Partnership

Statutory Rules
Section 1 of the Partnership Act focuses upon features of the relationship between the parties in order to ascertain whether there is a partnership. If these features indicate that parties are carrying on business in common with a view to profit then a partnership relationship will be found to exist. However, these features may not always be easy to identify given what the parties have agreed among themselves. As a partnership relationship is a contractual one, the actual agreement between the parties must be examined in order to infer whether a partnership relationship has been created. The parties may, for example, have made express provision to share profits but not losses; they may have specifically stated that their relationship is not be a partnership relationship; one of the parties may be an ‘employee’ who is paid a share of the profits; or one of the parties may be a finance provider who is being repaid out of the profits of the business. In these and in all cases, it will be a question of construction whether the parties intended to create a partnership relationship. The Partnership Act is of further assistance in this construction.
Section 2 of the Partnership Act sets out some rules which are useful indicators in determining whether a particular relationship is a partnership relationship. However it should be noted that these rules are not solely determinative of the issue. A court will have regard to all the circumstances in order to arrive at the true substance of the agreement between the parties. Recourse will be had to both express and implied intention of the parties in order to determine whether a partnership relationship exists. According to Roper J in Wiltshire v Kuenzli (1945) 63 WN 47:
...it having been ascertained that the parties intended to do all the things which would constitute them partners in law, no effect can be given to their declared intention not to become partners. Of course, if the facts are equivocal the expressed intention not to become partners is of the utmost importance as showing the proper inference to be drawn from the facts, but if the facts are unequivocal the same expressed intention is meaningless and useless.
This intention will be of paramount significance notwithstanding the parties’ stated description of their relationship. In Stekel v Ellice [1973] 1 WLR 191, the defendant employed the plaintiff in his accounting firm in 1967. In October 1968 an agreement was entered into between the two men with the plaintiff becoming a ‘salaried partner’ earning a salary. The period of employment was to expire in April 1969. The capital of the partnership was expressed in the agreement as belonging to the defendant and the defendant would bear all the losses, except that the plaintiff would be entitled to his own furniture and to clients introduced by him. Further, the agreement:
 provided for the keeping of books of account;

 called for full-time service;

 restrained either ‘partner’ from being engaged in other business;

 dealt with the giving of securities on account of the firm;

 provided for notice of dissolution for breach;

 gave the defendant rights to the profit, apart from the plaintiff’s salary and rights to the capital;

 provided that, in the event of the defendant’s death, the practice was to belong to the plaintiff together with (the defendant’s estate being paid) the capital and sums for profits and work in progress; and

 contained a provision for resolution of disputes by an independent expert.

Importantly, the agreement also contemplated that a further agreement would be entered into before April 1969, under which the plaintiff would become a full partner. However, that later agreement was never entered into, and the parties continued after that date as before, until August 1970 when relations broke down resulting in the plaintiff leaving the business and taking his clients with him. The plaintiff then claimed a declaration that the ‘partnership’ was dissolved and an order that it be wound up.
The question was whether the arrangement between the parties constituted an agreement for employment or an agreement for partnership. The court found that there was a partnership for a fixed term and that this continued without any express new agreement.
According to Megarry J at 198-9:
The term ‘salaried partner' is...to some extent...a contradiction in terms. However, it is a convenient expression which is widely used to denote a person who is held out to the world as being a partner, with his name appearing as partner on the notepaper of the firm and so on. At the same time, he receives a salary as remuneration, rather than a share of the profits, though he may, in addition to his salary, receive some bonus or other sum of money dependent upon the profits. Quoad the outside world it often will matter little whether a man is a full partner or a salaried partner; for a salaried partner is held out as being a partner, and the partners will be liable for his acts accordingly. But within the partnership it may be important to know whether a salaried partner is truly to be classified as a mere employee, or as a partner.
...What must be done...is to look at the substance of the relationship between the parties.
In his Honour's opinion, the relationship between the parties satisfied the definition of a partnership contained in the Partnership Act. The fact that there was no sharing of profits did not mean that this negatived other evidence of a partnership. Further, the conduct of the parties indicated a partnership which was determined in August 1970.
As mentioned above, the Partnership Act gives some assistance in determining whether a partnership exists. This assistance is contained in the following rules of construction which are set out in section 2 of the legislation.

