notice that the partnership now existing between you three and myself under the above mentioned firm name shall stand dissolved as from 30th April 1979.
Please acknowledge receipt hereof and let me know how you propose settling accounts between all of us as partners after dissolution of the partnership.”
The appellant replied individually to the notices by identical letters dated April 27, 1979. The content of the letter in reply reads:
“RE: Our partnership under the firm name or style of MEHTA PATEL and COMPANY
I refer to your letter of 9th April, 1979 notifying me of your intention to retire from the partnership and dissolve the same as from 30th April, 1979.
I hereby accept your notice to retire and would advise that I intend to continue with the partnership business at the same place and under the same trade name of the “Mehta Patel and Company.” I would suggest that we should arrange to meet immediately with a view to taking accounts so that the necessary arrangements can be made for payment of the dues to you.
The remaining partners and I in any event I will assume responsibility for the firm as from 1st May, 1979 and will continue the firm’s business.
It is assumed that you will take no steps which may be detrimental to the smooth running of the firm hereafter.”
The following day April 27, 1979 the appellant wrote further identical letters to the respondents, thus:
“RE: Our partnership under the firm name or style of MEHTA PATEL and COMPANY”
I refer to my letter of 26th April, 1979 and our subsequent meeting together with Mr TG Bakrania.
The position is clearly laid out in paragraph 23 and 24 of our Deed of Partnership and I would confirm once again that I will take over the partnership business as from May 1, 1979.
As mentioned in my letter of April 26, I would like the accounts to be taken as soon as possible and the dates for payments to the retiring partners be agreed.
It would be best to arranges a proper handover either on the evening of 30th April 1979 or morning of 2nd May 1979.
Your immediate reply and confirmation is kindly requested.”
Correspondence therefore ensued between counsels for the parties over the interpretation of the law regarding clauses in the partnership deed and the Partnership Act. The parties on December 5, 1979, by consent, referred their dispute to a single arbitrator, Mr SK Guram advocate.
The arbitrator was to award that the partnership stand dissolved and to name the date for such dissolution and provide for realising the partnership assets and discharging partnership liabilities; alternatively he could award that the notices given by the respondents were notices of retirement and that the said three partners (the respondents) retired from the partnership pursuant to the said notices as from April 30, 1979 and upon what terms. It was a further term of the reference that the arbitrator, on the question of law arising in the cause of the reference to award:
(a)In the form of special case for the opinion of the High Court on such questions of law, and
(b)In the form of a final and conclusive award.
The arbitrator published his award dated July 25, 1980. He enumerated questions of law that had risen under paragraph 5 of the award, that,
(a)Is the partnership created by partnership deed a partnership at will?
(b)Are the notices served by the respondents effective as notices of dissolution of the partnership under section 36(1)(c) of the Partnership Act.
(c)Does the partnership stand dissolved under the said section of the act.
Alternatively
(d)Are the said notices effective as notices of retirement from the partnership.
(e)If so, do the notices have the effect of terminating the partnership between the three partners and the fourth partnership.
(f)If so, does the fourth partner have the right under the terms of the Partnership Deed to take over and continue to carry on the partnership business as the continuing partner.
The arbitrator having considered these references proceeded to make his award both in anticipation of the High Court answering the question (a) (b) (c) in the affirmative as well as the alternative if the answers in (a) (b) and (c) were in the negative and the answers in (d) (e) and (f) in the affirmative.
The submission provided that any of the parties had the option of taking the opinion of the High Court upon the points on which the arbitrator shall have stated a case. The appellant, filed a summons in chamber on September 5, 1980 praying that the court to express an opinion on the points of the law upon which the arbitrator had stated a case and such part of the award as shall become operative as a decree of the court and costs. The parties on October 3, 1980 appeared before Masime J who after hearing submission on the points of law delivered his ruling dated November 8, 1982 as follows:
“Finally I have considered the provisions of section 30 (1) and 2 and 36(1) (c). It is my respectful view I decide that question of law set out in clause 5 (a) (b) and (c) in the affirmative. Consequently the arbitrator’s award set out at paragraph 6 of the award shall become operative and be treated as a decree of this court.”
The appeal is against the High Court pronouncement. The appellant maintain:
(a) the effect of clause 3 of the partnership deed, the partnership was not a partnership at will.
(b)The provisions of section 36(1) (c) is subject to any agreement between the parties to the contrary and exclude the operation of the said provision.
(c)Upon the construction of notices, they were construed as notices of retirement and that any party could give and be bound by a shorter notice.
The Partnership Deed is a charter entered into by agreement of the parties that sets up the machinery of running the business and regulates the affairs and the conduct of the partners. The partnership deed is not independent of the provision of, but subject to, the Partnership Act. To cover Mr Gautama’s argument and the emphasis, several clauses of the deed which relate to the retirement and the dissolution of the partnership are:
Clause 2. Subject to the provisions hereinafter contained the partnership shall continue until determined as hereinafter provided.
Clause 3. The death, retirement or bankruptcy of any partner shall not determine the partnership as to the other partners.
Clause 21. It shall be lawful for any partner to retire from the partnership in any year on giving not less than one year’s notice in writing of this intention so to do the continuing partners or partner.”
Clause 22 provided that in the event of any partner being adjudicated bankrupt he shall cease forthwith to be a partner.
Clause 23 deals with the death of a partner.
Clause 24 deals with what follows after retirement, death or on bankruptcy.In fact it follows on clause 3 that the partnership shall continue with the substitutions, of the personal representatives.
The appellant further maintain that the notices of dissolution served on him by the other partners, should be construed as notices of retirement. The notices gave the appellant three weeks notice for dissolution of the partnership. For these notices to be construed as notices of retirement under clause 21 instead of notices of dissolution, the appellant must show that the notices were so intended to be construed as such and not otherwise. It must also be shown that the respondents had reached an agreement with the appellant to give a shorter notice than the one in the charter and the appellant must show that he had indicated to accept such a short notice. Similarly the language of the notices must be unambiguous. It should also be shown that the interpretation and the meaning of “dissolution” as contained in the notices is capable of being construed as such without any ambiguity that the real meaning of it is for the retirement from the partnership.
Mr Gautama argues that the partnership can only be determined under clause 2 of the charter. He also argues that the appellant accepted notices as notices for retirement and that he offered to pay off the retiring partners. He also argues that there is nothing to stop the remaining partner from carrying on with the business name for the sake of the good will earned. He does not say much under clause 27 where partnership can be determined for good reason.
The partnership deed does not provide for a shorter notice of retirement other than one year’s notice in any year. If there could be a shorter notice, it has to be by the agreement of all the partners. Section 30(1) of the Partnership Act provides that retirement from an on going partnership shall be on giving reasonable notice. Reasonable notice has not been defined but depends on interpretation given by courts.
Giving the literal meaning of the words in the said notices, without assigning any special interpretation to them and from the submissions made, I am not convinced that the meaning of dissolution therein used could mean retirement. If the notices were meant for retirement, they would have referred to clause 21 of the deed with a possible explanation as to why a shorter notice, less than one year, was necessary. I therefore feel that the notices were not for retirement.
