1. Partnership Law in Malaysia
Principles and Cases

2. Sources of Partnership Law in Malaysia
The law of partnership governed by the Partnership Act 1961 (Revised 1974); similar to English Partnership Act 1890.
Prior to 1974, law on partnership in Malaysia was found in Chap X (ss ) of the Contracts (Malay States) Ordinance 1950 – if act was silent on that matter, English Law would apply
English Law: Common law and equity is also applicable in certain situations relating to partnership law by virtue of section 47(1) of the Partnership Act, except so far as they are inconsistent with the express provisions of the act. See case Chan King Yue v Lee & Wong on the application of rules of equity.

3. Chan King Yue v Lee & Wong[1962] MLJ 379
Facts: Husband borrowed from wife Rm35,000 as a loan to his firm, and gave her a receipt in the firm’s name. The amount loaned went into partnership a/c only to used later to pay off some of the firm’s debts. The wife brought an action to recover the loan amount but the other partner contended that pl’s husband had no authority to borrow money and that loan was made to husband personally.
Held: The court held that the pl. was entitled in equity to recover the loan amount. Since the money was utilized by the firm for payment of the firm’s debts, it is regarded according to the principles of equity as if it had originally been borrowed by the firm by following the English case Bannatyne v D&C Maclver [1906] 1 K.B. 103.

4. Separate legal existence?
This type of business entity has no separate legal existence apart from the persons who conduct the business i.e. the partners.
A partnership is NOT A LEGAL PERSON by itself: Madam Lal & Anor v Ho Siew Bee [1983] 1 M.L.J. 105.
Therefore this has implications on his liability: A man may set aside property for the purpose of business, but in law that property is still his.
He may run up debts or incur liabilities in the name of the business, but the law still fixes him with the obligation to discharge those debts and liabilities.

5. Definition and nature of partnership
Defn: s. 3(1) – a partnership is
a relation that subsists btw 2 or more persons (this is determined by reference to parties’ agreement
who are carrying on business in common
in order to gain profit.
A partnership need not have to be created by a formal deed or written agreement.
A partnership may be created orally or in writing.

6. Definition and nature of partnership
Although the word ‘partnership’ does not appear in the agreement, a partnership may still exist if the relationship between the individuals has the business character of a partnership within the scope of the scope of the Act.
Ratna Ammal & Anor. v Tan Chow Soo [1964] 30 M.L.J 399.
Facts:The parties in the case entered into an agreement to form a ‘synidcate’ for the purpose of selling milk. The word ‘partnership’ was not use in the agreement. Instead the word ‘syndicate’ was used.
The court held that based on the facts, the relation of the partners had the business character of a partnership and, notwithstanding the avoidance of any reference in the agreement to a partnership and the use of the word ‘synidicate’ throughout, the arrangement was that of a partnership. They had agreed to carry on business ‘in common with a view of profit.’

7. A.W. Yong Wai Choo v Arief Trading Sdn Bhd [1992] 1 MLJ 166
The court looked at the intention of the parties from the evidence to determine if there was a partnership between the defendants.
Therefore there should be an agreement, written or otherwise, BUT THE AGREEMENT MUST BE FOLLOWED BY ENGAGING IN A BUSINESS IN COMMON WITH A VIEW TO PROFIT.

8. Scope of partnership
With reference to definition of partnership in section 3(1) of the Partnership Act: for a partnership to exist, two or more persons must be carrying on business in common.
The word ‘business’ has been defined in section 2 of the said Act as ‘including every trade, occupation or profession’
S.3(2) PA excludes certain relationships from being partnerships: formed under Companies Act or under any law having effect in Malaysia i.e., charitable or religious organizations, clubs, societies and cooperatives, shareholders in a limited company or members of an association formed under an Act of Parliament.

