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Kang-Kem v Paine

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The case here is referred to as whether the business carries on by Kem Weichoreak Kang-Kem, plaintiff, and Marilyn Jean Paine, defendant, was carried on in common and whether the partnership exists. Judge Barrett J compared the evidence coming out of this case to s.1(1) of the Partnership Act 1892 that defines partnership as the relation which exists between persons carrying on a business in common with a view of profit and also compares to s.2 of the Act that determines the rules for the existence of partnership. Barrett J found that it was the plaintiff who wished to open the restaurant and expressed it to the defendant in November 1991. He also told the defendant he had no money because of the failed business venture that had caused him to become a bankrupt. She kept him, paying his personal expenses and when the plaintiff expressed an interest in opening a restaurant, she was prepared to help him with the venture as it would be in the interests of both of them if he could find something at which he could prosper financially.

Having reviewed the evidence concerning both the Junction restaurant and the Lake restaurant, Barrett J also found that the plaintiff represented the Junction restaurant to have been owned solely by the defendant until about 1997 and the proprietorship, in terms of enjoyment of “operating rights” passed to him thereafter under an arrangement which included a sublease of the premises, the defendant remaining the lessee at all times. After that change, he represented himself as sole owner of the Junction restaurant. Also the defendant alone was the lessee of the premises at the Lake and was the licensee under the Liquor Act. The funds used to establish the Junction restaurant were, to the extent of $100,000, provided by the defendant by way of loan to the plaintiff.

The funds used to establish the Lake restaurant were borrowed, to the extent of some $115,000, by the plaintiff and the defendant as joint borrowers. Barrett J stated that the defendant had three reasons to involve herself in the operation of the business. First, she had an investment to protect. Second, she enjoyed the idea of being associated with what she wished to see develop into an upmarket establishment. Third, she was living with the plaintiff as his de facto wife and was no doubt motivated by considerations of affection to help him in the venture in the way wives often assist their husbands to pursue success in small businesses.

Considering the criteria in s.2 of the Partnership Act, Barrett J concluded that this was not a case in which any property was held in co-ownership. Relevant property was held predominantly in the name of the defendant as the lease of the Junction restaurant and the Lake restaurant was taken in the defendant’s name alone. She also became sole licensee under the Liquor Act . Nor was there sharing of joint receipts as contemplated by s.2(2). In relation to s.2(3), the evidence there is about the destination of profits does not indicate any sharing. The tax return evidence suggests that profits were enjoyed wholly by the defendant at the beginning and wholly by the plaintiff at a later stage. None of the matters with which s.2 of the Act is concerned have been shown by the plaintiff to point in the direction of the existence of a partnership.

For the plaintiff to make out the case he asserts, he must be able to show that the business was conducted in such a way that the plaintiff and the defendant were “carrying on a business in common”. In order to meet this criterion, it is not necessary that each of the alleged partners should take an active part in the direction and the management of the firm. The business may well be carried on by or on behalf of the partners by someone else. The person carrying on the business must be doing so as agent for all the other persons who are said to be partners. However, there must be mutuality of rights and obligations. Those requirements of agency and mutuality are reflected in ss 5 and 6 of the Partnership Act as being the consequences of entering into a partnership. In this case, Barrett J concluded there was no such mutuality. Neither party acted, in the affairs of the business, as the agent of the others and of together.

The rights and obligations arising from the business (with the sole exception of the joint borrowing from Westpac) were not mutual rights and obligations. They were separate or several rights and obligations, even though each played a part in the totality of activities. The plaintiff and the defendant both had an interest in seeing the restaurants successfully operated. But the interest was not an interest in common. The defendant had an investment to protect. That was the source of her interest. It was the interest of an investor rather than a proprietor or business operator. She had the natural interest of one party to a de facto relationship in seeing the other party achieve personal fulfilment and success in his chosen field.

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