Rule 1: co-ownership
Section 2(1) of the Partnership Act provides as follows:
Joint tenancy, tenancy in common, joint property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.
This subsection makes it clear that holding property jointly as co-owners will not of itself create a partnership. In Davis v Davis [1894] 1 Ch 393, the court inferred a partnership relationship in circumstances where two brothers held real estate as tenants in common. In that case the brothers’ father had left his business and three houses to his sons as joint owners. One of the houses had been let to tenants and the other two houses were used in the business which was carried on by the two brothers. The brothers borrowed money on the security of the houses and drew identical weekly expenses as from the business. In finding that the brothers were in partnership in relation to the carrying on of the business, the court held that the houses were partnership property.

Rule 2: Sharing of gross returns

Section 2(2) of the Partnership Act provides:

The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.
Therefore, by itself, the sharing of gross profit will not be enough to create a partnership. In Cribb v Korn (1911) 12 CLR 205, Korn was employed as a rural worker by a landowner. The landowner entered into an agreement with Cribb under which the landowner had the exclusive use and occupation of a certain area of Cribb's land. As part of the agreement, Cribb would provide machinery and stock and the landowner would pay Cribb half of the proceeds of sale of the produce of the land and stock, whenever this occurred.
Korn was injured while working and claimed worker's compensation from Cribb on the basis that Cribb and the landowner were partners.
The High Court held that there was no partnership; it was a mere tenancy. As the landowner had exclusive right to occupy the land and Cribb had no right to direct or control the landowner’s working of the land, there could be no partnership but merely a tenancy. Further, the sharing of gross returns was not enough to establish a partnership, but merely constituted rent.
According to Barton J at 216:
To be partners, they must be shown to have agreed to carry on some business - in this case the business of farming - in common with a view of making profits and afterwards of dividing, or of applying them to some agreed object. There is nothing to show that the appellant intended to engage in farming at all, or to be concerned in the transaction beyond his right to compensation.

