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The Jersey Law Review – October 2006

THE CUSTOMARY LAW OF PARTNERSHIP

Michael Heywood and Kerry Lawrence

Introduction

1       The Jersey Law Commission[1] is currently working on a paper on the law of partnership in Jersey.  The paper itself is still a work in progress, but this article represents the fruits of some of the research for that paper.  At the outset of this project, the Commission asked itself a number of questions - 

(a)              does Jersey have a law of partnership/recognise partnerships at customary law;

(b)              if Jersey does have a law of partnership, what is its content and scope;

(c)              to what foreign sources should lawyers have regard in the event that the body of law is incomplete, or too old to be applicable to the requirements of a modern commercial world;

(d)              would the existing Jersey law, as may be identified, benefit from modernisation by statute, and if so, in what areas and by what means? 

2       It being clear (see below) that the legislature has acknowledged the existence of customary law in Jersey in the field of partnerships, the first substantive area of work was to establish the ambit of that customary law.  This article represents the work done to date to answer questions (a) and (b) above.

3       In the recent case of Bennett v Lincoln[2]the issue was whether there was in law a partnership between the parties.  In the course of the judgment Bailhache, Bailiff, asked rhetorically what were the characteristics of a partnership in Jersey law.  He answered his question by referring first to Cooley v Wood[3], which concerned division of the profits of a quasi-partnership between two shareholders of a company used as the vehicle for a property venture.  In that case the Court commented that no ‘local’ authority had been cited, held that, “the law is not settled,” and adopted the approach to distribution on dissolution of partnerships set out in the English Partnership Act 1890.  The Bailiff then said -

“Since that decision the legislature has however adopted the Limited Partnerships (Jersey) Law 1994 and the Limited Liability Partnerships (Jersey) Law 1997.  Both are of course particular legal animals, but some assistance as to the nature of the species can nonetheless be drawn from the statutes.”[4]

He quoted article 41 of the 1994 Law and article 47 of the 1997 Law, both of which provide that “The rules of customary law applicable to partnerships (contrats de société) shall apply to [limited and limited liability partnerships] except in so far as they are inconsistent with the provisions of [these] Law[s]”.  He then concluded that - “These statutory provisions make it clear that the source of our law of partnerships is to be found in the customary law.”

4       The problem however arises: what is the Jersey customary law of partnership? 

What do the usual sources of the customary law have to say?

5       There is, of course, no Jersey text book on the subject.  Surprisingly, there is a dearth of relevant reported case law.  The Jersey Law Reports’ subject - matter index notes just three cases under ‘Partnership’ reported in the JLR and JJ series since 1950.  The first is Cooley, mentioned above.  The second is Golder v Viberts,[5] which concerned the liability of partners to third parties for the acts and omissions of the partnership, although the judgment was primarily concerned with procedural matters.  In that case the Court accepted what was said in Lindley & Banks on Partnership[6] relating to the liabilities of incoming and outgoing partners as being applicable in Jersey law without further analysis.  The third is Leach v Leach.[7] This concerned ownership of property bought with monies from a joint account and provides no assistance as to the Jersey law of partnership.[8]  

6       There is no reference to sociétés in the Coutumiers.  It follows that none of the recognised commentators on the coutumes dealt with  sociétés.  In the absence of specific guidance in the coutumes on specific areas of law, Norman jurists would look to the French droit commun for guidance.  This has been described as -

“the complex result of the coming together  ...  of local custom with feudal law, Roman law in modified and elaborated form, canon law and the law merchant”.[9]

7       Of these sources, the Roman civil law relating to contracts was the most influential: according to Poingdestre it was this that “the whole world” followed where customary law made no special provision.[10]  Jersey seems to have been no exception.

8       The two commentators on pre-Code Civil French law to whom the Jersey courts have traditionally accorded great respect are Joseph Pothier and Jean Domat.  Both wrote specifically and in some detail on the law of partnership:  Pothier in his Traité de contrat de societé and Domat in Titre VIII of his Les loix civiles.[11]  There is no material difference between them.  They show how closely French droit commun followed the Roman law, at least up to the mid-18^th century.

