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Partnerships, Joint Ventures and Duties of Disclosure: The University Court of the University of St Andrews v Headon Holdings Limited

Document Cited authorities 4 Cited in Related
Vincent
Date01 May 2018
DOI10.3366/elr.2018.0487
Published date01 May 2018
Pages282-288
INTRODUCTION

In The University Court of the University of St Andrews and another v Headon Holdings Limited and others 1 an Extra Division of the Inner House had the opportunity to explore several issues of considerable importance to the law of partnership. The case concerned a joint venture agreement entered into in 2003 between owners of various areas of land, the primary aim of which was to maximise the land's collective sale value. A number of years later, the pursuers raised an action for reduction of the joint venture agreement. They maintained that the joint venture agreement had created a partnership and during the course of the negotiations leading up to its formation the defenders had made misrepresentations and were in breach of a duty of disclosure. The pursuers argued that, in the absence of the defenders’ misrepresentations and non-disclosure, they would not have entered into the joint venture agreement. The principal questions of legal significance for the court were: (1) the circumstances in which a joint venture amounts to a partnership; and (2) whether there is a pre-contractual duty of disclosure between prospective partners.

 PARTNERSHIPS AND JOINT VENTURES Existence of a partnership

The question of whether a business relationship constitutes a partnership has long been wrestled with by Scots and English lawyers. One of the main difficulties is that, unlike business entities such as companies or limited liability partnerships, partnerships are not formally incorporated in a public register, nor do they necessitate a formal partnership agreement. Francis Clark, writing in 1866, suggested that when there is a written partnership agreement:

the fact that the relation exists, as well as the date of its commencement, can generally be determined without much difficulty; but when, as frequently happens, the existence of the partnership relation has to be inferred from facts and circumstances, the problem becomes very complicated and embarrassing.2

This was, Clark posited, largely a consequence of the lack of a statutory definition,3 yet the question is often as difficult to answer today, despite legislative intervention, as it was in the mid 19th century

Section 1 of the Partnership Act 1890 (“1890 Act”) defines a partnership in broad terms, as “the relation which subsists between persons carrying on a business in common with a view of profit”, with a “business” in this context including “every trade, occupation or profession”.4 Although this definition has been characterised as the “ultimate test”,5 it is, as Lord Malcolm noted in the Inner House, “vague and open ended”.6 Accordingly, the definition found in section 1 is supplemented by section 2, which sets out several rules to aid in the determination of the existence of a partnership. Framed mainly as negative propositions,7 these rules help the courts to determine the weight which ought to be ascribed to particular features of a parties' relationship. For instance, the first rule states that common property does not of itself mean that the owners are in a partnership, and the second provides that the sharing of gross returns likewise does not necessarily create a partnership. As observed by Lord Lindley, despite providing guidance in certain cases, when a relationship involves features not mentioned in section 2, such rules “will be found to be of very little assistance”.8

Thus, although sections 1 and 2 of the 1890 Act are an important starting point for the enquiry, Lord Coulsfield rightly observed the following in Dollar Land (Cumbernauld) Ltd v C I N Properties Ltd:

There is no simple or single test which can be applied in every case so as to establish or negative the existence of a partnership. All the relevant...

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