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Nirmal Singh Chahal v (1) Krishan Deve Mahal (2) Pooja Deol (2005)

Summary

On the unusual facts of the case, the transfer of a business previously owned and run by a partnership to a limited company did not operate to dissolve the partnership as one of the partners had not been involved in the decision to transfer and had not been allocated any shares in the limited company.

Facts

The appellants (D) appealed against a decision (LTL 5/10/2004) that a partnership between the respondent (C) and D continued for a period of 18 years, notwithstanding that the partnership business and assets were transferred to a limited company which then operated the business. D acquired a freehold property together with the goodwill of a leisure caravan site business. C contributed towards the purchase price. An adjoining piece of land was subsequently acquired by way of a purchase of the shares by D in the vendor company. Shortly after, the freehold property was transferred back to the company and the business conducted by the company. Thereafter the whole of the property was sold. After the sale, a dispute arose between C, and D as to C's entitlement to a proportion of the sale price obtained. C commenced proceedings seeking a declaration that there had been a partnership between them and that it ought to be dissolved. At a trial of preliminary issues it was determined that there had been a partnership between the parties and that it had not come to an end because of the transfer of the business to the limited company. M and D contended that as a matter of law, a partnership would normally be dissolved when all the assets and operational functions of the partnership were transferred to a limited company whose shares were issued to the partners.

Held

The judge had been correct to conclude that on the unusual facts, the transfer to the limited company of the business, previously owned and run by the partnership, and of the land, being the asset of the partnership, did not operate to dissolve the partnership, National Westminster Bank Plc v Jones (2001) 1 BCLC 98 applied. The facts of the case were such that they justified a departure from the natural inference that the partnership had been dissolved on the transfer to the limited company. There had been no allocation of shares to C in the company to which the business and assets of the partnership had been transferred. Additionally, C had not been involved in the decision to transfer the land and business from the partnership to the limited company. Where one of the partners has not been involved in the relevant actions at all, and had only been peripherally involved in those discussions, it would be difficult to establish that there had been an agreement between D and C that the partnership would be dissolved. Further, authority to carry on business on behalf of the partnership, even if extended to acquiring new assets did not carry a right to agree to put an end to a partnership.

Appeal dismissed.

Court of Appeal
Arden LJ, Carnwath LJ, Neuberger LJ
Judgment date
15 July 2005
References

​LTL 15/7/2005: Independent, July 21, 2005 

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