Rule 3: Profit and loss sharing
Section 2(3) of the Partnership Act provides:
The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on, or varying with the profits of a business, does not of itself make him a partner in the business...;
As mentioned above, the word ‘profit’ is not defined in the Act. According to Fletcher Moulton LJ in Re Spanish Prospecting Co Ltd [1908-10] All ER Rep 573 at 576, the word ‘profit’:
... implies a comparison between the state of a business at two specific dates usually separated by an interval of a year. The fundamental meaning is the amount of gain made by the business during the year. This can only be ascertained by a comparison of the assets of the business at the two dates. For practical purposes these assets in calculating profits must be valued, not merely enumerated...We start, therefore, with this fundamental definition of profits, namely, if the total assets of the business at the two dates be compared, the increase which they show at the later date as compared with the earlier date (due allowance, of course, being made for any capital introduced into or taken out of the business in the meanwhile) represents in strictness the profits of the business during the period in question...
The difficulty in the interpretation of this subsection lies in its use of the expression ‘prima facie’ to qualify evidence. It would seem that the fact of a profit-sharing scheme is admissible in evidence as to the existence of a partnership, but that fact by itself is not enough to draw the inference that there was a partnership: see Television Broadcasters Ltd v Ashtons Nominees Pty Ltd (No 1) (1979) 22 SASR 552.
In Cox v Hickman (1880) 8 HL Cas 268; 11 ER 431, B and J Smith traded in partnership under the name ‘Stanton Iron Company’ and encountered financial difficulties. A deed of arrangement with creditors was entered into, whereby their business and partnership property was assigned to trustees. The trustees were empowered to carry on the business under a new name and future income was to be divided rateably between all the creditors. As part of the arrangement, it was provided that, if the creditors were paid off, the business was to be returned to the Smiths. Cox and Wheatcroft were two of the creditors who were appointed as trustees; however, Cox never acted as a trustee, and Wheatcroft did so for a very short time. After Wheatcroft had ceased to act, the remaining trustees incurred debts to Hickman, and they gave him certain bills of exchange drawn on the partnership. Hickman sought to make both Cox and Hickman liable on these bills.
The court held that there had been no holding out of Cox and Wheatcroft as partners and Hickman had no knowledge of them or of the deed of arrangement. Both Cox and Wheatcroft could deny liability notwithstanding that they, as creditors, were entitled to share rateably in the profits. This was not enough to make them partners. According to Pollock LCB at (HL Cas) 301; (ER) 445:
...this arrangement to apply future profits (if any) in payment of the old debts, the creditors being willing to give up their right to be paid out of capital and to take the chance of any profits, appears to me not to constitute a partnership as to third parties, who know nothing of the deed...
Further according to Wightman J at (HL Cas) 296; (ER) 443:
It is said that a person who shares in net profits is a partner; that may be so in some cases, but not in all; and it may be material to consider in what sense the words, ‘sharing in the profits’ are used. In the present case, I greatly doubt whether the creditor, who merely obtains payment of a debt incurred in the business by being paid the exact amount of his debt, and no more, out of the profits of the business, can be said to share the profits. If in the present case, the property of the Smiths had been assigned to the trustees to carry on the business, and divide the net profits, not amongst those creditors who signed the deed, but amongst all the creditors, until their debts were paid, would a creditor, by receiving from time to time a rateable proportion out of the net profits, become a partner? I should think not.
This, then, is the general rule. Section 2(3)(a) – (e) of the Partnership Act also provides five cases where this presumption does not arise: 
1. Receipt by a person of a debt or other liquidated demand by instalments or otherwise out of the accruing profits of a business does not of itself make him a partner in the business or liable as such.
This rule embodies the decision in Cox v Hickman [1860] 8 HL Cas 268; 11 ER 431. However if there are circumstances showing that the relationship is in fact a partnership, the lender may be regarded as a partner regardless of the stated intentions of the parties: see Re Ruddock (1879) 5 VLR 51 (IP & M) 51 at [3.5]: compare also Moore v Slater (1863) 2 W & W (L) 161, a case concerning an absolute assignment of a debtor's business coupled with the ability of the assignee to dispose of the business for their own benefit.
2. A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such.
In Walker v Hirsch (1884) 27 Ch D 460, Walker had been a clerk to the defendant’s firm when he and the firm’s proprietors entered into an agreement for Walker to be paid a fixed salary in addition to the right to participate in one eighth of profits and losses. Walker further agreed to deposit £1500 in the business while the agreement continued, receiving 5% per annum interest. The firm’s name was not altered, nor was Walker mentioned in firm circulars or bills. Furthermore, Walker was not introduced to customers as a partner, did not sign bills of exchange, and signed letters and receipts ‘Walker for [the firm]’.
In 1884 the defendant gave him notice and excluded him from the office. Walker sought to wind up the business, sought an injunction restraining dealings with the businesses assets, and sought the appointment of a receiver and manager. The trial judge refused the injunction and appointment of a receiver and ordered the defendant to pay the £1500 into court.
The trial judge, Lindley LJ, focussed upon Walker’s lack of ability to control the defendant in the management of the business. Walker was regarded as a servant ‘not in the position of a partner having an equal voice or control in the management of the concern’. Therefore the injunction was refused.
Similarly, in Beckingham and others v Port Jackson and Manly Steamship Company and Another (1957) 57 SR (NSW) 403, a syndicate of nine persons had been formed to purchase and renovate a submarine and then to exhibit the submarine to members of the public for a fee. In order to achieve this objective, the syndicate members entered into an arrangement in 1946 with the Port Jackson and Manly Steamship Company (“the steamship company”), whereby the submarine could be moored at a wharf.
The syndicate members purchased the submarine and it was moored adjacent to the steamship company’ wharf at Manly Cove. While the submarine was being moored a storm broke out, and, the submarine, the steamship company argued, became a danger to the wharf and was in danger of being stranded. The steamship company thereupon engaged the Waratah Tug and Salvage Co Pty Ltd (“the tug company”), to take the submarine into more open waters   to protect it and the wharf. While it was being towed it was wrecked.
Beckingham and the other plaintiffs were the surviving members and personal representatives of the nine syndicate members. They brought legal proceedings to recover damages for losses on the basis of trespass and negligence in connection with the mooring and towing of the submarine.
An issue which had to be determined was, who was to be responsible for the loss sustained as a result of the destruction of the submarine? If the members of the syndicate and the steamship company were partners, then the steamship company would not be liable for the loss. The members of the syndicate argued that the arrangement entered into was one of lessee and lessor - whereby the syndicate leased the wharf from the steamship company; alternatively the arrangement was one of principal and agent with the steamship company being appointed as agent of the syndicate for the purpose of managing the submarine. In contrast to these two arguments, the steamship company argued that the relationship was a partnership.
In determining this issue, the court examined the agreement between the parties. It was noted by the court that the agreement provided:
 that the submarine was to be kept near the steamship company’s wharf in Manly Cove for a fee of £400 per annum;

