This paper examines a fictional Australian nursery business partnership — Bowral Nursery — through the lens of the New South Wales Partnership Act of 1892. The case involves one partner making an unauthorized purchase exceeding the agreed spending limit, buying an inferior product contrary to the partnership's quality standards, and personally accepting a commission from the transaction. The paper analyzes relevant provisions of the NSW Partnership Act, particularly Sections 25 and 35, to evaluate whether the other two partners have legal grounds to expel the offending partner and dissolve his interest in the business, and considers the financial implications of any such dissolution under Section 42.
The Bowral Nursery business is a legal partnership based on the explicit discussions held by the partners. It would be legally defined as a partnership under the New South Wales Partnership Act of 1892 by virtue of the partners' actions, responsibilities, liabilities, and profit-sharing arrangements (NSW Partnership Act, 1892; Latimer, 2012). A written partnership agreement that defined specific purchasing powers and limitations would have been preferable for a variety of reasons — including terms by which one partner could be removed by consensus of the others — but in the absence of such a document, recourse must be made to the presented facts and the law (Mitchell, 2013).
Because one partner made a purchase in contravention of what the partnership had agreed to, and especially because he received personal and unshared profit as a result, the other partners potentially have recourse in the courts to dissolve his stake in the partnership (NSW Partnership Act, 1892). There are several sections of the New South Wales Partnership Act of 1892 that have bearing on this case and warrant examination by all three partners.
According to the laws governing partnerships, "No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners" (NSW Partnership Act, Sec. 25, 1892). While the law does not specify that such an agreement must be written, it is obviously in the best interest of partners to obtain such an understanding in writing. In the present case, without a written agreement, the matter would come down to one partner's word against the other two (Latimer, 2012; Mitchell et al., 2013).
No such agreement appears to exist between these partners at all — written or otherwise. Therefore, the only manner in which the two aggrieved partners could force the third partner's expulsion against his will is by taking the matter to court and presenting a case that his conduct was worthy of judicial intercession (Latimer, 2012; Mitchell et al., 2013). Partnership law generally disfavors forced expulsion without express agreement, making court action the necessary avenue here.
The law provides several provisions under which a court may terminate a partner's interest in the business. All relevant grounds are listed in Section 35 of the New South Wales Partnership Act of 1892.
Paragraph C of Section 35 allows the Court to dissolve a partnership "when a partner, other than the partner suing, has been guilty of such conduct as, in the opinion of the Court, regard being had to the nature of the business, is calculated to prejudicially affect the carrying on of the business" (NSW Partnership Act, 1892). As the partners had agreed to run a high-quality nursery and had specifically avoided purchasing the type of pots in question because they were not of sufficient quality, the offending partner's actions could be argued to prejudicially affect the carrying on of the business "with regard being had to the nature of the business." Given that the business model was built around quality products, this purchase may constitute grounds for dissolution.
"Applies three dissolution grounds from Section 35"
Mitchell, R., O'Donnell, A., Marshall, S., Ramsay, I., & Jones, M. (2013). Law, Corporate Governance and Partnerships at Work. Ashgate Publishing Ltd.
New South Wales Partnership Act. (1892).
You’re 57% through this paper. Sign up to read the remaining 1 section.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.