It now remains to find out whether notices for dissolution were effective.
There is no provision for the notices of dissolution in the deed. The partnership, as can be ascertained from the deed was for undefined period. In Lindlay on Partnership 14th edition, chapter 9 that deals with duration of contracts of partnership and partnership at will and for a term, at page 159, starts with:
“Prima facie partnerships are at will.
By the Partnership Act 1890, section 26 (1) it is enacted that:
Where no fixed term has been agreed upon for the duration of a partnership, any partner may determine the partnership at any time on giving notice of his intention so to do to all the other partners.
In other words the result of a contract of a partnership is a partnership at will, unless some agreement to the contrary can be proved.”
Section 26(1) of the Partnership Act 1890 is the same with section 30(1) of the Partnership Act Chapter 29 Laws of Kenya. Notices for dissolution were given under section 36(1)(c) of the Partnership Act.
“36 (1) Subject to any agreement between the parties, a partnership is dissolved:-
(a) if entered into for any undefined time, by any partner giving notice to the other or others of the intention to dissolve the partnership.
This provision operates outside any agreement there may be between the partners. Parties are not forbidden to rely on any section on the Act if necessary. When disputes arise and partners are not in talking terms, notices under this section would be the solution, provided the partnership is classified as a partnership at will. Perhaps the situation could be cured by the provisions in the deed itself as indicated hereinafter.
The appellant argues that he accepted the notices as notices for retirement and offered himself to assume the responsibility of continuing the partnership alone. This is placing his own interpretation of the letter but not the meaning of dissolution, to suit himself. In order to give effect to the meaning of “retirement”, “dissolution” perhaps it may be suitable to consider the meaning of this association.
Partnership is defined by section 3(1) of the Act as the relation which subsists between persons carrying on a business in common with a view of profit. One person cannot posses that quality of relationship as exists between persons. It does not mean that he cannot run a business registered under any form as provided by the Business Names Act (Chapter 499) where he will be a sole proprietor, such business is not partnership. Mr Gautama submits that there is nothing to stop a partner carrying on the partnership business alone when others have retired. This could not be so because so long the remaining two partners are still alive, the partnership has to be dissolved to give one partner way to start a business of his own even to the extent of using the partnership business name. It is not so in this case because three partners have given notices of dissolution to the fourth partner. The cure could be in clause 27.
Clause 27: If the partnership shall be determined by any means not hereinbefore provided for an account shall forthwith be taken and settled by the partners of all assets and liabilities of the partnership and thereupon such assets shall be realised and the proceeds applied in discharging such liabilities and paying the expenses of winding up and subject thereto in paying to each partner any unpaid profits due to him and his shares of capital and any balance shall be divided between the partners in the shares in which they are entitled to the net profits of the partnership.”
In the case of retirement, bankruptcy or death of a partner, in which case the partnership is not dissolved, an account is taken and whatever is found to be due including the value of goodwill is paid to the retiring partner or the personal representative of the deceased partner. The position is not the same with the dissolution as set out in the clause above.
In Abbott v. Abbott [1936] 3 All ER 823 a similar situation arose. A son claimed that the partnership which he was a partner with his father and other brothers for undefined time was a partnership at will. On the construction of the deed, it was held that it was not a partnership at will because of the limitation in the deed. Clauson J stated this at p 826
“So there is some limitation upon this character of the partnership; it is subject to the express agreement that a single partner cannot determine the partnership although he can determine it as between himself and the others.”
And at page 827
“Prima facie, if two partners agree that they will continue indefinitely in partnership until by agreement they alter that position, that is not a partnership at will. It is a partnership for their joint lives unless they agree to terminate the relationship. That was decided in Moss v. Elphick [1910] 1 KB 846, accordingly, I get this from clause 2. The partners have agreed that the partnership shall continue, notwithstanding that one partner goes out, and they have also agreed that notwithstanding that one partner dies, the partnership shall continue.”
In the present case, clause 3 of the partnership deed appears to be similar with the clause in the case of Abbott v. Abbott. The result was that the partnership was not dissolved but remained as a going concern. This does not mean that a partnership cannot be dissolved. Section 39 of the Partnership Act Chapter 29 provides for dissolution by the court, a provision that could be used where there is no provision for dissolution under the partnership deed and the partnership being not a partnership at will. As in the case of Abbott v. Abbott where clause 2 of the deed took the partnership from the class of a partnership at will, so it is in this case, clause 3 of the partnership deed could have the same effect. The parties here did not opt to go to court for dissolution but decided to dissolve their partnership by each partner giving notice to the other.
Mr Rana for the respondent did not have much to say. Though he referred to clause 27, he invited the court to look into the partnership deed and give effect to the entire deed rather than reading a clause in isolation. He also prayed that the notices be given effect as notices of dissolution rather than being interpreted as notices for retirement and that the words referred in the notices be given their proper interpretation.
The principal of the law applicable in this kind of appeal is in the case of Abbott v. Abbott a partnership between the father and the sons. The parties in the present appeal are closely related and are not strangers. Though the deed envisages the partnership to have started in July, 1977, the firm was started by two of the respondent’s fathers, who acquired the asset but who retired leaving the profession to their sons and cousins. In the case of Abbott v. Abbott the notice of dissolution was ineffective to dissolve the partnership, for the reasons therein stated. In my own evaluation I am persuaded to hold that the notices given by the respondents to the appellant were meant and understood to be effective notices for dissolution of the partnership.
I would dismiss this appeal with costs.
Platt Ag JA (Dissenting).
As this appeal arises out of a special case stated for the opinion of the Court, I should perhaps give my own opinion on the issues before the court. Unfortunately I am unable to agree with the majority of the Court.
The facts may be stated shortly. The appellant Shah formed a partnership with the three respondents, all Patels, to carry on an accountancy business. They entered into a partnership deed for that purpose on February 15, 1978. The partnership name was “Mehta Patel and Company”. Apparently the Patels very soon fell out with Mr Shah. On April 6, first Mr TN Patel and then on April 9, Mr PJ Patel and Mr NR Patel, each gave notice in writing under section 36(1)(c) of the Partnership Act (cap 29) that he wished “to dissolve” his partnership with Mr Shah and the other two Messrs Patel; and they declared that the partnership should stand dissolved as from April 30, 1979, and the accounts were to be settled. The result was that each Mr Patel removed himself from the partnership. He or they collectively also thought that he or they had precipitated a general dissolution.
On April 26, 1979, Mr Shah declined to accept that the three, Messrs Patel had caused a general dissolution. He called their letters notices of retirement. He accepted their notices and said that he would carry on the business.
The parties seem to have met their advocate, Mr Bakrania on April 27 and on that day Mr Shah confirmed that in accordance with paragraphs 23 and 24 of the deed of partnership, he would take over the business as from May 1, 1979.