9. Scope of partnership with reference to section 4 of PA 1961
In Chooi Siew Cheong v Lucky Height Development Sdn Bhd & Anor [1995] 1 MLJ 513, the Federal Court held that parties to a joint venture agreement were NOT partners as they were not carrying on a business in common.
The intention of parties in this case was that of separate businesses. One party contribute land whilst the other party developed and carried out the project to build houses and shop houses.
There was no ‘business in common’ with a view of profit and, therefore no partnership resulted from the joint venture agreement.
There is a distinction between a joint venture and partnership
Joint venture may or may not be partnership and in deciding courts will look at the relevant rules in section 4 of the PA 1961.
The courts will also look at the conduct of the parties in the absence of an express agreement

10. Registration of partnership
Must be registered with the Registrar of Businesses: according to s.5 of the Registration of Business Act 1956, the details of the partners and their agreement must be given. If there is any changes made subsequently, the Registrar must be notified within 30 days.
The importance of this is found in s.6 – the register kept by the Registrar is evidence of the partners in partnership.
But if not registered does not mean there is no partnership according to case Gulazam v Noorzaman & Sobath [1957] 23 MLJ 45.

11. Registration of partnership
This (updated register) is important to third parties dealing with partnership for the following reasons:
agency: every partner is an agent for the firm and his other partners, s.7.
liability: s.11 of the PA further provides that every partner is jointly liable with his other partners for all debts of the firm incurred while he is a partner – see IAC (Singapore) Pte Ltd v Koh Meng Wan (1979);
Retirement: also determines liability of partners according to s.19(2) of PA which provides that partner who retires continues to be liable for the partnership’s debts and obligations incurred BEFORE his retirement.

12. Formation and duration of partnership
Form of agreement: Can be formed with or without written agreement;
Easier to form than a company;
Capacity to be a firm’s member (general rule): Everyone sui juris i.e. of legal capacity (to enter into contract) is capable of entering into partnership. They include those of a religion, women, limited companies, and aliens.
There can be a partnership between a minor and adult. The principle that minor can be in a partnership for any duration of time until he wanted to disaffirm it was established in Goode v Harrison [1821] B & Ald. 147 at p.157.

13. Formation of partnership
Persons of unsound mind: partnership agreement is a contract and s.11 of Contracts Act 1959 a person who is competent to contract should have sound mind.
If not of sound mind, contract entered into may be void as decided in the case on partnership Imperial Loan Co. v Stone.
Also under s, 37 of PA insanity of a partner is a ground for dissolution of the firm by the court.

14. Formation of partnership
Illegal firms:
(a) purpose of partnership – partnership formed for any purpose that is mandatorily prohibited by M’SIAN LAW WILL BE HELD ILLEGAL and is ground for dissolution under s.36 PA. Case on point Chung Kiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd & Anor. In Williams v Jones it was held that a partnership between a solicitor and an unqualified partner is illegal.
(b) The no. of partners: No partnership can have more than 20 members as that contravenes s. 14(3)(b)Companies Act. See case Shim Fatt v Leila Road Bus Co. ; Tan Teik Hee v Cheng Tien Peng (1931); Tan Ching Cheang v Estate & Trust Agencies Ltd. ( )

15. Contents in partnership agreement: important areas
Contribution to capital
Distribution of profits
Apportionment of losses
Management of the business
Remuneration for acting in the partnership business
Introduction of new partner
Change in the nature of the partnership business
Partnership property

16. Contents in partnership agreement: important areas
If partnership agreement is silent, then the rights of the partners are implied into the agreement from the provisions of the Partnership Act i.e.
Contribution on equal basis;
Distribution of profits on equal basis;
Apportionment of losses on equal basis
Management of business to be undertaken by every partner
No remuneration for acting in the partnership business
Introduction of new partner with the consent of all partners
Change in the nature partnership business with the consent of majority partners
Partnership property to be used solely for partnership business.