9       Jonathan Walker, in an article mentioned by the Court in Bennett, said that, where partnership matters have come before the Jersey courts, English case law and English textbooks have tended to be cited in preference to the usual commentators on customary law.[12]  This may be so.  However, in the cases to which we have referred above, only one of the English decisions on partnership law cited was specifically referred to in the Court’s judgment:  Holme v Hammond.  This was referred to in Bennett for the purposes of illustrating the respect accorded by the English courts in the 19^th century to Pothier as a jurist and noting that the English common law relating to partnership had much in common with the principles of law in relation to partnership as set out by Pothier.  We have found nothing to indicate that the Jersey courts have to date departed from or developed the law relating to partnerships as expounded by Pothier and Domat – save to the extent that the law in relation to limited partnerships and limited liability partnerships has been altered by the 1994 and 1997 Laws (neither of which appears to have given rise to any case law yet).  We therefore conclude that the present Jersey law of partnership is essentially that expounded by Pothier and Domat.  What follows is a summary of the principles of partnership law as set out by them[13] with such comments or qualifications about the application of these principles in Jersey law as we feel able to make on the limited evidence available of the decisions and approach of the Jersey courts in partnership matters.

Partnership defined

10     A partnership is a contract between two or more persons by which they oblige themselves to carry on some lawful trade or business together or to hold some asset in common with the intention of sharing between them the profits or losses which may accrue from that business or the use of that asset.[14]  There are therefore four necessary elements to a partnership[15] -

(1)           a contract whereby each party binds himself to contribute something of material worth, whether capital, assets, skill, labour or other service, for a common purpose.  It is not necessary that the partners’ contributions should be of the same kind or equal in value;

(2)           the contributions must be made for the common benefit of them all, not just for the benefit of one or some of them;

(3)           the purpose of the contract must be the generation of a gain or profit in which each partner can expect to share in proportion to the relative value of his contribution;

(4)           the trade, business or other venture which is the object of the contract, and the gain or profit from it in which it is intended the partners should share, must be lawful.

Different kinds of partnership

11     According to Pothier and Domat, Roman law distinguished between two  kinds of  partnership: ‘general’ (sometimes called ‘universal’) and ‘particular’.  Both were recognised in French law.[16]  A general partnership entails an agreement for the sharing of the entire estate (as existing when the partnership is created and in the future) of each partner and the sharing of all profits made by each partner from any and all sources while the partnership subsists.  Although it is possible that some such partnerships may still exist in relation to, for example, family property, we have not found any remotely recent reference to such partnerships and conclude that these are probably now of historic and academic importance only.

12     Particular partnerships were of three principal sorts –

(1)           sharing in the profits generated by the use of specified property or chattels;

(2)           practising an art or profession, sharing the profits and expenses; and

(3)           carrying on a business or trade, sharing the profits and risks. 

In a particular partnership, the partnership property comprises only those assets which each partner has expressly agreed to contribute.  The partnership business will be limited to that which the partners have expressly agreed should be the partnership business or, in the absence of express agreement, that business which they do in fact carry on in common.  In a partnership relating to specified property or chattels, the agreement may extend to placing the property or chattel itself into the partnership property or it may be limited to placing the profits earned by the use of them, the individual partners retaining ownership of the property and chattels which they owned before the partnership was created.  This depends on the intention of the parties at the time they entered into the agreement.  In the event of subsequent conflicting claims about what was intended, it is for the court to judge what the evidence shows the original intentions were.

13     French law recognised three types of business associations (sociétés commerciales)[17] -

(1)           Sociétés en nom collectif, in which two or more persons combined to carry on a business or trade in the names of both or all of them or under a collective name such as XY & Cie.  These are in most respects the same as unlimited liability partnerships in England governed by the Partnership Act 1890.  Each member of a commercial partnership en nom collectif is jointly and severally liable for the debts of the partnership without limitation – provided those debts were incurred in the name of the partnership and by some one who had authority to bind all the partners. 