That was not what the Patels wanted. Mr Bakrania wrote on April 3, 1979 emphasising that Mr PJ Patel had not retired but had given notice of dissolution. So there was no question of Mr Shah continuing with the business. That was the stand taken by Mr J J Patel acting for TN Patel. Mr Shah’s advocate, Mr Kimiti refuted the views of Mr Bakrania and Mr J J Patel and claimed that as from May 1, 1979, Mr Shah would be the sole proprietor of the business.
These differences of opinion were then referred to arbitration in the form of a special case, and alternatively for the opinion of the arbitrator. The arbitrator made his award on July 25, 1980. The questions submitted to the High Court were:-
(a) Is the partnership created by the Partnership Deed apartnership at will?
(b) Are the notices served by the first three partners (i.e the Patels) effective as notices of dissolution of the partnership under section 36(1)(c) of the Partnership Act?
(c) If so, does the partnership stand dissolved under section 36(1)(c) of the Partnership Act?
Alternatively:
(d) If the said notices are not effective as notices of dissolution of the partnership under section 36(1)(c) of the Partnership Act, are they effective as notices of retirement from the partnership of the First Three Partners?
(e) If so, do the said notices have the effect of terminating the partnership subsisting between the First Three Partners and the Fourth Partner?
(f) If so, does the Fourth Partner have the right under the terms of the Partnership Deed to take over and continue to carry on the partnership business as the continuing partner as from the date of the retirement of the First Three Partners?”
The learned judge agreed with the arbitrator that the partnership was a partnership at will, and therefore the notices of the Patels were effective as notices of dissolution and the partnership stood dissolved, presumably from April 30, 1979.
The appellant challenges all these findings.
The first question posed in the memorandum is the basic question namely whether the partnership was a partnership at will. If it was, then the Patels could validly dissolve the partnership. If not, the partners were bound by their deed.
Section 36(1) of the Partnership Act (cap 29) (to which I will now refer as “the Act”) sets out the three kinds of partnership agreement, in the context of dissolution –
(a) an agreement entered into for a fixed term;
(b) an agreement entered for a single adventure or undertaking;
(c) an agreement entered into for an undefined time
Otherwise section 3 of the Act defines partnership as being the relation which subsists between persons carrying on a business in common with a view to profit. There must obviously be more than one person – there must be at least two. In relation to the instant appeal, the partnership deed disclosed that no fixed term was agreed, that it was not for a single undertaking, but that the agreement was to last for an undefined time. In these circumstances, section 36(1)(1)(c) of the Act provides that subject to any agreement between the partners, the partnership is dissolved by any partner giving notice to the other or others of his intention to dissolve the partnership. It is obvious that the three Patels took section 36(1)(c) of the Act to heart and acted under it. But the question which is raised is whether there was any other agreement between the parties. Whilst it is true that a partnership for an undefined time may be dissolved at the will of a partner at any time by notice, hence the description partnership at will, the agreement may have other provisions inconsistent with this right. If it does, it will not be partnership at will, but a partnership subject to the terms and conditions agreed by the partners. Such a case was Abbott v. Abbot [1936] 3 All ER 823. Clauson J explained the situation in that case at p 826.
“This being an agreement for a partnership, it is an agreement which each partner has a right to bring to an end at any moment, if he so desires, unless I am satisfied that there is some other agreement. The first point is that on reading clause 2 it is clear that a partner who says “I want to go out of the partnership, does not determine the partnership by doing that. If this were a partnership at will and one partner said “I am determined to go out of this partnership,” the effect would be that the partnership would come to an end as between all the partners, although the others might form some new partnership amongst themselves if they so desired. So there is some limitation upon the character of the partnership; it is subject to express agreement that a single partner cannot determine the partnership, although he can determine it as between himself and the others. This involves the fact that if one intimates his desire to go out, the partnership shall continue among the remaining partners.
The partners have agreed that the partnership shall continue notwithstanding that one partner goes out, and they have also agreed that notwithstanding that one partner dies, the partnership shall continue. That does not mean that the partnership shall continue where all but one of the partners has either died or retired, because there cannot be a partnership with one partner. But the clause seems consistent with the view that so long as there are two partners the partnership is to continue.”
That explanation comes very near to the situation in this case, but in different ways. First, this is ostensibly a partnership at will. But the deed does not leave the matter there. It says in clauses 2 and 3 –
“2. Subject to the provisions hereinafter contained the partnership shall continue until determined as hereinafter provided.
3. The death, retirement or bankruptcy of any partner shall not determine the partnership as to the other partners.”
That immediately strikes at the heart of a partnership at will. Clauses 21 and 24 make that clear also.
Clause 21 provides that it shall be lawful for any partner to retire from the partnership in any year on giving not less than one year’s notice in writing of his intention to do so to the continuing partners or partner.
Clause 22 provides that if any partner be adjudged bankrupt he shall forthwith cease to be a partner and shall be deemed to have retired from the partnership as from the date of adjudication.
Clause 23 provides that on the death of a partner during the continuance of the partnership business, his share in the capital of the partnership business and the property and good will shall accrue to and be purchased by the surviving partners or partner, in accordance with the provisions set out in this clause.
Clause 24 provides that in the event of the retirement of any partner the foregoing provisions as to accrual and the purchase of the deceased partner’s (share) shall mutatis mutandis apply with the substitution of the continuing partners or partner for the surviving partners or partner and the retiring partner or his trustee in bankruptcy or committee for the personal representative of the deceased partner.
I have underlined the vital portions of these clauses. What the clauses mean is that the draftsmen of this deed have understood Abbott v. Abbott extremely well. They have seen that a partnership for an undefined period, leaves open the chance of any partner tearing down the whole edifice, like Samson of old. They have seen that in professional, and certain longterm business partnerships, that would be inadvisable; and that they can guard against that, by eliminating the right to dissolve by notice, dissolution on bankruptcy and dissolution on death. Such dissolution in each case would follow automatically in a normal partnership at will. They have replaced the usual result of dissolution on notice, bankruptcy and death with the accrual of the outgoing partner’s share to the other partners, and purchase of those shares. A bankrupt is deemed to have retired, just as a partner retires who wishes to leave. The deceased partner’s shares are to be purchased; and these accrual rights are deemed to cover retirement on notice and deemed retirement on bankruptcy.
The draftsmen of the deed did one more extremely skilful thing. They saw that Clauson J anticipated a dissolution of the whole partnership if all the partners retired but one. The draftsmen met that possibility by providing very clearly that the surviving or continuing partners or partner could purchase the shares. These words “or partner’ in the singular, are the ultimate key to this whole dispute. It means that the draftsmen have allowed the last partner to buy out all the other partners. There is therefore no positive way in which the partners can generally dissolve this partnership, by their own actions, without the consent of the fourth partner; nor can they bring about a general dissolution by conspiring to retire together, so that only one partner is left. They could only go to the court for dissolution under the just and equitable rule, which they did not do. They know of course what provisions they made for themselves. They know that they wanted a long-term business association, which would not suffer periodic upheavals of any sort, by an outgoing partner, bankrupt or deceased partner. The business would finally end up in the hands of the last partner.