17. Existence and non-existence of partnership in s.4 PA
Co-tenancy and co-partnership: s.4(a) provides that co-tenancy (e.g. 2 persons hiring a shop in common or co-ownership (e.g. 2 persons owning a truck in common) does not in itself give rise to partnership.
See case of Davis v Davis [1984] 1 Ch. 393 where 2 brothers held certain houses as tenants in common and also had a business. They let one of the houses and used the proceeds to enlarge their business. Were thy partners? Court held they were partners as to the business but NOT as to the houses. The property acquired for expanding the business was not partnership property

18. Existence and non-existence of partnership in s.4 PA
Sharing of gross returns, s.4(b) – does not necessarily mean there is a partnership – see Cox v Coulson [1961] where defendant was sued by pl. for injury allegedly caused by a person who pl claimed was def’s partner. Court held that the mere sharing of gross returms from theatrical group performance does not make them partners. No partnership in that case.
S.4(c) - Sharing of profits of a business implies that person is prima facie a partner in the business in question – Court will examine all circumstances of the case in order to ascertain the intention of parties.

19. The firm and types of partners
The firm – members of a partnership are called collectively a ‘firm’ BUT has no separate legal entity although the firm’s name may be used in court’s proceedings by the partners or persons suing them.
As a general rule firm can choose a name that suits its members but there are certain statutory and common law exceptions to this rule e.g. cannot use the word ‘limited’ if the association is not a limited company. The common law passing off rule is another exception – a partnership business may not be carried on in a manner that amounts to a (mis) representation that it is the business of another person or that it has connection with that business: See case Joseph Rodgers & Sons Ltd v Rogers & Co. (1924)

20. Four types of partners
The active partner: active in the business and management of partnership; is known to partnership’s customers.
The dormant or sleeping partner
The salaried partner – firm uses the services of a person for a salary; firm also holds him out as a partner but whether he is truly a partner depends on the facts of each individual case (question of fact).
A partner by holding out – a salaried partner to the outside world is a partner by holding out. Hence liability accrues to the firm for the acts of this person or vice versa – see section 16 of PA.

21. Relations of partners with outsiders, s
Relations of partners with outsiders, s.7 of PA: power of partner to bind his firm
Relationship of partners with outsiders involves the relationship of a principal –agent as far as the partnership business is concerned.
A partner is considered as an AGENT of every one of his co-partners.
The general rule is that where a partner does something typical of what is done by the firm in the course of the business, that act would bind every member of the firm.
Exception to the rule: a partner who has no authority to act on behalf of his co-partners will not bind the firm in the following instances:
Where the outsider KNOWS of his lack of authority
Where the outsider does not believe the partner to be a member of the firm.

22. Types of authority: actual or apparent?
Section 7 of PA (power of partner to bind the firm): deals with actual and apparent authority.
Actual authority consists of express and usual or implied authority;
Where the partners expressly (in writing e.g. partnership agreement or orally) allowed something to be done by a co-partner in the usual way of carrying on a partnership business there would be no problem;
Usual or implied authority is the authority by implication of which the law regards as necessary for the carrying out the agent’s (partner’s) express authority in relation to firm’s business
Apparent or ostensible authority arises when the partner “HOLDS OUT” to others that he has such authority

23. Types of authority: actual or apparent?
S.8 PA: Partners bound by acts on behalf of firm ….by any person thereto authorized, whether a partner or not.
S.9 PA: where partner pledges credit of the firm for private purposes NOT connected with the firm’s ordinary course of business, form is not bound unless specially authorized by firm.
S.10 PA: if third party has notice of the agreement betw partners and any restrictions on the power of anyone of them, the firm will not be bound by any act done in contravention of the agreement.

