Solicitor A is consulted by B regarding matrimonial separation and Solicitor
A subsequently acts for B in the sale of two houses. B then forms a relationship
with Mrs C. B and C are employed as Estate Agency Managers with a leading firm
of Property Agents in which capacity B and C direct clients to Solicitor A
for conveyancing.
B and C consult Solicitor A to prepare a business plan for an independent estate
agency and Solicitor A expresses interest in becoming involved.
Solicitor A proposes an arrangement whereby B and C would receive a one third
share of profits including fees and commission from financial services and
any excess of legal fees over £295 per conveyancing transaction. Solicitor
A urges rapid acquisition of premises and premises are secured and are leased.
B and C believe the lease is in name of the firm of estate agents in which
they have an interest and Solicitor A acts as solicitor throughout. It becomes
clear that Solicitor A has obtained title to the Tenant’s interest in
his own name and in trust for his solicitors’
firm.
A, B and C commence trading under arrangements whereby the financial accounting
will be dealt with by the A’s offices. B and C are responsible for Income
Tax and NIC themselves.
B and C trust Solicitor A but they request a written agreement. They press
for same and eventually a draft agreement is produced. B and C act for themselves
and eventually take independent legal advice. They press for information regarding
accounts and ultimately raise an action of Count, Reckoning and Payment. Solicitor
A prior to taking independent advice argues that there is no partnership.
Minutes of Meetings disclose that B and C are to receive 85% of net profits
meaning that B and C are meeting 85% of rental of premises and all other costs
related to the Estate Agency Business.
What is the nature of the business relationship?
Is Solicitor A entitled to seek removal of B and C from the premises which
are clearly used for estate agency business but are leased in the name of the
Solicitor and one other in Trust for the solicitors practice?
How would you advise?
The relationship is directed to the running of an estate agency business,
it clearly has been discussed. Income from the business would be estate agency
fees, commissions from financial services, income from legal work in excess
of a certain figure. B and C would receive one third of net profit. The business
commences but no formal contract is completed. Discussions continue, there
are Minutes of Meetings, there is a draft prepared disclosing the split of
profit. B and C seek independent advice, a fresh agreement is tabled by their
solicitor, that remains in unrevised form. Meanwhile the business proceeds
and B and C occupy the estate agency premises. Whilst the completion and signing
of the agreement has never been achieved, Solicitor A has conducted a relationship
on the footing that there was to be a share of net profits on a certain ratio
between A, B and C and indeed premises are leased. The rental is deducted from
gross profit each month before calculation of net profit. This is important
in considering whether or not a partnership exists and whether or not Solicitor
A can exclude B and C from the premises. The dispute has arisen as to the precise
nature of the relationship. Is there an argument that the relationship is a
contract for provision of services rather than employment? It is not easy to
characterise the relationship: it is not a joint venture since the venture
is not limited in its duration or purpose (Gloag & Henderson Law of
Scotland Paragraph 50.2 10th Edition):- the relationship does not sit easily
with ordinary employment; B and C are not employees since it would appear that
Solicitor A has no responsibility for salaries and Income Tax and NIC for them.
It is likely that a Court would characterise the relationship as one of co-partnery.
Please remember Section 1 of the Partnership Act with its definition “the
relation which subsists between persons carrying on a business in common with
a view to profit”. That definition accords with what has occurred here.
Rule 3 of Section 2 provides that receipt by a person of a share of profits
is prima facie evidence of partnership but is not of itself conclusive of the
fact. Solicitor A will bear a percentage of losses after deduction of all overheads.
It is significant that Solicitor A had a share of profits and control of the
business. In the case of Stuart -v- Buchanan (1993) 6th Fraser 15 at
Page 22 Lord Moncreiff states “that both these things, receipt of a share
of profits and control of the business, are important elements in deciding
whether it is a partnership or not”.
The fact the parties express that they deny partnership is irrelevant (Weiner
-v- Harris (1910 1KB285) what matters is the substance of the relationship (Miller
on Partnership 2nd Edition page 53).
Solicitor A has carried on business with B and C with a view to profit. He
has agreed to bear losses unequally and agreed to share profits unequally.