The draftsmen of this deed, did some other homework as well. They found that it was within the experience of the courts that a last surviving or continuing partner could buy the shares of his other partner. Take for instance King v. Chuck (1853) 17 Beav 325 more easily found in Vol 36(2) of the English and Empire Digest at paragraph 269 (page 626). There, A, B and C were partners who had stipulated that if one of them died the survivors should take the business and pay his executors his capital as appearing on the last account. A died. Then B and C continued on the same terms. B died. The court held that from the conduct of B and C, that they had carried on, on the same terms and C was ordered to pay B’s executor his capital appearing on the last account. It is thus plain that it is permissible, if so desired to insert provisions as to the purchase of shares by the last survivor.
Secondly, one can see from Sobell v. Boston [1975] 2 ALL ER 282 an upto- date situation where one partner, convicted of criminal activities, tried to bring down the whole partnership, but failed to do so, because it was held that the agreement meant that the remaining partners would continue in business and buy out the out-going partner. There are two aspects of this case which are of some interest. The first is that the partners had said in their notice in the Law Society Gazette that the partnership had been dissolved; but went on to say that the remaining partners continued to practice in the same way and place. It was held that on all the evidence the “criminal” partner had simply retired, and notice of dissolution had not been given. (It may be as well to say, that when a partner retires or leaves the partnership on bankruptcy or death, the partnership is dissolved as between him and the other partners, but that does not necessarily bring about a general dissolution, which would mean that the whole of the business would be wound up.) On the question what the parties in this case said in their notices, claiming to have dissolved the partnership, they were wrong; the mere fact that they thought they would dissolve the partnership, does not mean that the court is bound to pay any regard to their misinformed notices, having regard to the very clear intent not to allow general dissolution as expressed in the partnership deed. Sobell’s case proves that.
The second aspect of interest, arising out of Sobell’s case, is that it was protested that a winding up was the only way to clarify the out-going partner’s share. That was not accepted in that case. It may have been thought here, that as one partner and then two more partners out of four had left the partnership, a winding up was the only practical answer. But that is not so. The deed of partnership clearly lays down the method of calculation in clause 23. There is no specific attack on this aspect of the deed. It had just been ignored, until Mr Gautama sought to draw attention to it.
The third piece of homework that the draftsmen must have done was to have observed Warder v. Stillwell (1856) 26 LJ Ch 373, English and Empire Digest Vol. 36 (2) paragraph 1579, (pages 780 and 781). There, the parties were held to their notice of 12 calendar months, the evidence failing to show an actual violation of any stipulation of the partnership articles by the plaintiff, the defendant was not entitled to a dissolution under the articles, and the partnership business must be continued to be carried on, at whatever inconvenience till the expiration of the twelve months after service of the plaintiff’s notice of purchase. It would have been interesting here to observe what the Patels would have done, if Mr Shah had not kindly waived his right to twelve months notice of retirement. Mr Shah could have said “Your notices means nothing whatsoever in law. Take them back and think again. They are valueless in terms of the deed you yourselves signed.” But he did not. He could alternatively have said, “I treat your notices as notices of retirement, and may I remind you, Dear Sirs, of Warder v. Stillwell, and I will extract twelve probably painful, months of partnership work out of you”. Well, he did not. He released the Patels from their obligations. He said he would buy them out. That of course was a wise course to take, and clauses 23 and 24 allowed Mr Shah to do so.
It may generally be useful to remark on the nature of partnership. By its nature it is of limited objective. It is not expected of businessmen that they should tie themselves up for periods beyond their wishes, or in businesses beyond that which is profitable to them. But on the other hand, when such business are profitable, or expected to become profitable, or are expected to be something which may be passed on to the next generation, then the law allows the partners to put a brake on unnecessary general dissolution. Thus, where a final partner may buy out the others, that is the method for winding up the business chosen in preference to a general dissolution. The law respects the acumen of businessmen in these matters, unless there is unfairness. It also provides for escape in the event of unforeseen circumstances by section 27 of the Act. The first is, that the partners as a whole may decide to wind up unprofitable business. They can all agree to do so. Secondly, Government action may supervene, as when business were Africanised. They may also apply to the court for winding up. But otherwise they are bound by their deed. In this case it is obvious that the Patels could not break their contract and then claim to come within section 27 of the Act, which is not there to condone unlawful activity.
I now answer the questions posed in this special case.
(a)Although the partnership was for an undefined period, clauses 2, 3 and 21 to 24 inclusive deprived the partners of their rights under a partnership at will, so that it was not a partnership at will (Abbot v. Abbott (supra).
(b)The notices of the Patels were intended to be notices of general dissolution under a partnership at will, but hey were invalid in terms of the partnership deed, which avoided the partnership being a partnership at will. These irregularities were waived by Mr Shah who treated them as notices of retirement having immediate effect.
(c) No, the partnership does not stand dissolved under section 36(1)(c) of the Partnership Act (cap 29). Clauses 23 and 24 ousted section 36(1)(c) of the Act.
Alternatively,
(d)Yes, the notices are effective as notices of retirement, despite their wording Sobell v. Boston [1975] 2 All ER 282.
(e)The notices dissolved the partnership between each Mr Patel personally and the other partners. In effect Mr Shah the so-called fourth partner remained alone, and so there could no longer be a partnership with only one person remaining. But Mr Shah was permitted to buy out the Patels.
(f)Yes, under clause 24 of the deed Mr. Shah had the right to continue the business and purchase the shares of the other retiring partners; as provided in clause 23 of the deed.
It is clear then that the appellant is right in all he says. I would therefore allow the appeal, set aside the orders of the High Court, and substitute therefor the following order. With regard to the questions posed in (a), (b) and (c) of the special case, they shall be answered in the negative; and the questions posed in (d), (e) and (f) shall be answered in the affirmative. The alternative award of the arbitrator shall be set aside. The award will be in accordance with the affirmative answers in (d), (e) and (f) and the High Court will enter a decree in accordance with those answers. I would grant the appellant
Platt Ag JA (Dissenting).
As this appeal arises out of a special case stated for the opinion of the Court, I should perhaps give my own opinion on the issues before the court. Unfortunately I am unable to agree with the majority of the Court.
The facts may be stated shortly. The appellant Shah formed a partnership with the three respondents, all Patels, to carry on an accountancy business. They entered into a partnership deed for that purpose on February 15, 1978. The partnership name was “Mehta Patel and Company”. Apparently the Patels very soon fell out with Mr Shah. On April 6, first Mr TN Patel and then on April 9, Mr PJ Patel and Mr NR Patel, each gave notice in writing under section 36(1)(c) of the Partnership Act (cap 29) that he wished “to dissolve” his partnership with Mr Shah and the other two Messrs Patel; and they declared that the partnership should stand dissolved as from April 30, 1979, and the accounts were to be settled. The result was that each Mr Patel removed himself from the partnership. He or they collectively also thought that he or they had precipitated a general dissolution.
On April 26, 1979, Mr Shah declined to accept that the three, Messrs Patel had caused a general dissolution. He called their letters notices of retirement. He accepted their notices and said that he would carry on the business.