24. Preconditions for a third party to hold partnership firm and partners liable
Act must be done for the “purpose of the business” of the partnership (as per ss. 7 & 9)
The act must be done for the firm’s “ordinary course of business”: See cases of Bank of Australasia v Breillat [1847], Beckham v Drake [1841], Porter v Taylor [1817], Mercantile Credit Co. v Garrod [1962].
Act must be done by the partner as a partner of the firm and NOT in his OWN CAPACITY

25. Liability of Partners
Ordinary Torts, s.12 of PA: in order to make firm liable, the tortious act must be committed by a partner either in the ordinary course of the business of the firm or with the authority of his co-partners: see Bkyth v Fladyate [1891] where firm of lawyers held liable for the negligence of one of the partners.
Misapplication of money or property received for or in custody of firm, s.13 PA: …the firm is liable to make good the loss.
S.14: every partner is liable jointly and severally for everything for which the firm, while he is a partner therein, becomes liable under s.12 and 13 PA

26. Liability of Partners
Misappropriation, s.15 PA: improper employment of trust property for partnership purposes by a partner. As a general rule, if a partner acting in his individual capacity, improperly makes use of trust property in the business of the firm, his other partners are not liable to the beneficiaries. If trust money still under firm’s control, the beneficiaries can recover it from firm.
Contractual liability, s.11 PA: every partner in a firm is liable jointly (for all contractual and other debts and liabilities including tax and judgment debts) with the other partners for all debts and obligations of the firm incurred; after his death his estate also severally liable.

27. Liability of Partners
Criminal liability: although partners are jointly liable in civil cases, they are not jointly liable in criminal cases – see case Chung Shin Kan & Anor v Public Prosecutor [1980] 2 MLJ 246 case on Trade mark offence relating to ‘Texwood lables’;

28. Duration of liability
new partner is not liable for debts incurred prior to his admission as a partner unless he agrees to be liable – s.19(1) PA;
S.19(2) PA: a partner who retires from firm continues to be liable for partnership debts and obligations incurred before his retirement;
S.19(3): retiring partner can discharge existing obligations/liabilities by an express/inferred agreement to that effect between himself and the members of the firm.
Mere abandonment and inactivity by a partner who has given up all hope of recovering his share does not.

29. Liability of persons for holding out, s.16 PA
William Jack & Co. (Malaya) Ltd v Chan & Yong Trading Co. [1964] 30 MLJ 105:
Def. Chan raised in his defense that he had not in any way represented or held himself out as a partner of the partnership firm. The court held that Chan had represented himself to be a partner in the firm by approaching a salesman of the plaintiffs to ask for credit facilities with the plaintiff company, by registering the partnership with the Registrar of Business, and by opening a banking, and by opening a banking account with the Bangkok Bank, using his own money in the name of the partnership. Each mode of representation was sufficient to fix him with liability as a partner of the firm.

30. Liability of retired partners, s.38 (1) PA
After retirement, a partner is still liable to persons who deal with the firm after a change in its constitution unless he has given notice to such persons that he is no longer a partner, s.38(1) PA.
See cases
Re Siew Inn Steamship Co [1934]: notice of his retirement in several issues of a newspaper was not sufficient to exclude liability on the notes. Actual notice was necessary.
Tan Sin Moh v Lebel Ltd [1988]; notice of the withdrawal of the appellant from the partnership ought to be given to respondent creditor who had habitual dealings with the partnership.
Philips Singapore Pte Ltd v Han Jong Kwang & Anor [1989]; registration of the retirement of a partner with the Registrar of Businesses did not constitute constructive notice to third parties who dealt with the partnership.
Jemco Sdn Bhd v Andrew Liau Ka Lieng & Ors [1985]: oral notice of the retirement of three defendants to third parties was held to be effective notice.

31. Malayan Banking Berhad v Lim Chee Leng & Anor [1985] 1 MLJ 214.
Facts: Respondents were partners of a firm called Berjasa Corporate. The appellant sued the respondents under a trust receipt which matured and became payable on 14 June Two of the respondents resigned from the firm on 16 August 1976.
Held: The respondents incurred the debt on the trust receipt before their resignation or retirement and they could not escape liability by merely pleading resignation or retirement according to s.19(2) of PA.