That disparity is explained by the capital presumably invested by Solicitor
A whereas B and C put in know how and work as estate agents. It follows that
Solicitor A is obliged to account.
Even if not in partnership there is a duty to account since the relationship
requires someone to keep records and to produce accounts. B and C would be
entitled to secure the production of an accounting and payment of any sums
showing as due.
Absence of a written partnership agreement is no bar to the existence in fact
of a partnership. There may be disagreement as to precise terms but there can
be no dispute regarding sharing of profits and losses nor the fact that accounts
should be prepared to enable B and C’s share to be quantified.
If B and C are in partnership (as I have suggested) it is not open to exclude
them from partnership offices until Notice of Dissolution has been served and
the partnership wound up. They would be entitled to occupy even if the firm
were dissolved on the basis that work which had begun but had been incomplete
prior to dissolution still needed to be conducted, such as ensuring that properties
which were in the course of being sold were properly dealt with. Crucially
in this example Solicitor A whilst leasing the shop premises in the name of
his firm of solicitors has effectively provided a Sub-lease to the partnership
which has a responsibility for rent. Even if Solicitor A dissolves he cannot
simultaneously recover possession.
The same conclusion applies if the relationship is one of agent and principal.
Termination of a contract of agency would not have entitled Solicitor A to
remove them. In that case an Action of Removing would be necessary. It would
be wholly inappropriate to change locks and exclude since such an action would
involve an actionable wrong for which Solicitor A would be liable in reparation
on ground of wrongful ejection. The use of stewards to keep B and C out of
the premises would also involve the Police if threats of physical harm or violence
were used.
The advice would be to serve a Notice in terms of Section 26 (1) or Section
32 (c) of the Partnership Act giving clear unequivocal Notice that the firm
will dissolve immediately or on a prospective date. Once the Notice was served
negotiations would commence immediately to have B and C removed on the basis
that they had no entitlement to occupy these premises and that Solicitor A
would raise proceedings as head tenant. The Lease and confirmation that the
Landlord would not object to proceedings would be required.
B and C would have the remedy of Count, Reckoning and Payment. B and C would
also have the remedy, if there was a threat to exclude them (given that they
could prove evidence of partnership) to seek a Declarator of Partnership and
also to Interdict any apprehended wrongs on the part of Solicitor A. They would
also have a duty to comply with the terms of Section 38 of the 1890 Act. Further
problems would arise for Solicitor A in that he has been apparently sharing
fees and failing to comply with the Multi Disciplinary Practice Rules 1991.
A solicitor cannot share with any unqualified person any profits or fees derived
from any business transaction by a solicitor of a kind which is commonly carried
on by solicitors. See Rule 4 the Solicitors (Scotland) Practice Rules 1991.
Any association by a Solicitor with estate agents would offend the Solicitors
(Scotland) (Multi-Disciplinary Practices) Practice Rules 1991 Rule 4.
To raise proceedings for Declarator that the partnership was dissolved on the basis of service of a Notice as previously described. Thereafter Orders sought Interdicting B and C from attempting to carry on the business of the dissolved partnership by representing to the public at large that the firm is continuing to trade, from offering to carry out any estate agency or conveyancing services in name of the partnership, entering into any agreements for the provision of estate agency services or entering into any new contracts on behalf of the partnership except in so far as those contract are necessary to wind up the affairs of the partnership and to complete transaction begun but unfinished as at the date of dissolution and for Interim Interdict. That could be followed up by a Summons seeking an Order Interdicting B and C from continuing in occupation and possession of the office premises or alternatively for an Order Interdicting them from interfering in any way with the good running of Solicitor A’s practice. Ultimately the matter would need to be regulated by a firm of Accountants to produce a final accounting and to confirm in terms of a carefully framed remit the tasks that the Accountant has to complete including proper representations in connection with the accounts of the firm. Motor vehicles are very often a major problem particularly where they are leased/hire purchased. The preferable position is that people take their cars with them.
see also:
The Essence of Partnership is
Mutual Agency
Resolving
Partnership Disputes
List
of Cases
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