(2)           Sociétés en commandite, in which a trader or businessman entered into partnership with a person who did not himself intend to carry on that trade or business but who provided capital for it in return for a specified share of the profits and agreed to bear the same proportionate share of any losses limited to, as a maximum, the extent of the capital he had contributed.  The business was carried on and contracts were made in the name of the active trader or businessman alone.  The partner en commandite was not entitled to play any part in the management of the business.  Provided he did not do so, he incurred no direct obligations to third parties with whom the active partner contracted; his obligation was simply to indemnify the active partner against the debts contracted on behalf of the partnership up to the limit of his contribution.  This type of commercial partnership has now effectively been superseded in Jersey by limited partnerships under the 1994  Law.  The present Jersey law in relation to such partnerships is of course primarily that set out in that Law.

(3)           Sociétés anonymes et inconnues, in which the partners agreed to take shares in a business to be carried on by one or some of them in the name or names of that person or those persons alone or under some style other than the names of all the partners.  The anonymous partner incurred no liability directly to creditors of the partnership.  This type of commercial association has now been replaced in Jersey by the limited liability partnerships permitted and governed by the 1997 Law.

The nature of partnership[18]

14     By its very nature, a contract of partnership is -

(1)           consensual – i.e., can arise only by mutual consent of all parties to it – and

(2)           synallagmatic – i.e., imposes mutual obligations on each of the parties to it.

15     It necessarily follows that a contract of partnership is one of good faith, requiring honesty and fair dealing as between the partners themselves.  Further, any partner dealing with a third party on behalf of the partnership, or in any circumstance where the partnership may incur obligations, owes his co-partners a duty to be honest and fair in his dealings with that third party.  These requirements of mutual consent and good faith mean that no one partner can admit a third party to the partnership without the consent of all other existing partners.  For this reason, on the death of a partner, his personal representative or heir does not become a partner in his place and, absent express provision to the contrary, the partnership comes to an end.

Formalities for the creation of a partnership[19]

16     Both Pothier and Domat say that there is no particular formality required to make a valid partnership contract.  It appears, however, that French law, pre- and post- the Code Civil, in fact did specify certain formalities in the case of commercial partnerships.  The partnership agreement for a commercial partnership en nom collectif or en commandite had to be established by public acts or reduced into writing signed by the parties, and apparently no evidence could be admitted “against and beyond the meaning of the partnership deed” or as to what may be alleged to have been said before the deed was made, during its operation, or since.  It seems this may even have applied to non-commercial partnerships where the issue involved more than 100 livres or 150 francs.   A societé anonyme could only be formed by public act and an extract of the deed had to be registered at the registry of the local tribunal of commerce.[20]  The extract registered had to include the full names, rank and addresses of the partners and any clause extraordinaire, an example of which given by Pothier being a clause providing that only a named individual partner is authorised to sign deeds in order to bind the partnership.  If it ever was the case that Jersey customary law  required such formalities in respect of sociétés en nom collectif, it is not so now and has not been for some considerable period.  Registration of limited and limited liability partnerships is of course required and governed by the 1994 and 1997 Acts. 

Commencement and duration[21]

17     The commencement date and duration of a partnership are matters for agreement between the parties.  In the absence of any express agreement to the contrary, a partnership -

(1)           will be treated as having started from the date of the agreement to enter into the partnership; and 

(2)           will be deemed to have been made for the duration of the joint lives of the partners.

Management of the partnership business[22]

18     Absent agreement to the contrary, all partners in a partnership en nom collectif are entitled to share in the management of the partnership business and to enter into obligations on behalf of the partnership – subject, of course, to the overriding requirement of good faith.  The partnership agreement may provide that the management be delegated to one or some only of the partners, subject to such limitations or restrictions as all the partners may think fit.  The ‘sleeping’ partner in a partnership en commandite has no right to be involved in the management of the partnership business if he wishes to retain his limited liability.  In a société anonyme the management of the business is always delegated.  Absent any express limitation of restriction, the powers of the managing partner will be treated as equivalent to those conferred by a general power of attorney given by one individual to another to manage his property.  The managing partner may do anything necessary for the carrying on of the partnership business and will bind the partnership.  In the case of a commercial partnership he would be able to sell the stock in trade of the partnership, because that is precisely what it is there for, but he would not be entitled to sell the business premises or the moveable property necessary to conduct the partnership business.  Nor may he compromise claims made by or brought against the partnership without the consent of all the partners, because that goes beyond the powers which would be conferred by a general power of attorney.  Where a partner has entered into the partnership only on condition that he should have the management of business, his power to do so is irrevocable while the partnership subsists.  If, however, the power of management has been granted subsequently, that takes effect as a revocable mandate which can be revoked by the remaining partners at any time.

