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Session 1999-2000
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Judgments - Miah and Others v. Khan (A.P.) and One Other Action


Lord Bingham of Cornhill Lord Steyn Lord Hoffmann Lord Clyde Lord Millett










My Lords,

    I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Millett. I am in full agreement with it, and would make the order which he proposes.


My Lords,

    I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Millett. For the reasons he gives I, too, would allow the appeal.


My Lords,

    I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Millett. For the reasons he gives I, too, would allow the appeal.


My Lords,

    I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Millett. For the reasons he gives I, too, would allow the appeal.


My Lords,

    The question in this appeal is whether the parties ever carried on business in partnership together. On the trial of a preliminary issue in the action the judge (Judge Rich Q.C.) found that they did. By a majority (Roch and Thorpe L.JJ., Buxton L.J. dissenting) the Court of Appeal held that while the parties agreed to become partners in the business of an Indian restaurant they never actually did so. The question turns on whether they actually started to carry on the business prior to 26 January 1994.

    The facts are set out in the judgment of Roch L.J. which is reported at [1998] 1 W.L.R. 477, 480-481. I need not repeat them at length. In May 1993 the first respondent was the head waiter and the second respondent was the chef at an Indian restaurant in Barton. They wanted to open a restaurant of their own in Newbury to be called "The Nawab." They were not in a position to put up any significant amount of money themselves, and accordingly they approached the appellant, who was known to have some capital, with a view to interesting him in the venture. It was agreed that they would be partners in the business, that the appellant would provide most of the initial capital, and that the first respondent would manage the restaurant, the second respondent would be the chef, and the appellant's brother Surab Khan, who was a chef at another Indian restaurant in Milton Keynes, would be the second chef. Surab Khan was not to be a partner but was to be an employee of the partnership. The third respondent, who was the proprietor of an Indian restaurant in Radlett, was brought in later in order to provide the business experience and financial standing which an intending landlord required. He was described by the parties as "a sleeping partner". The judge found that the appellant was to have a 50 per cent. share in the business with the other 50 per cent. being shared between the three respondents.

    By 1 December 1993 the parties had found suitable premises (an unused gas showroom), obtained planning permission for its conversion to a restaurant, taken a lease of the premises and agreed to buy the freehold reversion, opened a partnership bank account in the names of the appellant and the third respondent, arranged to borrow up to £60,000 from the bank towards the purchase of the freehold, commissioned a design, entered into a contract with a firm of builders for the conversion and fitting out of the premises as a restaurant, and contracted for the purchase of equipment and table linen. With the exception of some small sums paid in by his brother Surab Khan, all the moneys in the partnership bank account were provided by the appellant. The account was used solely to make payments to the builders or for other works and services obtained in preparation for the opening of the restaurant.

    By this time the parties had already spent some £51,000 on the venture. It is common ground that the whole of this expenditure was incurred in the course of the venture and with the agreement and authority of all four parties. The judge found that they had held themselves out as partners, jointly entered into all these activities together, agreed upon the division of their tasks, and had

    "so far advanced towards the establishment of such [a] restaurant as, in my judgment, properly to be described as having entered upon the trade of running a restaurant, albeit that it was yet to open and in the event was not opened for a further two months or slightly more."

It had been hoped to open the restaurant for business on 13 December 1993, but this proved optimistic. The appellant had difficulty in raising his share of the purchase price of the freehold, and there were difficulties with the builders who at one stage temporarily stopped work. These problems, together with the appellant's discovery that the freehold had been conveyed into the third respondent's sole name, led to a breakdown in the relationship. It is common ground that, if there was a partnership between the parties, it was a partnership at will and was determined on 25 January 1984. By this date the restaurant was still not open for trade, though further progress had been made. The parties had acquired the freehold, bought and taken delivery of furniture and equipment for the restaurant, entered into a credit agreement for the purchase of carpets and a contract for the laundry of table linen, and advertised the restaurant in the local press.

    The restaurant opened for business on 14 February 1994. The respondents have since carried on the business on their own account and without any settling of accounts with the appellant. Hence the present proceedings. The judge granted a declaration that there was a partnership in the business of the restaurant between the parties and that the appellant was entitled to a 50 per cent. share therein. He ordered the necessary partnership accounts and inquiries to be taken. These showed a substantial balance in favour of the appellant, who had borne some 70 per cent. of the expenditure which had been laid out in the course of the venture. The judge granted a declaration that the freehold and leasehold interests in the premises were property of the partnership and gave directions for the sale of the premises and the distribution of the proceeds.

    Whether parties who propose entering into a business venture in partnership together have actually done so is a question of fact into which your Lordships would not normally enter. But the majority of the Court of Appeal did not reverse the judge's findings of fact. They reversed his conclusion because they considered that there was a rule of law that the parties to a joint venture do not become partners until actual trading commences. They recognised the distinction between a contemplated partnership or an agreement to become partners and the partnership itself. They considered that it was necessary first to identify the business that it was intended or agreed should be conducted by the partnership, and then decide whether that business was being carried on by the partners at the material time. They identified the business of the partnership as the carrying on of a restaurant business from the premises in Newbury, and posed the question, at p. 486H:

    "were the four parties . . . carrying on a restaurant business at [the premises] prior to 25 January 1994?"

So expressed, the question could only be answered in one way. The restaurant was not open for business. There was nothing for the first respondent to manage, and no function for the two chefs to perform. No food had been bought or bookings taken. Everything that had been done was preparatory to the commencement of trading.