 for the appointment of the steamship Company as managers to the submarine exhibit for three to five years on a commission of 40% of the admission fees less some costs;

 for profit to be shared on a 60 40 basis in favour of the syndicate;

 that work to be done on the submarine was to be arranged by the steamship company but paid for by the syndicate;

 that ‘ownership and possession’ of the submarine was to remain with the syndicate;

 that the steamship company was to undertake general management and be the sole judge of who is to be allowed access to the submarine;

 that the steamship company was acting ‘as agent for the syndicate’;

 for the steamship company to be exempted from liability to third parties;

 for either party to terminate by notice after three years - in such cases the cost of removal of the submarine was to be borne by the syndicate;

 the steamship company was to be the sole judge of who is to be allowed access to the submarine;

In these circumstances, the Supreme Court of New South Wales held that there was no partnership between the steamship company and the syndicate. The steamship company was an independent contractor and therefore potentially liable for negligence. The court referred to Lord Halsbury’s remarks in Adam v Newbigging (1888) 13 App Cas 308 where his Lordship stated:
If a partnership in fact exists, a community of interest in the adventure being carried on in fact, no concealment of name, no verbal equivalent for the ordinary phrases of profit and loss, no indirect expedient for enforcing control over the adventure will prevent the substance and reality of the transaction being adjudged a partnership ... and no ‘phrasing of it’ by dexterious draftsmen ... will avert the legal consequences of the contract.