Partnership shares[23]

19     Absent agreement to the contrary, the partners are deemed to have contributed in equal shares and are therefore presumed to be entitled to share in the profits of the partnership and obliged to bear any losses in equal shares.  The partnership agreement may ascribe relative values to the respective contributions.  If so, absent agreement to the contrary, the entitlement to a share in the profits and the obligation to bear a share of any losses will be in proportion to those values.  Alternatively, the partnership agreement may specify the relative proportions in which the profits and losses are to be shared irrespective of the relative value of the contributions.  It may also specify that a partner’s entitlement to share in the profits and his obligation to bear a share of the losses may be in different proportions, or that these are dependent upon a specified condition being met, or even that, as between the partners,[24] an individual partner is not obliged to bear any part of the losses.  A further possibility is that the agreement may provide for the shares to be determined by one of the partners or by a third party “according to the rules of equity”.  If they do, there is a presumption that the decision is equitable and it can only be challenged if it is obviously inequitable – the test of that presumably being equivalent to the English ‘Wednesbury test’.

The rights of the partners in relation to partnership property[25]

20     Each partner is entitled to use any partnership property, provided he does so for the purposes for which it was intended to be used and not contrary to the interest of the partnership – i.e., does not prevent its use for the purpose of earning a profit for the partnership or deprive his co-partners of a fair opportunity to derive the benefit from it which it was intended they also should have.  Each partner is entitled to require his co-partners to join with him in meeting any expense necessary to preserve and maintain the partnership property.  A partner is not entitled unilaterally to alter partnership property, even though the alteration might be an improvement and therefore ultimately advantageous to the partnership.  A partner (other than one to whom a power of management has been given which includes the power to do this) may not, without the consent of all partners, alienate or charge partnership property – although he may do so in respect of his own share.  He may also, without the consent of his co-partners, take a third party into a separate partnership with himself in regard to his own partnership share.  If he does so, the third party does not thereby become a member of the original partnership and there is no contractual relationship between him and the other members of that partnership. 

The respective obligations of partners to each other and the enforcement of those rights[26]

21     A partner must account to his co-partners for whatever he may owe the partnership, after deduction of whatever he is properly owed by the partnership.  What a partner may owe the partnership falls broadly under three heads -

(1)           that which he has agreed to contribute to the partnership as his share but has not yet delivered.  Where this is a sum of money, he is also liable to account for interest from the day when the money should have been paid – i.e., the date agreed for such payment or, if no date was specified, the date when his co-partners lawfully made demand.  Where this is an asset which is a usufruct, he is also liable to account for all fruits of that asset which he has taken since the inception of the partnership, whether or not he was obliged to deliver the asset itself at that date.  If he was required to deliver the asset on a specified date, then he is also liable to account for such of its fruits as arose after that date even if he has not actually had them. Where the promised contribution is an asset to be used in the partnership business, or, if not the asset itself but its use and enjoyment for the benefit of the business, the partner is liable to account for any profit which could have been earned during the period between the date when that asset should have been delivered or made available to the partnership; 

(2)           that which he has withdrawn from the partnership funds for his own use and benefit.  Where this comprises drawings which prove to be in excess  of his entitlement for the period in question, he is liable to repay the excess together with interest.  Where he has obtained a profit by selling his services (being of a kind which he had agreed to contribute to the partnership) otherwise than through or for the benefit of the partnership, he must account to the partnership for that profit.  Where he is personally owed a debt by a debtor of the partnership and receives money from that debtor, he must appropriate the money received pro rata between his personal debt and that owed to the partnership.  If he receives a benefit from a third party to whom he has been introduced in the course of the partnership business and would not have met otherwise, he is not required to account for that benefit if conferred on him otherwise than in connection with the partnership business or what should be the partnership business;