The parties seem to have met their advocate, Mr Bakrania on April 27 and on that day Mr Shah confirmed that in accordance with paragraphs 23 and 24 of the deed of partnership, he would take over the business as from May 1, 1979.
That was not what the Patels wanted. Mr Bakrania wrote on April 3, 1979 emphasising that Mr PJ Patel had not retired but had given notice of dissolution. So there was no question of Mr Shah continuing with the business. That was the stand taken by Mr J J Patel acting for TN Patel. Mr Shah’s advocate, Mr Kimiti refuted the views of Mr Bakrania and Mr J J Patel and claimed that as from May 1, 1979, Mr Shah would be the sole proprietor of the business.
These differences of opinion were then referred to arbitration in the form of a special case, and alternatively for the opinion of the arbitrator. The arbitrator made his award on July 25, 1980. The questions submitted to the High Court were:-
(a) Is the partnership created by the Partnership Deed apartnership at will?
(b) Are the notices served by the first three partners (i.e the Patels) effective as notices of dissolution of the partnership under section 36(1)(c) of the Partnership Act?
(c) If so, does the partnership stand dissolved under section 36(1)(c) of the Partnership Act?
Alternatively:
(d) If the said notices are not effective as notices of dissolution of the partnership under section 36(1)(c) of the Partnership Act, are they effective as notices of retirement from the partnership of the First Three Partners?
(e) If so, do the said notices have the effect of terminating the partnership subsisting between the First Three Partners and the Fourth Partner?
(f) If so, does the Fourth Partner have the right under the terms of the Partnership Deed to take over and continue to carry on the partnership business as the continuing partner as from the date of the retirement of the First Three Partners?”
The learned judge agreed with the arbitrator that the partnership was a partnership at will, and therefore the notices of the Patels were effective as notices of dissolution and the partnership stood dissolved, presumably from April 30, 1979.
The appellant challenges all these findings.
The first question posed in the memorandum is the basic question namely whether the partnership was a partnership at will. If it was, then the Patels could validly dissolve the partnership. If not, the partners were bound by their deed.
Section 36(1) of the Partnership Act (cap 29) (to which I will now refer as “the Act”) sets out the three kinds of partnership agreement, in the context of dissolution –
(a) an agreement entered into for a fixed term;
(b) an agreement entered for a single adventure or undertaking;
(c) an agreement entered into for an undefined time
Otherwise section 3 of the Act defines partnership as being the relation which subsists between persons carrying on a business in common with a view to profit. There must obviously be more than one person – there must be at least two. In relation to the instant appeal, the partnership deed disclosed that no fixed term was agreed, that it was not for a single undertaking, but that the agreement was to last for an undefined time. In these circumstances, section 36(1)(1)(c) of the Act provides that subject to any agreement between the partners, the partnership is dissolved by any partner giving notice to the other or others of his intention to dissolve the partnership. It is obvious that the three Patels took section 36(1)(c) of the Act to heart and acted under it. But the question which is raised is whether there was any other agreement between the parties. Whilst it is true that a partnership for an undefined time may be dissolved at the will of a partner at any time by notice, hence the description partnership at will, the agreement may have other provisions inconsistent with this right. If it does, it will not be partnership at will, but a partnership subject to the terms and conditions agreed by the partners. Such a case was Abbott v. Abbot [1936] 3 All ER 823. Clauson J explained the situation in that case at p 826.
“This being an agreement for a partnership, it is an agreement which each partner has a right to bring to an end at any moment, if he so desires, unless I am satisfied that there is some other agreement. The first point is that on reading clause 2 it is clear that a partner who says “I want to go out of the partnership, does not determine the partnership by doing that. If this were a partnership at will and one partner said “I am determined to go out of this partnership,” the effect would be that the partnership would come to an end as between all the partners, although the others might form some new partnership amongst themselves if they so desired. So there is some limitation upon the character of the partnership; it is subject to express agreement that a single partner cannot determine the partnership, although he can determine it as between himself and the others. This involves the fact that if one intimates his desire to go out, the partnership shall continue among the remaining partners.
The partners have agreed that the partnership shall continue notwithstanding that one partner goes out, and they have also agreed that notwithstanding that one partner dies, the partnership shall continue. That does not mean that the partnership shall continue where all but one of the partners has either died or retired, because there cannot be a partnership with one partner. But the clause seems consistent with the view that so long as there are two partners the partnership is to continue.”
That explanation comes very near to the situation in this case, but in different ways. First, this is ostensibly a partnership at will. But the deed does not leave the matter there. It says in clauses 2 and 3 –
“2. Subject to the provisions hereinafter contained the partnership shall continue until determined as hereinafter provided.
3. The death, retirement or bankruptcy of any partner shall not determine the partnership as to the other partners.”
That immediately strikes at the heart of a partnership at will. Clauses 21 and 24 make that clear also.
Clause 21 provides that it shall be lawful for any partner to retire from the partnership in any year on giving not less than one year’s notice in writing of his intention to do so to the continuing partners or partner.
Clause 22 provides that if any partner be adjudged bankrupt he shall forthwith cease to be a partner and shall be deemed to have retired from the partnership as from the date of adjudication.
Clause 23 provides that on the death of a partner during the continuance of the partnership business, his share in the capital of the partnership business and the property and good will shall accrue to and be purchased by the surviving partners or partner, in accordance with the provisions set out in this clause.
Clause 24 provides that in the event of the retirement of any partner the foregoing provisions as to accrual and the purchase of the deceased partner’s (share) shall mutatis mutandis apply with the substitution of the continuing partners or partner for the surviving partners or partner and the retiring partner or his trustee in bankruptcy or committee for the personal representative of the deceased partner.
I have underlined the vital portions of these clauses. What the clauses mean is that the draftsmen of this deed have understood Abbott v. Abbott extremely well. They have seen that a partnership for an undefined period, leaves open the chance of any partner tearing down the whole edifice, like Samson of old. They have seen that in professional, and certain longterm business partnerships, that would be inadvisable; and that they can guard against that, by eliminating the right to dissolve by notice, dissolution on bankruptcy and dissolution on death. Such dissolution in each case would follow automatically in a normal partnership at will. They have replaced the usual result of dissolution on notice, bankruptcy and death with the accrual of the outgoing partner’s share to the other partners, and purchase of those shares. A bankrupt is deemed to have retired, just as a partner retires who wishes to leave. The deceased partner’s shares are to be purchased; and these accrual rights are deemed to cover retirement on notice and deemed retirement on bankruptcy.
The draftsmen of the deed did one more extremely skilful thing. They saw that Clauson J anticipated a dissolution of the whole partnership if all the partners retired but one. The draftsmen met that possibility by providing very clearly that the surviving or continuing partners or partner could purchase the shares. These words “or partner’ in the singular, are the ultimate key to this whole dispute. It means that the draftsmen have allowed the last partner to buy out all the other partners. There is therefore no positive way in which the partners can generally dissolve this partnership, by their own actions, without the consent of the fourth partner; nor can they bring about a general dissolution by conspiring to retire together, so that only one partner is left. They could only go to the court for dissolution under the just and equitable rule, which they did not do. They know of course what provisions they made for themselves. They know that they wanted a long-term business association, which would not suffer periodic upheavals of any sort, by an outgoing partner, bankrupt or deceased partner. The business would finally end up in the hands of the last partner.