32. Relationship of partners to one another
Determined by their partnership agreement which:
Provides for rights and duties of the partners
The conduct and management of the firm
The capital and their profit sharing arrangements
In the absence of provisions being made under the agreement, the Partnership Act applies as provided for under s.26 PA.

33. Relationship of partners to one another
The principle of ‘utmost good faith’ btw partners is IMPLICIT in every partnership agreement and is a prime requisite in relations between partners because the relationship btw partners is based on mutual trust and confidence.
Section 30: duty of partners to render accounts & full info of all things affecting the partnership; see Maddeford v Austwick; Law v Law
Section 31: accountability of partners for private profits derived without consent from transaction concerning partnership or dealings with partnership property, name or business; See Bentley v Craven; Aas v Benham.
Section 32: duty of partner not to compete with the firm;

34. Relationship of partners to one another
See Green v Howell [1910] about dismissal of partner for flagrant breach of specified provisions allowed if done in good faith. See also Clifford v Phillips [1908] and Clifford v Timms [1908] regarding dissolution of partnership for professional misconduct in partnership among professionals
See Ong Keng Huat v Hong Kong United Co. Ltd & Anor [1961]: if there is a breach of duty committed by a partner, he is only liable to make good the loss suffered by the partnership if he is guilty of fraud, or culpable negligence or willful default.

35. Partnership property: ss 22, 23, 24
Defined in s. 22(1) PA;
Partnership property must be used and applied for the purposes of the firm and in strict accordance with the partnership agreement
Issues in cases in this area is usually whether property belongs to partnership or to partner individually.
See Davis v Davis : the mere fact that the firm’s business was conducted on property insured by one partner did not make it partnership property;
Murtagh v Costello: even if property which was purchased out of partnership assets was not used for carrying out the partnership business, such business was partnership property. See section 23 PA as well as Wray v Wray and Ponnukon v Jebaratnam for principles on Partnership Property.
S.24 on conversion into personal estate of land held as partnership property – unless there is agreement to the contrary, property of partnership has to be sold on dissolution.

36. Partnership property: ss 22, 23, 24
See case of Mat Shah bin Mohamed & Anor v Foo Say Meng & Ors on conversion of partnership property
Generally speaking, whether or not a property is partnership property or a property deemed to be partnership property depends on the INTENTION of the PARTNERS which had to be determined on each individual case.

37. Shares in partnership and assignment
Share of a partner is defines as his proportional division of the joint assets after their realization and conversion into money and after payment and discharge of the joint debts and liabilities: Garbett v Veale
Whether a partner can dispose of his share to another person depends on the construction of the partnership deed.
Unless there is express provision in the deed a partner cannot transfer all his rights to another person so as to entitle that person all the rights of a partner without the unanimous consent of all partners.

38. Shares in partnership and assignment
However, PA allows partner to assign his share in the assets and profits according to s,33(1 of PA;
The rights of an assignee is limited and he is not entitled to act as a partner. Cannot interfere in the management of the business and cannot object to payments made to partners and employees managing the firm. See Garwood’s Trust Paynter v Paynter.
Assignee only entitled to his share of partnership and to call for an account as from the date of dissolution: See Watts v Driscoll and s.33(2) of PA for rights of assignee.

39. Dissolution of partnership: ss34-37
Partnership comes to an end when it is dissolved
Various circumstances in which dissolution occurs and this effects :
Partners themselves
Third parties dealing with them
Ways in which partnership is dissolved:
By agreement: (i) through expiry of duration of partnership; (ii) through mutual agreement btw partners;
By operation of law: (i) through expiry of fixed term as per s.34(1)(a); (ii) termination of single venture/undertaking, s.3(1)(b); (iii) for partnership of undefined duration, when partner gives notice to the other partner of his intention to end the partnership, s.34(1)(c). See also Sukhinderjit Singh Muker v Arumugam Deva Rajah