(3)           any loss that he has caused to the partnership.  The obligation to account for losses caused to the partnership extends only to those losses caused by a breach of the duty of care owed by partners to each other in the conduct of the business and management of the assets.  The standard of care owed under this duty appears to be a subjective standard – the care of which the partner in question is capable and which he applies to his own affairs.  However, there is an objective minimum standard in that each partner is presumed to be capable of “the ordinary care which the least intelligent persons exhibit in the management of their affairs”.  A partner who has caused a culpable loss to the partnership is not entitled to set off that loss against a profit which he may have made for the partnership in some unrelated transaction in the course of the partnership business.  This is because he is under a duty to account to the partnership for that profit in any event.

22     An individual partner must account to his co-partners in proportion to his share for anything which is owed to them by the partnership.  Where one of the partners is insolvent and so unable to contribute his share of the debt owed by the partnership to another partner, the shortfall falls to be borne by the creditor partner and the other, solvent partners in equal shares (or pro rata to their respective shares).

23     A further, important mutual obligation on the partners is to submit to the distribution of the partnership assets at the termination of the partnership.  This is more conveniently dealt with under the heading of dissolution.

24     Enforcement of these reciprocal obligations is by action pro socio.  This is a personal right of action: it may be brought or continued by the personal representatives of a deceased partner, and it may be brought or continued against the personal representatives of a deceased partner.  The principal object of such an action is to secure the distribution of the partnership assets on termination of the partnership.  However, an action may also be brought to compel performance of particular obligations while the partnership still subsists.  The essence of the action is one for an account and payment of what may be found due on the taking of the account.  Pothier says that each of the parties to an action of this kind has the right to demand that the claim be referred to arbitration.  The French Ordonnance of 1673[27] expressly provided that all partnership agreements should include an arbitration clause.  There is, of course, no equivalent Jersey Law and it would seem therefore that this probably is not a requirement of Jersey law.

Dissolution[28]

25     There are four circumstances in which a partnership can be dissolved -

(1)           effluxion of the time specified for its duration (although the partners may agree to prolong their partnership beyond the specified term);

(2)           completion of the business or extinction of the thing which comprised the object of the partnership;

(3)           the death or insolvency of a partner.  Any type of partnership, even a fixed-term partnership, is dissolved on the death of one of the partners.  As noted already, the personal representatives and heirs of a deceased partner do not become partners in his place; they merely become entitled to enforce or bound to discharge the dead partner’s rights under the partnership crystallised as at the date of his death.  This was the position under Roman law.  However, Pothier does suggest that under French law a stipulation in a partnership agreement that, on the death of a partner, his heirs shall become a partner in his place is binding and enforceable.  The death of a partner does not merely dissolve the partnership as between him and his co-partners; it also dissolves it as between the surviving partners, unless the partnership agreement expressly provides to the contrary.  Insolvency of a partner has the same consequence for the partnership as death;

(4)           one or more of the partners wishing to terminate it.  A partnership can be dissolved at any time by the mutual consent of all partners.  Where only one or some of the partners wishes to terminate the partnership, the position is more complicated.  In the case of a partnership without limitation of time, any one of the partners may give notice to his co-partners that he no longer wishes to remain in the partnership.  However, it is a prerequisite that such notice must be given in good faith.  The giving of notice to dissolve the partnership in order that the partner giving notice may take for himself some benefit for which, if the partnership were to continue, he would have to account to the partnership would not meet the requirement of good faith.  It is also a prerequisite that the notice should not be given at “an unseasonable time” – i.e., when it would be in the common interest of the partnership to defer dissolution.  In the case of a fixed-term partnership, a partner cannot give notice of dissolution unless he has good cause for dissolution before the expiry of the agreed term.  Good cause for this purpose may be persistent breach of the terms of the partnership agreement or bad faith on the part of his co-partners or some one or more of them.  It would also include a partner’s incapacity to participate in the affairs of the partnership, whether by reason of impaired physical or mental capacity or otherwise, especially if those affairs are such as require his personal attention, and this may work either way: the incapacitated partner having good cause, or the other partners having good cause.  To be effective a notice of dissolution must be given in writing and to all other partners.  Where the right to serve such a notice is likely to be controversial, it is open to the partner giving the notice to bring his co-partners before a court in order to establish its validity.