The draftsmen of this deed, did some other homework as well. They found that it was within the experience of the courts that a last surviving or continuing partner could buy the shares of his other partner. Take for instance King v. Chuck (1853) 17 Beav 325 more easily found in Vol 36(2) of the English and Empire Digest at paragraph 269 (page 626). There, A, B and C were partners who had stipulated that if one of them died the survivors should take the business and pay his executors his capital as appearing on the last account. A died. Then B and C continued on the same terms. B died. The court held that from the conduct of B and C, that they had carried on, on the same terms and C was ordered to pay B’s executor his capital appearing on the last account. It is thus plain that it is permissible, if so desired to insert provisions as to the purchase of shares by the last survivor.
Secondly, one can see from Sobell v. Boston [1975] 2 ALL ER 282 an upto- date situation where one partner, convicted of criminal activities, tried to bring down the whole partnership, but failed to do so, because it was held that the agreement meant that the remaining partners would continue in business and buy out the out-going partner. There are two aspects of this case which are of some interest. The first is that the partners had said in their notice in the Law Society Gazette that the partnership had been dissolved; but went on to say that the remaining partners continued to practice in the same way and place. It was held that on all the evidence the “criminal” partner had simply retired, and notice of dissolution had not been given. (It may be as well to say, that when a partner retires or leaves the partnership on bankruptcy or death, the partnership is dissolved as between him and the other partners, but that does not necessarily bring about a general dissolution, which would mean that the whole of the business would be wound up.) On the question what the parties in this case said in their notices, claiming to have dissolved the partnership, they were wrong; the mere fact that they thought they would dissolve the partnership, does not mean that the court is bound to pay any regard to their misinformed notices, having regard to the very clear intent not to allow general dissolution as expressed in the partnership deed. Sobell’s case proves that.
The second aspect of interest, arising out of Sobell’s case, is that it was protested that a winding up was the only way to clarify the out-going partner’s share. That was not accepted in that case. It may have been thought here, that as one partner and then two more partners out of four had left the partnership, a winding up was the only practical answer. But that is not so. The deed of partnership clearly lays down the method of calculation in clause 23. There is no specific attack on this aspect of the deed. It had just been ignored, until Mr Gautama sought to draw attention to it.
The third piece of homework that the draftsmen must have done was to have observed Warder v. Stillwell (1856) 26 LJ Ch 373, English and Empire Digest Vol. 36 (2) paragraph 1579, (pages 780 and 781). There, the parties were held to their notice of 12 calendar months, the evidence failing to show an actual violation of any stipulation of the partnership articles by the plaintiff, the defendant was not entitled to a dissolution under the articles, and the partnership business must be continued to be carried on, at whatever inconvenience till the expiration of the twelve months after service of the plaintiff’s notice of purchase. It would have been interesting here to observe what the Patels would have done, if Mr Shah had not kindly waived his right to twelve months notice of retirement. Mr Shah could have said “Your notices means nothing whatsoever in law. Take them back and think again. They are valueless in terms of the deed you yourselves signed.” But he did not. He could alternatively have said, “I treat your notices as notices of retirement, and may I remind you, Dear Sirs, of Warder v. Stillwell, and I will extract twelve probably painful, months of partnership work out of you”. Well, he did not. He released the Patels from their obligations. He said he would buy them out. That of course was a wise course to take, and clauses 23 and 24 allowed Mr Shah to do so.
It may generally be useful to remark on the nature of partnership. By its nature it is of limited objective. It is not expected of businessmen that they should tie themselves up for periods beyond their wishes, or in businesses beyond that which is profitable to them. But on the other hand, when such business are profitable, or expected to become profitable, or are expected to be something which may be passed on to the next generation, then the law allows the partners to put a brake on unnecessary general dissolution. Thus, where a final partner may buy out the others, that is the method for winding up the business chosen in preference to a general dissolution. The law respects the acumen of businessmen in these matters, unless there is unfairness. It also provides for escape in the event of unforeseen circumstances by section 27 of the Act. The first is, that the partners as a whole may decide to wind up unprofitable business. They can all agree to do so. Secondly, Government action may supervene, as when business were Africanised. They may also apply to the court for winding up. But otherwise they are bound by their deed. In this case it is obvious that the Patels could not break their contract and then claim to come within section 27 of the Act, which is not there to condone unlawful activity.
I now answer the questions posed in this special case.
(a)Although the partnership was for an undefined period, clauses 2, 3 and 21 to 24 inclusive deprived the partners of their rights under a partnership at will, so that it was not a partnership at will (Abbot v. Abbott (supra).
(b)The notices of the Patels were intended to be notices of general dissolution under a partnership at will, but hey were invalid in terms of the partnership deed, which avoided the partnership being a partnership at will. These irregularities were waived by Mr Shah who treated them as notices of retirement having immediate effect.
(c) No, the partnership does not stand dissolved under section 36(1)(c) of the Partnership Act (cap 29). Clauses 23 and 24 ousted section 36(1)(c) of the Act.
Alternatively,
(d)Yes, the notices are effective as notices of retirement, despite their wording Sobell v. Boston [1975] 2 All ER 282.
(e)The notices dissolved the partnership between each Mr Patel personally and the other partners. In effect Mr Shah the so-called fourth partner remained alone, and so there could no longer be a partnership with only one person remaining. But Mr Shah was permitted to buy out the Patels.
(f)Yes, under clause 24 of the deed Mr. Shah had the right to continue the business and purchase the shares of the other retiring partners; as provided in clause 23 of the deed.
It is clear then that the appellant is right in all he says. I would therefore allow the appeal, set aside the orders of the High Court, and substitute therefor the following order. With regard to the questions posed in (a), (b) and (c) of the special case, they shall be answered in the negative; and the questions posed in (d), (e) and (f) shall be answered in the affirmative. The alternative award of the arbitrator shall be set aside. The award will be in accordance with the affirmative answers in (d), (e) and (f) and the High Court will enter a decree in accordance with those answers. I would grant the appellant
Platt Ag JA (Dissenting).
As this appeal arises out of a special case stated for the opinion of the Court, I should perhaps give my own opinion on the issues before the court. Unfortunately I am unable to agree with the majority of the Court.
The facts may be stated shortly. The appellant Shah formed a partnership with the three respondents, all Patels, to carry on an accountancy business. They entered into a partnership deed for that purpose on February 15, 1978. The partnership name was “Mehta Patel and Company”. Apparently the Patels very soon fell out with Mr Shah. On April 6, first Mr TN Patel and then on April 9, Mr PJ Patel and Mr NR Patel, each gave notice in writing under section 36(1)(c) of the Partnership Act (cap 29) that he wished “to dissolve” his partnership with Mr Shah and the other two Messrs Patel; and they declared that the partnership should stand dissolved as from April 30, 1979, and the accounts were to be settled. The result was that each Mr Patel removed himself from the partnership. He or they collectively also thought that he or they had precipitated a general dissolution.
