QUESTION ONE
In early July 2015, Gareth was the manager and Billy was the head chef at a Chinese restaurant in Auburn Grove. They wanted to open a restaurant of their own in Osmond Park to be called Golden Lotus. They were not able to put up the amount of capital themselves so they approached Sue, who had inherited a large amount of money, with a view to asking her to invest in their business venture. It was verbally agreed that they would be business partners in the venture, that Sue would provide most of the initial capital, and that Gareth would manage Golden Lotus, Billy would be the head chef and Sues spouse, Paul, who was a chef at another restaurant, would be the sous chef. Paul was to be hired as an employee of the new restaurant. Jack, who was the proprietor of a Thai restaurant, was brought in later in order to provide the business experience and financial standing which would be required by a future landlord. He was described by the other parties as a sleeping partner. There was no written agreement but the parties agreed that Sue was to have a 55 per cent share in the business with the other 45 per cent being shared equally between Gareth, Billy and Jack.
By 10 December 2015, the parties had found suitable premises a vacant warehouse obtained planning permission for its conversion to a restaurant, taken a leasehold of the premises and agreed to buy the freehold reversion, opened a joint bank account in the names of Gareth and Sue, arranged to borrow up to $200,000 from the bank towards the purchase of the freehold, commissioned a design, entered into a contract with a firm of builders for the conversion and fitting-out of the premises as a restaurant, and contracted for the purchase of equipment and table linen. With the exception of some small sums, all the moneys in the joint bank account were provided by Sue. The joint bank account was used solely to make payments to the builders or for other works and services obtained in preparation for the opening of the new restaurant.
Upon expiry of the term of the lease, the freehold was subsequently acquired by the parties and it was agreed that half of the 30 percent of the purchase price not covered by the bank loan would be paid for by Sue. The other half of the 30 percent of the purchase price would be paid for by the other three parties Gareth, Billy and Jack in equal shares.
By this time the parties had already spent some $75,000 on the business venture. It was common ground that the whole of this expenditure was incurred in the course of the business venture and with the agreement and authority of all four parties, that is, Gareth, Billy, Jack and Sue. They had held themselves out as business partners, jointly entered into all these commercial activities together, agreed upon the division of their tasks, and had significantly advanced towards the establishment of the new restaurant although it was yet to open in the event, it was not opened for several months.
The parties had intended to officially open the new restaurant for business after the Lunar New Year but Sue had difficulty in raising her share of the purchase price of the freehold and there were problems with the builders. These problems, together with Sues discovery that the freehold had been transferred into Jacks sole name led to an irretrievable breakdown in the business relationship between Sue and the other three parties. Sue subsequently wrote to Gareth, Billy and Jack to confirm that she was terminating their business relationship as of 28 February 2016. By this date, Golden Lotus was still not open for trade, although further progress had been made. The parties had acquired the freehold, bought and taken delivery of furniture and equipment for the restaurant, entered into a credit agreement for the purchase of carpets and a contract for the laundry of table linen, and advertised the forthcoming opening of the new restaurant in the local press and on social media.
2
Golden Lotus eventually opened for business on 13 March 2016. Since the irretrievable breakdown of the business relationship, Gareth, Billy and Jack have carried on the business on their own behalf and without any final settlement of accounts with Sue.
Sue seeks your advice on the following matters:
whether the business venture is a valid partnership at law; assuming that it is a valid partnership, what her share of the partnership is likely to be; and whether the joint bank account and the freehold and leasehold interests in the business premises constitute partnership property.
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