40. Dissolution of partnership
Ways in which partnership dissolved (cont’d)
3. by death or bankruptcy (unless otherwise agreed btw partners. S.35(1) PA. See Lee Choo Yam Holdings Sdn Bhd & Ors v Khoo Yoke Wah & Ors
4. By charging on shares, s.35(2) PA and Brown, Janson & Co. v Hutchinson & Co. [1895]
5. By supervening illegality, s.36 PA and R v Kupfer [1915]

41. Dissolution of partnership
6. By court order, s.37 PA on application by a partner i.e. court decrees the dissolution of partnership in any of the following cases:
insanity of partner, s.37(a) PA;
permanent incapacity of any partner to perform his duties, s.37(b) PA;
conduct calculated to prejudicially affect the carrying on of the business, s.37(c) PA. See Carmichael v Evans [1904] , Clifford v Timms [1908]; J.M.M. Lewis & Ors v W.E. Balasingam [1970].
willful and persistent breach of partnership agreement (by any partner other than the applicant) e.g. partner refuses to keep accounts;
when the business of the partnership can only be carried on at a loss;
where, in the opinion of the court, it is just and equitable to dissolve the partnership. E.g. in Re Yenidje Tobacco Co. Ltd [1916] where there were 2 partners in partnership and they reached a deadlock, the partnership was dissolved by court order.

42. Dissolution of partnership: technical vs general
“.. as a matter of law, a change in the composition of a partnership results in a
dissolution of the existing firm and the creation of a new firm, in such a case the
new firm will usually take on the assets and liabilities of the old without any break in the continuity of the business. This is often referred to as a technical’dissolution and is usually, but not always, the result of agreement.
In contrast, the expression of ‘general’ dissolution is used to denote a dissolution involving a full scale winding up, which may well be brought about at the instance of one partner, against the wishes of the others.”
Source: Lindley & Banks on Partnership
(17th Ed) at page 695

43. Dissolution of partnership: technical vs general
In Sukhinderjit Singh Muker v Arumugam Deva Rajah [1998] 2 MLJ 117 Arifin Jaka J held, on the facts of the case, that the dissolution of the firm was a ‘general’ dissolution and not a technical’ dissolution because the plaintiff had made his intention clear to dissolve the partnership and that he had failed to prove that there was an implied agreement that the partnership could not be dissolved by notice given by the plaintiff. Had the defendant succeeded in proving that fact, the dissolution would only have been a ‘technical’ dissolution.

44. Notice of dissolution, s.39 PA
Notice must be given to ALL customers of partnership. If not given, customers are entitled to treat all the former members as continuing to be members
Section 39 PA: Any partner may publicly notify the dissolution of partnership and may require other partner(s) to concur (on whatever proper acts to be done).
Public notice may be given by advertisement in local press, gazette or by a circular letter.
For old customers and clients advertisement in a gazette alone is NOT sufficient notice. Express notice required to be given to them e.g. circular letter (Barfoot v Goodall)

45. Continuation of authority of partners
After dissolution of partnership, authority of partners remains only for matters dealing with the winding up of the partnership and to complete “unfinished transactions”:
S.40 PA
Chartered bank v Yong Chan[1974]
Chia Foon Tau & Anor (suing as the executrix of the estate of Chong Tzu Chieh, deceased), upon dissolution of partnership due to death of partner, the surviving partner is allowed to use the name of partnership, in the absence of agreement to the contrary , and where the usage of the firm’s name does not jeopardize interests of the estate or cause a diminution of the value of the assets of the firm. – See also s.44 PA

46. Settlement of accounts after dissolution
According to s.41 PA, upon dissolution of partnership every partner is entitled to:
have the property of the partnership applied in payment of the debts and liabilities of the firm, and
have surplus assets after payment of the debts distributed among the partners.
S.46 PA lays down Rules for dissolution of partnership assets on final settlement of accounts .
See also case Ho Kam Fan v Fam Sin Nin [1998]