3. A person being the widow or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such.

In Commissioners of Inland Revenue v Lebus [1946] 1 All ER 476, the Commissioners attempted to recover income tax on the amounts which were due under a will to a widow of a partner. The court found that a beneficiary under a will would only have to pay tax on the amounts which were paid to her during the years of assessment. The widow did not have to pay tax on a share of the profits earned by the business. This decision can be compared with Federal Commissioner of Taxation v Whiting (1943) 68 CLR 199, where it was held that a beneficiary of a deceased partner’s estate is not taxable on income earned from the partnership unless the beneficiary has a present right to have the income paid to him by the trustees.
4. The advance of money by way of loan to a person engaged in or about to engage in any business or a contract with that person, that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such: Provided that the contract is in writing and signed by or on behalf of all the parties thereto.
This provision protects a creditor who has advanced money in return for a share of the profits. The creditor, if the section is satisfied, will not be regarded as a partner. In Re Megevand; Ex parte Delhasse (1878) 7 Ch D 511, Delhasse agreed to advance money to two others. Conditions of the advance referred to the equivalent of this subsection of the Partnership Act and stressed that the advance was a loan only and did not make the lender a partner. However, provision was made for Delhasse to share in the profits, have a right to inspect the accounts, the option of dissolving the partnership in specified circumstances. Further, the advance was not to be repayable until after dissolution and it represented all the business capital.
The Court of Appeal held that this arrangement constituted a partnership. According to James LJ at 526:
If ever there was a case of partnership this is it. There is every element of partnership in it. There is the right to control the property, the right to receive profits, and the liability to share in losses.
But it is said that there are other provisions in the contract which prevent its having this operation, and which show clearly that the parties meant the relation of lender and borrower, and not the relation of partners, to subsist between them. And for this purpose reliance is placed on the recital of...the agreement for a loan...and the declaration...that the ‘advance does not and shall not be considered to render Delhasse a partner in the business’. Can those words really control the rest of the agreement? Do they really show that the intention was not in truth that which it appears to be by all the other stipulations? To my mind it is clear that they do not. When you come to look at all the other stipulations, they are utterly inconsistent with the notion of a loan by the one to the two, so as to make the two personally liable in respect of it in any event or under any circumstances whatever. The loan is said to be made to the two, but, when you read the whole of the agreement together, it is impossible not to see that it was not a loan to the two upon their personal responsibility by the person who is said to be the lender but that it was a loan to the business which was carried on by the two for the benefit of themselves and him, and was to be repaid out of the business, and out of the business only, except in the case of loss, when the loss would have to be borne by the three in the proportions mentioned in the agreement. The use of the word ‘lend’, and the reference to the Act, are, in my opinion, mere sham - a mere contrivance to evade the law of partnership.
In Badeley v Consolidated Bank (1888) 38 Ch D 238, where a lender (plaintiff) advanced money to a borrower and took security over certain plant owned by the borrower. Further the lender was to receive interest and a share of the net profits. The borrower agreed to apply the loan moneys to the carrying out of work associated with his business and the lender had a right to enter the property if the borrower became bankrupt.
The Court of Appeal stressed the need to ascertain the ‘real agreement’ between the parties. Sharing of profit is not enough, the court said, to infer a partnership. The formal document signed by the parties expressed the real truth, namely, that this was a contract of loan upon security. There was no participation in loss on the part of the lender. This made it different from Delhasse's case.
5. A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by him of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such.
Where a person sells a business and then continues to receive an annuity based upon a percentage of the profits, he or she will not for that reason alone be regarded as a partner to the purchaser. The courts will look at the agreement.
In Hawksley v Outram (1892) 3 Ch 359 four people carried on business in partnership. They entered into an agreement to sell this business to Hawksley. The agreement was signed by one partner on his own behalf and also as attorney for another, and it provided that Hawksley was to undertake to discharge the existing debts of the business and that, if the debts did not exceed a certain amount, the vendors were to be entitled to a share of the profits. The power of attorney under which one partner had signed the agreement on behalf of another did not empower him to enter into a partnership agreement.
Hawksley brought an action for specific performance of the agreement, and it was argued that the arrangements constituted a partnership agreement between the four original partners and Hawksley. The court disagreed.
Accordingly to Lord Linley at 371:
It has been contended that this is an agreement for a partnership; but it is nothing of the sort. It is evidently nothing more or less than an agreement for the sale of the property and the business as a going concern for a sum of money a portion of which is undetermined and has to be ascertained, and which portion until paid is to carry a share of the profits.

Relationship of partners to outsiders
Partnership is a branch of agency law and is characterised by a mutuality of rights and obligations. Each partner is agent and principal of the others and owes fiduciary obligations to the others. Partners can bind each other and be bound by the actions of their partners. The question is, when will the acts of a partner bind their other partners? To answer this question regard must be had to the Partnership Act and to the general law of agency.

The Partnership Act
Section 5 of the Partnership Act states that:
Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member, binds the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner.
As mentioned earlier, partnership is a branch of agency law. However one significant difference with partnership law is that partners are both principal and agent and therefore there are two-way fiduciary duties. Because partners owe each other fiduciary duties, when one partner acts as the firm’s agent he or she will owe duties to his or her partners and the other partners will owe similar duties back to that partner: see Phillips-Higgins v Harper [1954] 1 QB 411.
The basis of the fiduciary relationship of partners was explained by James LJ in Re Agriculturist Insurance Co (Baird’s case) (1870) LR 5 Ch App 725 at 733 in following way:
Ordinary partnerships are essentially, in kind, and not merely in the magnitude of the partnership or in the number of the partners, different from joint stock companies. Ordinary partnerships are by the law assumed and presumed to be based on the mutual trust and confidence of each partner in the skill, knowledge and integrity of every other partner. As between the partners and the outside world, (whatever may be their private arrangements between themselves), each partner is the unlimited agent of every other in every matter connected with the partnership business, and not being in its nature beyond the scope of the partnership. A partner who may not have a farthing of capital left may take money or assets of the partnership to the value of millions, may bind the partnership by contracts of any amount, may give the partnership acceptances for any amount, and may even involve his innocent partners in unlimited amounts for frauds which he has craftily concealed from them.
Partners may be bound to a party who is not a partner (an outsider) in the following situations:
 when the partners have authorised a person, whether or not a partner, to enter into a transaction on their behalf with the outsider. In such cases the normal rules of agency apply so that if the agent has acted in entering into a transaction within his or her actual or apparent authority, the partners will be bound to the transaction;
 when the partners have authorised one of their partners to act on behalf of the partnership with an outsider. In these circumstances all the partners will be bound by the authorised act of their fellow partner/agent. It does not matter whether the transaction was within the scope of the partnership business or whether the outsider was aware that the agent was a partner in the business. The key to the partners being bound in this situation is the fact that the transaction was authorised by all the partners;
 when one of the partners has acted, without express authorisation, in circumstances where four requirements which are set out in section 5 of the Partnership Act have been satisfied. In this situation the fact of being a partner confers authority to bind the partnership. This will be so as long as the following four requirements are satisfied:
1 the act or transaction was entered into by a partner;
2 the act or transaction entered into must be within the scope of the kind of business carried on by the firm;
3 the act or transaction must be effected in the usual way; and,
4 the other party to the transaction must either know or believe that the person acting is a partner or must not know of his or her lack of authority to act.
Each of these requirements will now be examined.