    I think that the majority of the Court of Appeal were guilty of nominalism. They thought that it was necessary, not merely to identify the joint venture into which the parties had agreed to enter, but to give it a particular description, and then to decide whether the parties had commenced to carry on a business of that description. They described the business which the parties agreed to carry on together as the business of a restaurant, meaning the preparation and serving of meals to customers, and asked themselves whether the restaurant had commenced trading by the relevant date. But this was an impossibly narrow view of the enterprise on which the parties agreed to embark. They did not intend to become partners in an existing business. They did not agree merely to take over and run a restaurant. They agreed to find suitable premises, fit them out as a restaurant and run the restaurant once they had set it up. The acquisition, conversion and fitting out of the premises and the purchase of furniture and equipment were all part of the joint venture, were undertaken with a view of ultimate profit, and formed part of the business which the parties agreed to carry on in partnership together.

    There is no rule of law that the parties to a joint venture do not become partners until actual trading commences. The rule is that persons who agree to carry on a business activity as a joint venture do not become partners until they actually embark on the activity in question. It is necessary to identify the venture in order to decide whether the parties have actually embarked upon it, but it is not necessary to attach any particular name to it. Any commercial activity which is capable of being carried on by an individual is capable of being carried on in partnership. Many businesses require a great deal of expenditure to be incurred before trading commences. Films, for example, are commonly (for tax reasons) produced by limited partnerships. The making of a film is a business activity, at least if it is genuinely conducted with a view of profit. But the film rights have to be bought, the script commissioned, locations found, the director, actors and cameramen engaged, and the studio hired, long before the cameras start to roll. The work of finding, acquiring and fitting out a shop or restaurant begins long before the premises are open for business and the first customers walk through the door. Such work is undertaken with a view of profit, and may be undertaken as well by partners as by a sole trader.

    The respondents relied on a number of tax cases to support their arguments, chiefly Birmingham & District Cattle By-Products Co. Ltd. v. Inland Revenue Commissioners (1919) 12 T.C. 92 and Slater v. Commissioner of Inland Revenue [1996] 1 N.Z.L.R. 759. Such cases are of limited assistance. In the former case Rowlatt J. found that a company had not completed a full trade year before the outbreak of the First World War as required to obtain tax relief. Even if Rowlatt J.'s decision was right on the facts (which is doubtful) it was in an entirely different statutory context. It is worthy of note that in a later case (Kirk and Randall Ltd. v. Dunn (1924) 8 T.C. 663) Rowlatt J., acknowledging that the Court of Appeal had taken a different view, said, at p. 669 that he was inclined to think that he might have taken to narrow a view of the word "business."

    In the Slater case the question under section 104(b) of the Income Tax Act was whether expenditure was

    "necessarily incurred in carrying on a business for the purpose of gaining or producing the assessable income for any income year . . ."

The court held, at pp. 764-765, that the taxpayer must embark on the actual course of conduct which it hoped would ultimately yield a profit, and that merely establishing a business structure and organising the decision-making, management and equity structures would not suffice. This would be equally true in the present context. However, the court also excluded the purchase of plant and drew a distinction between "carrying on a business" and "setting up a business". In the context of that case this was entirely understandable, for the expenditure had to be incurred for the purpose of producing the assessable income in the tax year in which it was incurred. But the distinction makes no sense in the present context.

    The question in the present case is not whether the parties "had so far advanced towards the establishment of a restaurant as properly to be described as having entered upon the trade of running a restaurant," for it does not matter how the enterprise should properly be described. The question is whether they had actually embarked upon the venture on which they had agreed. The mutual rights and obligations of the parties do not depend on whether their relationship broke up the day before or the day after they opened the restaurant, but on whether it broke up before or after they actually transacted any business of the joint venture. The question is not whether the restaurant had commenced trading, but whether the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage. Once the judge found that the assets had been acquired, the liabilities incurred and the expenditure laid out in the course of the joint venture and with the authority of all parties, the conclusion inevitably followed.

    The judge found that the appellant was entitled to a 50 per cent. share in the partnership. The respondents appealed that finding to the Court of Appeal, but the conclusion of the majority made it unnecessary to decide it. Thorpe L.J. expressed the view that there was insufficient evidence to displace the statutory presumption of equal shares in the Partnership Act 1890. Buxton L.J., whose judgment made the point a live one, would have dismissed the appeal on this ground also. Roch L.J. expressed no view one way or another. In the light of the view which I take of the question which is the subject of the present appeal, there is thus an outstanding issue which remains unresolved.

    At the conclusion of the argument before us, the respondents asked us to remit the case to the Court of Appeal for the issue to be decided. I would be very reluctant to do so when the issue was not raised by the respondents, either by way of cross-appeal or in their case, and no warning that the issue was still a live one was given to the House or to the appellant. I am especially reluctant because I consider that the respondents' chances of success are, with due respect to Thorpe L.J. who thought otherwise, negligible. The various provisions of the Partnership Act 1890 which contain the terms to be implied into a partnership unless otherwise agreed are not statutory presumptions but default provisions. Very slight evidence is needed to exclude them.

    The issue was supremely one of fact for the trial judge who saw and heard the witnesses, and who had to make the most of evidence which was often muddled and confused and sometimes self-serving. He evidently formed the impression that there were effectively two sides, the appellant who put up the bulk of the money and his brother (who did not become a partner) on the one hand, and the first two respondents who originated the idea (and who later brought in the third respondent as a sleeping partner) on the other. That fitted the commercial realities and was a plausible conclusion in the circumstances, and it was one which the judge was entitled to reach.

    I would allow the appeal and restore all the orders made by the trial judge.


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