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Nirmal Singh Chahal v (1) Krishan Dev Mahal (2) Pooja Deol (2004)

Summary

The mere transfer of the assets of a partnership to a company owned by the partnership did not effect a dissolution of the partnership unless it was accompanied by either an express or necessarily implied agreement by all parties to dissolve. An agreement to such a transfer did not amount to an agreement to dissolve.

Facts

Trial of preliminary issues to determine whether a partnership had existed between the claimant (C) and the defendants (D). D had purchased a caravan site with financial assistance from his friend C. C had carried out some building work at the caravan site but D had been in charge of managing the business. An adjoining piece of land had subsequently been acquired by way of a purchase of the shares of the vendor company. D had become the directors of the company and the caravan site business had thereafter been conducted through the company. Ownership of the caravan site had then been transferred to the company. Following the sale of the business many years later C had received a payment from D calculated on the basis that he had made a long-term loan to the business. C commenced the instant proceedings contending that the business had been a partnership in which he had been an equal partner and which had been continued through the company. D submitted that (1) C's financial contribution had been a loan and there had been no agreement for a partnership; (2) even if there had been a partnership it had been terminated when the company shares had been acquired or when the caravan park had been conveyed to the company.

Held

(1) The limited amount of documentary evidence referred to C as a partner in the business. C was not likely to have had sufficient funds to make an unsecured loan to D with no provision for interest and to have left it outstanding for over twenty years. There was no reason for C to carry out unpaid manual work if he had only made a loan to D. C had been consulted by D about the business and had been sent accounts. On the facts there had been a partnership in equal shares. (2) It was not unusual for a partnership to own a company, National Westminster Bank plc v Jones & ors [2001] 1 B.C.L.C. 98 considered. The mere transfer of the assets of a partnership to a company did not effect a dissolution of the partnership unless it was accompanied by either an express or necessarily implied agreement by all parties to dissolve. An agreement to the transfer of partnership assets did not amount to such an agreement to dissolve. The shares in the company had been acquired and held by C and D as partnership assets. Even though C had not objected to the transfer of the partnership assets to the company he had not expressly or impliedly agreed to the dissolution of the partnership.

Preliminary issues determined in favour of claimant

Chancery Division
Hazel Williamson QC
Judgment date
30 September 2004
References

​LTL 5/10/2004