On April 26, 1979, Mr Shah declined to accept that the three, Messrs Patel had caused a general dissolution. He called their letters notices of retirement. He accepted their notices and said that he would carry on the business.
The parties seem to have met their advocate, Mr Bakrania on April 27 and on that day Mr Shah confirmed that in accordance with paragraphs 23 and 24 of the deed of partnership, he would take over the business as from May 1, 1979.
That was not what the Patels wanted. Mr Bakrania wrote on April 3, 1979 emphasising that Mr PJ Patel had not retired but had given notice of dissolution. So there was no question of Mr Shah continuing with the business. That was the stand taken by Mr J J Patel acting for TN Patel. Mr Shah’s advocate, Mr Kimiti refuted the views of Mr Bakrania and Mr J J Patel and claimed that as from May 1, 1979, Mr Shah would be the sole proprietor of the business.
These differences of opinion were then referred to arbitration in the form of a special case, and alternatively for the opinion of the arbitrator. The arbitrator made his award on July 25, 1980. The questions submitted to the High Court were:-
(a) Is the partnership created by the Partnership Deed apartnership at will?
(b) Are the notices served by the first three partners (i.e the Patels) effective as notices of dissolution of the partnership under section 36(1)(c) of the Partnership Act?
(c) If so, does the partnership stand dissolved under section 36(1)(c) of the Partnership Act?
Alternatively:
(d) If the said notices are not effective as notices of dissolution of the partnership under section 36(1)(c) of the Partnership Act, are they effective as notices of retirement from the partnership of the First Three Partners?
(e) If so, do the said notices have the effect of terminating the partnership subsisting between the First Three Partners and the Fourth Partner?
(f) If so, does the Fourth Partner have the right under the terms of the Partnership Deed to take over and continue to carry on the partnership business as the continuing partner as from the date of the retirement of the First Three Partners?”
The learned judge agreed with the arbitrator that the partnership was a partnership at will, and therefore the notices of the Patels were effective as notices of dissolution and the partnership stood dissolved, presumably from April 30, 1979.
The appellant challenges all these findings.
The first question posed in the memorandum is the basic question namely whether the partnership was a partnership at will. If it was, then the Patels could validly dissolve the partnership. If not, the partners were bound by their deed.
Section 36(1) of the Partnership Act (cap 29) (to which I will now refer as “the Act”) sets out the three kinds of partnership agreement, in the context of dissolution –
(a) an agreement entered into for a fixed term;
(b) an agreement entered for a single adventure or undertaking;
(c) an agreement entered into for an undefined time
Otherwise section 3 of the Act defines partnership as being the relation which subsists between persons carrying on a business in common with a view to profit. There must obviously be more than one person – there must be at least two. In relation to the instant appeal, the partnership deed disclosed that no fixed term was agreed, that it was not for a single undertaking, but that the agreement was to last for an undefined time. In these circumstances, section 36(1)(1)(c) of the Act provides that subject to any agreement between the partners, the partnership is dissolved by any partner giving notice to the other or others of his intention to dissolve the partnership. It is obvious that the three Patels took section 36(1)(c) of the Act to heart and acted under it. But the question which is raised is whether there was any other agreement between the parties. Whilst it is true that a partnership for an undefined time may be dissolved at the will of a partner at any time by notice, hence the description partnership at will, the agreement may have other provisions inconsistent with this right. If it does, it will not be partnership at will, but a partnership subject to the terms and conditions agreed by the partners. Such a case was Abbott v. Abbot [1936] 3 All ER 823. Clauson J explained the situation in that case at p 826.
“This being an agreement for a partnership, it is an agreement which each partner has a right to bring to an end at any moment, if he so desires, unless I am satisfied that there is some other agreement. The first point is that on reading clause 2 it is clear that a partner who says “I want to go out of the partnership, does not determine the partnership by doing that. If this were a partnership at will and one partner said “I am determined to go out of this partnership,” the effect would be that the partnership would come to an end as between all the partners, although the others might form some new partnership amongst themselves if they so desired. So there is some limitation upon the character of the partnership; it is subject to express agreement that a single partner cannot determine the partnership, although he can determine it as between himself and the others. This involves the fact that if one intimates his desire to go out, the partnership shall continue among the remaining partners.
The partners have agreed that the partnership shall continue notwithstanding that one partner goes out, and they have also agreed that notwithstanding that one partner dies, the partnership shall continue. That does not mean that the partnership shall continue where all but one of the partners has either died or retired, because there cannot be a partnership with one partner. But the clause seems consistent with the view that so long as there are two partners the partnership is to continue.”
That explanation comes very near to the situation in this case, but in different ways. First, this is ostensibly a partnership at will. But the deed does not leave the matter there. It says in clauses 2 and 3 –
“2. Subject to the provisions hereinafter contained the partnership shall continue until determined as hereinafter provided.
3. The death, retirement or bankruptcy of any partner shall not determine the partnership as to the other partners.”
That immediately strikes at the heart of a partnership at will. Clauses 21 and 24 make that clear also.
Clause 21 provides that it shall be lawful for any partner to retire from the partnership in any year on giving not less than one year’s notice in writing of his intention to do so to the continuing partners or partner.
Clause 22 provides that if any partner be adjudged bankrupt he shall forthwith cease to be a partner and shall be deemed to have retired from the partnership as from the date of adjudication.
Clause 23 provides that on the death of a partner during the continuance of the partnership business, his share in the capital of the partnership business and the property and good will shall accrue to and be purchased by the surviving partners or partner, in accordance with the provisions set out in this clause.
Clause 24 provides that in the event of the retirement of any partner the foregoing provisions as to accrual and the purchase of the deceased partner’s (share) shall mutatis mutandis apply with the substitution of the continuing partners or partner for the surviving partners or partner and the retiring partner or his trustee in bankruptcy or committee for the personal representative of the deceased partner.
I have underlined the vital portions of these clauses. What the clauses mean is that the draftsmen of this deed have understood Abbott v. Abbott extremely well. They have seen that a partnership for an undefined period, leaves open the chance of any partner tearing down the whole edifice, like Samson of old. They have seen that in professional, and certain longterm business partnerships, that would be inadvisable; and that they can guard against that, by eliminating the right to dissolve by notice, dissolution on bankruptcy and dissolution on death. Such dissolution in each case would follow automatically in a normal partnership at will. They have replaced the usual result of dissolution on notice, bankruptcy and death with the accrual of the outgoing partner’s share to the other partners, and purchase of those shares. A bankrupt is deemed to have retired, just as a partner retires who wishes to leave. The deceased partner’s shares are to be purchased; and these accrual rights are deemed to cover retirement on notice and deemed retirement on bankruptcy.