The act or transaction was entered into by a partner
Under section 5 of the Partnership Act, partners will only be bound to a transaction made with an outsider when that transaction was made by one or more of their partners. If the transaction was not made by a partner, the other partners cannot be liable under this section of the Partnership Act and the situation would then have to be analysed in accordance with normal agency rules.

The act or transaction entered into must be within the scope of the kind of business carried on by the firm
Whether an act or transaction is within the scope of the kind of business that is carried on by the firm is a question of fact. In this regard it should be remembered that businesses may change what they do over time. This is particularly so with respect to trades and professions.
In Polkinghorne v Holland (1934) 51 CLR 143, Mrs Polkinghorne was a client of a firm of solicitors comprising three individuals in partnership. She received advice from one of these partners (Harold Holland) about an investment in which the partner was financially interested. The investment proved to be a failure and Mrs Polkinghorne incurred heavy losses for which she brought an action claiming damages. The main issue was whether the two innocent partners were liable for her loss.
The High Court, in finding them liable to account to Mrs Polkinghorne, made a number of important observations. According to Rich, Dixon, Evatt and McTiernan JJ at 156-157:
The difficulty of the case really lies in determining what is within the course of a solicitor's business. By associating themselves in a partnership with Harold Holland, the respondents made themselves responsible, as principals are for an agent, for all his acts done in the course of his authority as a partner. That authority was to do on behalf of the firm all things that it is part of the business of a solicitor to do. If, in assuming to do what is within the course of that business, he is guilty of a wrongful act or default, his partners are responsible, notwithstanding that it is done fraudulently and for his own benefit: Lloyd v Grace Smith & Co [1912] AC 716. But, to make his co-partners answerable, it is not enough that a partner utilises information obtained in the course of his duties, or relies upon the personal confidence won or influence obtained in doing the firm's business. Something actually done in the course of his duties must be the occasion of the wrongful act.
Their Honours went on to say (at 158-9) that the giving of financial or investment advice was within the usual course of business of that firm of solicitors.
But it is one thing to say that a valuation or expression of his own judgment upon a commercial or financial question is not within the scope of a solicitor's duties, and another to say that when he is consulted upon the wisdom of investing in the shares of a company of which his client knows nothing, it is outside his province as a solicitor to inquire into the matter and to furnish his client with the information and assistance which the facts upon the register will give, to point out what inquiries may be made, and, if required, to undertake them or invoke the aid of those who will...
It should also be noted that firms may be liable to a transaction entered into by a partner notwithstanding that the firm does not enter into transactions of that type. This will be so where the transaction is of a kind that is usually entered by other firms in the same industry. See Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103.
In respect to trading partnerships, courts have been more willing to specify certain acts which are regarded as being within the usual authority of partners. In Bank of Australasia v Breillat (1847) 6 Moo PC 152; 13 ER 642, the Privy Council stated at 193-194; 657-658:
Every partner is, in contemplation of law, the general and accredited agent of the partnership; or, as it is sometimes expressed, each partner is praepositus negotias societatis; and consequently may bind all the other partners by his acts, in all matters which are within the scope and objects. Hence if the partnership is of a general commercial nature, he may pledge or sell the partnership property; he may buy goods on account of the partnership; he may borrow money, contract debts, and pay debts on account of the partnership; he may draw, make, sign, indorse, accept, transfer, negotiate, and procure to be discounted, promissory notes, bills of exchange, checks [sic] and other negotiable paper, in the name of and on account of the partnership.