The consequences of dissolution[29]

26     The essential consequence of dissolution is that the authority of each partner to bind his co-partners and their mutual rights and obligations as partners are terminated – save in so far as it is necessary for the winding up of the partnership’s affairs.  The former partners are under a mutual obligation to do all that may be necessary to enable the affairs of the partnership to be wound up.  What is necessary for the winding up of the partnership’s affairs includes completion of any transaction or business commenced before dissolution.  If that transaction or business is completed by one of the former partners, he must account to the partnership for any profit.  On the other hand, if this results in a loss, his co-partners must bear their proportionate share of the loss.

27     Dissolution does not put an end to debts owed by individual partners to the partnership or debts owed by the partnership to individual partners.  These must be accounted for in the winding up of and the final account for the partnership.

28     If the cause of dissolution is the death of one of the partners, the personal representatives and heirs of the dead partner have a duty to complete those transactions which he had commenced for the partnership and to account to the partnership for any profit resulting from it.  Again, if a loss results, the other partners must acquit the estate of the dead partner from all but his proportionate share of that loss.

29     Where a partner, in good faith and before he has learnt of the dissolution, enters into new transactions on behalf of the partnership after the date of dissolution, those transactions will bind the partnership and the profits or losses resulting from them will have to be accounted for to or by his co-partners in the usual way.  Thus the estate of a dead partner whose death has caused the dissolution will be entitled to a proportionate share of any profit and obliged to bear a proportionate share of any loss notwithstanding that those transactions were entered into after the partner’s death.  The same reasoning applies to a trader who has in the course of his business supplied goods or services to one partner on account of the partnership.  If goods or services are supplied in good faith and in ignorance of the dissolution, the debt in respect of these will be a partnership debt and all partners or their heirs will be bound.  However, there is a distinction to be drawn between partnerships for a fixed term and those which are not.  If goods or services are supplied after the expiry of the fixed term, the trader or artisan concerned cannot claim ignorance of the dissolution because “those who have business with persons in partnership ought to inform themselves of the terms of the partnership”.[30]

Distribution of partnership assets

30     Following dissolution each former partner has the right unilaterally to demand a distribution of those assets which remain in common.  Such demand should be made against all the former co-partners (or their respective estates).  It can be enforced by the action pro socio as mentioned earlier.  If all former partners are not cited, those who have been cited can require the plaintiff to join those who have not, and any former partner not cited can intervene without waiting for the plaintiff’s summons to join them. 

31     The demand for a distribution can usually be made immediately after dissolution.  However, if the partners have agreed to delay the distribution for a certain period or to postpone it until a time which they consider would be more advantageous for disposing of the common property, a claim for distribution would not be usually be entertained until that period has expired or that time has arrived. 

32     It is a prerequisite of a distribution that a final account should be taken of what each of the former partners owes to or is owed by ‘the community’.  According to Pothier, in French law there was an established and somewhat complicated procedure for this.

(1)           An account must be taken of what each former partner owes the partnership and what is owed to him by the partnership (including whatever has become due from one to the other since the date of dissolution by way of both principal and interest).  The total owed by each former partner should be set off against the total which he is owed and, “what remains, after such set-off, should be put to the debit or credit” of the partnership.  For this purpose, the ‘book of the partnership kept by one of the partners’ is proof as between the partners of what has been received or expended for the partnership.

(2)           An account of the partnership assets must be taken -

“the common stock is set forth that is to say, a detailed account of all the different things of which the community is composed; and there is comprehended in this stock, amongst the (dettes actives) debts due to the community, the sums which each of the parties (after the set-off has been made) owe to the community; and on the distribution of the community their own debt is to be deducted from their share.