The draftsmen of the deed did one more extremely skilful thing. They saw that Clauson J anticipated a dissolution of the whole partnership if all the partners retired but one. The draftsmen met that possibility by providing very clearly that the surviving or continuing partners or partner could purchase the shares. These words “or partner’ in the singular, are the ultimate key to this whole dispute. It means that the draftsmen have allowed the last partner to buy out all the other partners. There is therefore no positive way in which the partners can generally dissolve this partnership, by their own actions, without the consent of the fourth partner; nor can they bring about a general dissolution by conspiring to retire together, so that only one partner is left. They could only go to the court for dissolution under the just and equitable rule, which they did not do. They know of course what provisions they made for themselves. They know that they wanted a long-term business association, which would not suffer periodic upheavals of any sort, by an outgoing partner, bankrupt or deceased partner. The business would finally end up in the hands of the last partner.
The draftsmen of this deed, did some other homework as well. They found that it was within the experience of the courts that a last surviving or continuing partner could buy the shares of his other partner. Take for instance King v. Chuck (1853) 17 Beav 325 more easily found in Vol 36(2) of the English and Empire Digest at paragraph 269 (page 626). There, A, B and C were partners who had stipulated that if one of them died the survivors should take the business and pay his executors his capital as appearing on the last account. A died. Then B and C continued on the same terms. B died. The court held that from the conduct of B and C, that they had carried on, on the same terms and C was ordered to pay B’s executor his capital appearing on the last account. It is thus plain that it is permissible, if so desired to insert provisions as to the purchase of shares by the last survivor.
Secondly, one can see from Sobell v. Boston [1975] 2 ALL ER 282 an upto- date situation where one partner, convicted of criminal activities, tried to bring down the whole partnership, but failed to do so, because it was held that the agreement meant that the remaining partners would continue in business and buy out the out-going partner. There are two aspects of this case which are of some interest. The first is that the partners had said in their notice in the Law Society Gazette that the partnership had been dissolved; but went on to say that the remaining partners continued to practice in the same way and place. It was held that on all the evidence the “criminal” partner had simply retired, and notice of dissolution had not been given. (It may be as well to say, that when a partner retires or leaves the partnership on bankruptcy or death, the partnership is dissolved as between him and the other partners, but that does not necessarily bring about a general dissolution, which would mean that the whole of the business would be wound up.) On the question what the parties in this case said in their notices, claiming to have dissolved the partnership, they were wrong; the mere fact that they thought they would dissolve the partnership, does not mean that the court is bound to pay any regard to their misinformed notices, having regard to the very clear intent not to allow general dissolution as expressed in the partnership deed. Sobell’s case proves that.
The second aspect of interest, arising out of Sobell’s case, is that it was protested that a winding up was the only way to clarify the out-going partner’s share. That was not accepted in that case. It may have been thought here, that as one partner and then two more partners out of four had left the partnership, a winding up was the only practical answer. But that is not so. The deed of partnership clearly lays down the method of calculation in clause 23. There is no specific attack on this aspect of the deed. It had just been ignored, until Mr Gautama sought to draw attention to it.
The third piece of homework that the draftsmen must have done was to have observed Warder v. Stillwell (1856) 26 LJ Ch 373, English and Empire Digest Vol. 36 (2) paragraph 1579, (pages 780 and 781). There, the parties were held to their notice of 12 calendar months, the evidence failing to show an actual violation of any stipulation of the partnership articles by the plaintiff, the defendant was not entitled to a dissolution under the articles, and the partnership business must be continued to be carried on, at whatever inconvenience till the expiration of the twelve months after service of the plaintiff’s notice of purchase. It would have been interesting here to observe what the Patels would have done, if Mr Shah had not kindly waived his right to twelve months notice of retirement. Mr Shah could have said “Your notices means nothing whatsoever in law. Take them back and think again. They are valueless in terms of the deed you yourselves signed.” But he did not. He could alternatively have said, “I treat your notices as notices of retirement, and may I remind you, Dear Sirs, of Warder v. Stillwell, and I will extract twelve probably painful, months of partnership work out of you”. Well, he did not. He released the Patels from their obligations. He said he would buy them out. That of course was a wise course to take, and clauses 23 and 24 allowed Mr Shah to do so.
It may generally be useful to remark on the nature of partnership. By its nature it is of limited objective. It is not expected of businessmen that they should tie themselves up for periods beyond their wishes, or in businesses beyond that which is profitable to them. But on the other hand, when such business are profitable, or expected to become profitable, or are expected to be something which may be passed on to the next generation, then the law allows the partners to put a brake on unnecessary general dissolution. Thus, where a final partner may buy out the others, that is the method for winding up the business chosen in preference to a general dissolution. The law respects the acumen of businessmen in these matters, unless there is unfairness. It also provides for escape in the event of unforeseen circumstances by section 27 of the Act. The first is, that the partners as a whole may decide to wind up unprofitable business. They can all agree to do so. Secondly, Government action may supervene, as when business were Africanised. They may also apply to the court for winding up. But otherwise they are bound by their deed. In this case it is obvious that the Patels could not break their contract and then claim to come within section 27 of the Act, which is not there to condone unlawful activity.
I now answer the questions posed in this special case.
(a)Although the partnership was for an undefined period, clauses 2, 3 and 21 to 24 inclusive deprived the partners of their rights under a partnership at will, so that it was not a partnership at will (Abbot v. Abbott (supra).
(b)The notices of the Patels were intended to be notices of general dissolution under a partnership at will, but hey were invalid in terms of the partnership deed, which avoided the partnership being a partnership at will. These irregularities were waived by Mr Shah who treated them as notices of retirement having immediate effect.
(c) No, the partnership does not stand dissolved under section 36(1)(c) of the Partnership Act (cap 29). Clauses 23 and 24 ousted section 36(1)(c) of the Act.
Alternatively,
(d)Yes, the notices are effective as notices of retirement, despite their wording Sobell v. Boston [1975] 2 All ER 282.
(e)The notices dissolved the partnership between each Mr Patel personally and the other partners. In effect Mr Shah the so-called fourth partner remained alone, and so there could no longer be a partnership with only one person remaining. But Mr Shah was permitted to buy out the Patels.
(f)Yes, under clause 24 of the deed Mr. Shah had the right to continue the business and purchase the shares of the other retiring partners; as provided in clause 23 of the deed.
It is clear then that the appellant is right in all he says. I would therefore allow the appeal, set aside the orders of the High Court, and substitute therefor the following order. With regard to the questions posed in (a), (b) and (c) of the special case, they shall be answered in the negative; and the questions posed in (d), (e) and (f) shall be answered in the affirmative. The alternative award of the arbitrator shall be set aside. The award will be in accordance with the affirmative answers in (d), (e) and (f) and the High Court will enter a decree in accordance with those answers. I would grant the appellant his costs, both here and below.
Dated and delivered at Nairobi this 9th day of July, 1986.
A.A. KNELLER
...................................
JUDGE OF APPEAL
H.G.PLATT
...................................
JUDGE OF APPEAL
J.M.GACHUHI
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JUDGE OF APPEAL
I certify that this is a true copy of the original.
DEPUTY REGISTRAR