The act or transaction must be effected in the usual way
Notwithstanding that a partner has entered into a transaction which is within the scope of the kind of business carried on by the partnership, the transaction will not be binding if it is carried out in an unusual way. The reasoning for this is that the outsider is put on notice that the partner with whom they are dealing may lack the requisite authority to bind the other partners. Further for the act to be usual in the business of the firm, it must be reasonably necessary and not merely convenient for the carrying out of that type of business. In Union Bank of Australia v Fisher (1893) 14 LR (NSW) Eq 241 it was held that the handing over of original documents to a solicitor, although convenient, was not a usual practice.
In ascertaining whether the partner’s action was ‘carried out in the usual way', courts will look at the particular business and at other people's actions in similar businesses. In Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103, two people were in a partnership in a business which leased out garages. In their partnership agreement, both were prohibited from selling motor vehicles. Despite this prohibition, one partner sold to the plaintiff a motor vehicle which he did not own   in fact, he had sold other vehicles to the plaintiff in the past. The plaintiff sued the partnership and recovered damages. The court looked at the transaction as it would have appeared to the plaintiff and concluded that from the plaintiff's point of view the sale was in the usual course of business.
According to Mocatta J at 1106:
...counsel for the plaintiffs says that the question in this case is whether the act of Mr Parkin in entering into the sale to the plaintiffs of this Mercedes Benz on behalf of the Hamilton Garages partnership, as part and parcel of a hire-purchase transaction, was doing an act for carrying on in the usual way business of a kind carried on by the firm of which he was a member. If it was such an act, counsel for the plaintiffs submits that the section makes it clear and enacts that his act binds the firm and his partner, to wit, the defendant.
His Honour went on to say that when Parkin entered into the sale of the Mercedes Benz to the plaintiff, ‘he was doing an act of a like kind to the business carried on by persons trading as a garage’.
His Honour further held at 1107 that:
whatever express restrictions there might earlier have been on Mr Parkin's authority, the defendant had known since April, 1960, that Mr Parkin had been selling cars in the firm's name and that he intended to continue doing so, and following Rapp v Latham (1819) 2 B & Ald 795, that the defendant, having taken no steps to prevent such sales, was liable for his partner's actions. Although it was not strictly necessary to determine what express restrictions there had originally been as to the sale of cars, the evidence strongly suggested that, if the defendant did not actually know before April 1960, that Mr Parkin was selling cars in the firm's name, he left the conduct of the business to Mr Parkin and did not really mind what he did so long as it was honest.
Thus, even if the action by the partner is within the scope of the business carried on by the firm, if it is carried on in an unusual manner the other partners may not be bound. Another illustration is Goldberg v Jenkins (1889) 15 VLR 36. In that case a partner purported to borrow money on behalf of the firm at over 60% interest when at the time the comparable rates were between 6% and 10%. It was held that such borrowing was beyond ‘the usual way’ of the firm and thus the firm was not bound to the transaction. According to Hodges J at 38-39:
A person conducting his transactions in the ordinary way in the year 1888 would have been able to obtain all the advances which he could reasonably require at rates varying from 6 to 10 per cent; but in this case, referring to the last transaction, the interest was something over 60 per cent and the person lending money on those terms knows that the person borrowing is not conducting an ordinary business transaction, and that, therefore the partner borrowing would have no power to bind his co-partners.