An account also of the (dettes passives) debts due from the community is prepared, and there is comprehended in it the sums which (after a set-off has been made) are owing to each of the parties by the community.

These sums ought to be taken by them before the partition of the community.”

For this purpose, the non-monetary assets have to be valued, whether by agreement between the former partners or by an independent valuer appointed by them or, in default of agreement, by the court.

(3)           Distribution can then take place.  This should begin with the moveables.  Each of the former partners has the right to demand that his share of the moveables be given in kind and that, for this purpose, the moveables should be made into parcels to be drawn by lots.  His co-partners cannot insist on a sale unless the partnership has debts (including any owed to the former partners which they have a right to receive before distribution) which can only be discharged by a sale of the moveables – in which case so much as maybe necessary of the moveable must be sold, starting with any perishable items.  Where a former partner contributed as his share or part of his share some thing in kind (as opposed to merely its use or fruit) and that thing remains part of the partnership assets on dissolution, he has no greater entitlement to take that thing back on distribution than do his co-partners.  It must be lotted like any other asset.  After the moveables have been distributed, the immoveables should be distributed in the same way.  Where, as is likely, the value of each lot differs, Pothier says that equalisation is obtained by means of charging the higher value lot with such sum as is necessary to ensure that each partner receives overall a property plus or minus a sum of money which equates to his proportionate share.  He gives the simple example of two partners with two properties valued in total at £20,000 to be distributed between them but one being valued at £12,000 and the other at £8,000: each is entitled to receive an equal share, so the one who takes the property valued at £12,000 takes it subject to a charge in the sum of £2,000 in favour of the one who takes the property worth £8,000.  The partner whose lot is so charged is an under an obligation to pay the sum charged.  As an alternative to drawing for the lots, the parties may choose to auction them as between themselves (‘licitation’), the price paid by the successful bidder being divided between all the partners in accordance with their respective entitlements.   The consent of all the parties is required except where the nature and number of the assets are such that there is no practicable possibility of a draw.  The debts due to the partnership are divided between the partners by operation of law.  However, because it is impracticable to expect each partner to collect his own share of a debt from each creditor, it is customary for the good debts to be lotted and drawn in the same way as other assets.  However, bad or doubtful debts are not treated that way but the responsibility for collecting them is delegated to one of the partners who must account to the others for whatever he succeeds in collecting.

(4)           The expenses of effecting distribution are properly to be charged to the partnership and deducted from any monies held before distribution.  Otherwise they should be borne by the former partners in the same proportions as their respective shares in the common stock.

33     It is not clear if Jersey law historically followed this somewhat arcane procedure for distribution.  However, as noted earlier, in Cooley the Royal Court adopted the approach set out in the English 1890 Act as described in Halsbury’s Laws of England[31] – i.e.-

“In settling accounts between the partners after a dissolution of partnership, the firm’s assets, including any sums contributed by the partners to make up losses or deficiencies of capital, are applicable in the following manner and order: (1) in payment of the firm’s debts and liabilities to persons who are not partners; (2) in repaying to each partner rateably what is due from the firm to him for advances as distinct from capital; (3) in repaying to each partner rateably what is due from the firm to him in respect of capital; and (4) in dividing any residue among the partners in the proportion in which profits are divisible.  In the absence of contrary agreement, the amount payable by the other partners in respect of the share of a deceased or outgoing partner is a debt from the other partners accruing at the date of death or dissolution, as the case may be.”

34     There is no indication in the judgment that the advocates for either party had contended for any different approach, still less for that set out by Pothier.  In the absence of any subsequent decision to the contrary, we assume that, whatever may have been the position before 1993, this is currently the position in Jersey law.

Michael Heywood is an English barrister practising from Radcliffe Chambers, Lincoln’s Inn, London WC2A 3QB.  Kerry Lawrence is an advocate of the Royal Court and a partner in Ogier, Whiteley Chambers, Don Street, St Helier, JE4 9WG.  She is a member of the Jersey Law Commission and project commissioner for the paper on partnership law.

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