The other party to the transaction must either know or believe that the person acting is a partner or must not know of his or her lack of authority to act
Where a partner enters a transaction with an outsider without the authority of his or her co-partners, and that transaction is within the scope of the kind of business carried on by the firm and it is entered in the usual way, it may nevertheless not be binding on the partners if the outsider knows of the lack of authority or does not know or believe that the partner with whom they acted was a partner.
Difficulties with this rule arise where the outsider is not aware of the partner’s lack of authority. In such cases the Partnership Act makes it clear that in order for liability to be avoided by the remaining partners it would need to be shown that the outsider did not know or believe at the time of the transaction that the person with whom they dealt, was a partner. This position can be contrasted with general agency law. Under the rules of agency, knowledge by an outsider that they are dealing with an agent is not relevant in determining the liability of the principal. This was illustrated in Watteau v Fenwick [1893] 1 QB 346. In that case, the defendants owned a hotel: the Victoria Hotel, Stockton-upon-Tees. This hotel was managed by a person named Humble. Humble’s name was over the hotel door and the hotel licence was in his name. The plaintiffs sold cigars to Humble at the hotel despite the fact that the defendants had forbidden him to buy cigars on credit. The cigars, however, were such as would be usually supplied and dealt in at such an establishment. The cigars were not paid for and the plaintiffs sued the defendants for the price of the cigars. It was held that the defendants were liable.
According to Wills J at 348–9:
once it is established that the defendant was the real principal, the ordinary doctrine as to principal and agent applies — that the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority.
Thus it would appear that despite the fact that the plaintiffs had supplied Humble in the belief that he owned the hotel, the defendants were liable.
If however we attach importance to the state of mind of the outsider in relation to the capacity of the person with whom they dealt, that is whether or not the outsider believed or knew the person was a partner, it is quite possible that in a partnership situation the partners who were not involved in the transaction could escape liability simply by showing that the outsider did not know or believe that the person with whom they dealt was a partner. Applying this situation to the facts of Watteau v Fenwick would produce a different result.
The High Court examined this statutory position in Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541. In that case a company called Tambel (Australasia) Pty Ltd (“Tambel”) entered into a partnership agreement with Hexyl Pty Ltd (“Hexyl”) for the construction and operation of home units on land at Edgecliff owned by Tambel. The effect of this partnership agreement was that Tambel would enter into a contract for the construction of this building in its own name as principal. Some months later, Tambel entered into a building contract with Construction Engineering Pty Ltd (“Construction Engineering”). At the time of this agreement, Construction Engineering did not know of the existence of the partnership, nor did it believe that Tambel was a partner with Hexyl. A dispute arose as to Construction Engineering's entitlement to payment and it was argued, inter alia, that the contract made by Tambel had been made on behalf of a partnership between Tambel and Hexyl as principals.
The High Court unanimously held that Hexyl was not a party to the building contract. In examining the section in the New South Wales Partnership Act, their Honours said (at 547) that the section has two distinct limbs:
The first deals with actual authority. It provides not that every partner is deemed to be an agent of the firm and his other partners for the purposes of the partnership business but that every partner is an agent of the firm and his other partners for that purpose. The actual authority to which it refers is, however but prima facie in that it may be negated or qualified by contrary agreement of the partners.
Applying this to the facts, the Court found that Construction Engineering could not rely upon this limb of the section. Any prima facie authority of Tambel to enter into the building agreement as agent for Hexyl as an undisclosed principal or otherwise was negated by the partnership deed, the court held.
According to the Court (at 547):
the second limb of sec 5 deals with ostensible authority. Even though actual authority may be lacking, the act of every partner who does any act for carrying on in the usual way of business of the kind carried on by the firm of which he is a member binds the firm and his partners unless the other party ‘either knows that he has no authority or does not know or believe him to be a partner'.
As Construction Engineering did not know or believe Tambel to be a partner this limb of the section could not assist them. Finally, the court noted that irrespective if Tambel had actual or ostensible authority to enter into the building contract on behalf of Hexyl as an undisclosed principal, the fact remained that it did not contract in that capacity in any case.
Finally it should be noted that the general law agency concept of ratification is relevant to consider here. This concept operates where a person who has purported to act as an agent but who actually had no authority to so act, has had their actions adopted or approved by the person who was originally said to be the principal. This situation was described by Tindal CJ in Wilson v Tumman (1843) 6 Man & G 236 at 242; 134 ER 879 at 882 as follows:
That an act done by a person, not assuming to act for himself, but for such other person, without any precedent authority whatsoever, becomes the act of the principal if subsequently ratified by him, is the known and well established principle of law.
Ratification can be express or implied and where applicable the principal will be liable for the actions which have been ratified. In a partnership context this means that where a person’s actions have been ratified by co-partners, the co-partners will be liable for those actions.
The Partnership Act contains other sections which regulate a partner’s dealings with outsiders. These sections include: