A partnership is a business relationship that is based on trust.

Discuss this statement in light of the

partners’ duties and obligations under the Partnership Act No.16 of 2012.

INTRODUCTION.

According to the Partnership Act No. 16 of 2012, a partnership is a relationship that exists between persons
who carry on business in common with a view to making a profit. 1 Persons who have entered into a
partnership with one another are collectively called a firm.There are three specific elements of this definition
which must be satisfied in order for a partnership to exist i.e. there must be;

 A business;

 Which is carried on by two or more persons in common;

 With a view to profit

Trust on the other hand is defined as a firm belief in the integrity, ability or character of a person or thing. It
can also be defined as the act of placing confidence or reliance in a person or thing to do something or act in a
certain manner.

Within the context of partnerships therefore, the relationship between partners in a partnership is one that is
characterized by each partner placing confidence or reliance in the other partners’ abilityto carry out their
duties and obligations in the manner provided for under the Partnership Act and as agreed between
themselves. Each partner is assumed to be of high integrityand good character.

A high reliance is placed on trust with regards to the relationship between partners due to the nature of their
relationship. The Partnership Act provides that each partner shall be an agent of the partnership for the
purpose of the business of the partnership.2 It further provides that a partnership shall be liable for loss or
injury caused by the wrongful act or omission of a partner to a person who is not a partner, if the partner was
acting in the ordinary course of the business of the partnership; or acting with the authority of the partnership.3

This shows that the acts of a partner can easily affect a partnership and thus trust between partners is an
integral part of their relationship without which a partnership cannot survive.

The importance of trust in a partnership is evidenced by the duties and obligations of partners provided under
the Partnership Act No.16 of 2012which are:

1 Section 2, Partnership Act 2012

2Sec7(3) Partnership Act 2012

3 Sec 21 Partnership Act 2012

1. DUTY OF GOOD FAITH

The Act provides that apartner has a duty to act in good faith towards the partnership and the other partners in
the partnership, in relation to all matters affecting the partnership4.

Good faith is honest intent to act without taking an unfair advantage over another person.

This duty is a continuing duty that arises starting with the formation of the partnership. It continues through
the partnerships ongoing daily operations and ultimately through the partnerships sale and dissolution.
Consequently if parties do not incorporate utmost good faith through an express agreement then law will
imply it.

As agents to each other, partners owe a duty of good faith to each other in relation to all partnership dealings
and transactions this is a fiduciary duty5that forms a cornerstone of partnership law and under it a partner’s
conduct.

Under this duty a partner shall:

 Keep each of the other partners or their legal representatives informed of all matters affecting the
partnership;
 Account to the partnership for any profits or benefits derived by the partner without the consent of the
other partners from any business of the partnership or the use by the partner of the property of the
partnership, the name of the partnership or business connection6;
 Account to the partnership for any profits derived by the partner from a business carried on by the
partner without the consent of the other partners, which competes with and is of the same nature as the
partnership business7.

The duty of good faith can only be achieved when there is trust and it also contributes to the growth of trust
among partners. One can only act in good faith if there is trust between him/her and the other partners in a
partnership and acting in good faith enables the partners to develop a stronger sense of trust amongst them. If
there is no trust among the partners there will always be suspicion of the other partners not acting in good
faith, even when they do so, and this can lead to poor performance of the partnership and eventually
dissolution of the partnership.

2. DUTY OF DISCLOSURE ON FORMING OR JOINING A PARTNERSHIP

Partners have a duty of disclosure on forming or joining a partnership.8 Disclosure is the act of releasing all
relevant information pertaining to the partnership. All partners must disclose to each other fully upon forming
the partnership. Full disclosure is especially important in the following circumstances:

4 Sec 10 Partnership Act 2012

5 A duty based on trust
6 Fiduciary duty not to make secret profits
7 Fiduciary Duty of Loyalty
  When forming a partnership a person must disclose to prospective partners any matters that
may likely influence their decision to form the partnership.

 Before admission, an existing partner must disclose to a prospective partner anything

known to them that would reasonably be expected to influence their decision to join.

 Before entering into a partnership, a prospective partner must disclose all matters that may
influence the decision of the existing partners to admit them.

 Partners also have a duty to disclose anything involving a potential conflict of

interest where they could personally benefit from a transaction with the
partnership.

Partners involved in partnership affairs are expected to comply with a duty of disclosure. In order to make
informed decisions, participating partners should make full disclosures about reasonably known risks and
potential benefits of a particular action. These disclosures relate to all partnership activities, including
partnership assets, operations, finances, debt, and contracts. As part of their duty of disclosure, relevant
partners should disclose any conflict of interest they may have relative to any partnership dealings or
decisions.

In order for the duty of disclosure to be discharged the following conditions must be met; first, the disclosure
must be on all material facts; Secondly, the disclosure must be made in any event as soon as reasonable;
Thirdly, the disclosure must be made to all the partners.

This duty is also based on trust as each partner trusts that the other partners or prospective partners will
disclose all relevant information and do so in an honest manner. The partners trust the other partners will not
hide from them any relevant information likely to affect the partnership.

The duty of disclosure is very important because one can only make a sound decision after having all relevant
information, in this case, regarding the partnership. Failure to disclose any relevant information to a co-partner
before the formation of the partnership can easily lead to dissolution of a partnership. An example in this case
can be if one is suffering from a terminal illness that may require him or her to be hospitalized for a long
period of time, failure to disclose this can be very tragic to a partnership. In this case a partnership may be
affected due to absenteeism, which will translate to loss of business hours among other loses. The absence of a
partner particularly long-term absence cannot be ignored for it goes to the very root of a partnership. Such
disclosure will only happen when there is trust. It may be that the partner in question did not trust the other
partners with such a sensitive issue for fear of embarrassment. This may be true but not healthy to the
partnership.

Another example is the failure to disclose information like creditworthiness of an individual in the case of in
coming partner or the stability of the partnership can not only be dangerous but also prejudicial to the parties
in a partnership.

8 Sec 11 Partnership Act 2012

However, this duty may be waived in whole or part by agreement between prospective partners, or between
the prospective partner and existing partners

3. DUTY TO KEEP ACCOUNTING AND PARTNERSHIP RECORDS.

The act provides that every partner shall have the responsibility to ensure that accounting records of
transactions affecting the partnership in which he is involved are properly kept and the records are on request
made available to the partnership or to any partner. A partner shall have the duty to cooperate with the person
responsible for keeping records of the partnership or drawing up the accounts of the partnership on behalf of
the partnership9.

There needs to be trust among partners in order for them to keep proper accounting records as well as avail the
same for inspection. This keeping of proper accounting records and availing them for inspection helps
promote trust among the partners in their daily dealings.

As partners records are one of the tools through which the stability of the business is gauged. Without roper
records decisions cannot be accurate and the economic stability of the partnership is jeopardized.

4. DUTY TO SHARE PROFITS AND LOSSES

The act furtherprovides that a partner is entitled to share equally in the profits of the partnership and is liable
to contribute equally towards the losses incurred by the partnership in equal proportions10.

A partner is not entitled to a share in the profits of the partnership and is not liable to contribute to any losses
incurred by the partnership before he became a partner.

The estate of a partner who dies is liable for debts and obligations incurred by the partnership after becoming
partner.

This duty requires trust among partners so as to ensure that each partner contributes willingly towards losses
incurred by the partnership and also to ensure proper and fair sharing of profits.

5. DUTY IN MANAGEMENT OF PARTNERSHIP BUSINESS AND AFFAIRS.

Section 15 of the Act provides that a partner is entitled to participate part in the management of the business
of the partnership. Differences arising out of an ordinary matter connected with the business of the partnership
shall be decided by the vote of a majority of the partners.

Differences arising out of other matters connected with the business of the partnership shall be decided by the
unanimous decision of all the partners.

9 Sec 16 Partnership Act 2012

10 Sec 12 Partnership Act 2012
Here the trust that exists between partners is that when voting on differences arising out of matters connected
with the business of the partnership every partner shall be included and their view taken into consideration and
that any decisions made shall be for the best interest partnership.

6. DUTY ON REMUNERATION, EXPENSES AND PERSONAL LIABILITIES.

The act provides, under section 13, that a partner is not entitled to remuneration from the partnership for
acting in the business of the partnership. It further provides that:

 A partnership shall indemnify a partner in respect of payments made by the partner in the ordinary and
proper conduct of the partnership business or in connection with anything done for the preservation of
the partnership business or property or to discharge the whole or a part of the partner’s personal
liability for a partnership obligation11.
 An indemnity under subsection (2) shall not affect any claim that the partnership or another partner
may have against the partner.
 Where the partnership fails to indemnify a partner under subsection (2) the partner shall be entitled to
contribution from any partnership on the same basis as if the amount unpaid were a debt for which
each of the partners was a co-guarantor in the same proportion as they would be liable to bear any
partnership loss.

Partners under a partnership require trust amongst themselves when exercising their duties with regards to
issues surrounding partners’ remuneration, partnership expenses and personalliability. It is expected that there
is honesty when exercising this duties such as the duty to indemnify a partner under subsection (2).

7. DUTY TO EXERCISE DILIGENCE

Each partner in a partnership shall have responsibility for the business of the partnership12.

A partner has a duty of diligence. Diligence refers to the attention and care legally expected of a person.
Partners are expected to;

1. Engage in the business of the partnership.

2. Exercise skill and expertise in the business of the partnership.

3. Promote the interest of the partnership.

This duty exists end is ensured solely on the basis of trust among the partners.

RELEVANT CASE LAW

11 Sec 13(2) Partnership Act 2012

12Sec 7(1) Partnership Act 2012
Clifford vs. Timms13

In this case the partners carried on business as dentists. The Articles of partnership contained a provision that
if any partner should be guilty of professional misconduct, the other party should be at liberty to give notice in
writing terminating the partnership. The plaintiff as a director in the American company of some other dental
surgeons was party to publications by that company which amounted to self- puffing advertisement and which
were a disparagement of other dentists and their mode of operations. Among other things they alleged that
only their instruments were always sterilized before being used and that they had engaged a trained lady nurse
to be present at all dental operations so as to prevent any scandal arising between an operator and a lady
patient. The other partners issued a notice to the plaintiff to terminate the partnership. The plaintiff filed the
action for a declaration that the notice was ineffective. The court held that these publications contained
elements of disgraceful connotations in a professional respect. Therefore the notice was effective and the
partnership duly terminated and there was no evidence of bad faith on the part of the defendants.

It is clear from the case that there was a breach of the trust that existed between the partners, through the
plaintiffs’ misconduct, which lead to the termination of the partnership. The plaintiff failed to exercise his
duty to act in good faith and thus lost the other partners trust.

Blisset vs. Daniel14

Blisset was a partner in a firm where a proposal was mooted to appoint one of the partner’s son as a co-
manager of the firm. Blisset objected to such an appointment. The partner whose son was nominated
complained to the other partners behind Blisset’s back and persuaded them to sign and serve a notice of
expulsion to him. This was in keeping with a partnership clause that empowered a majority of the partners to
expel any partner without citing any reason. Blisset contested the validity of the expulsion.

It was held that the plaintiff’s expulsion was set aside. The court held that it was up to the partners and the
majority to decide what was good for the firm but the partners are required to act in good faith when making
use of such powers.

Once again it is clear from this case that the courts upheld the trust that partners have towards each other to
carry out their duties in good faith. The breach of their duty was a subsequent breach of trust. The other
partner went behind Blisset’s back meaning he was dishonest in exercising his duty, which led to the dispute
in court.

Bentley vs. Caraven15

In this case Craven was a partner in a firm in the business of sugar. When prices in the market
were particularly low, he bought a huge stock of sugar with his own personal money and stored
the same in his own godowns. Soon, the firm needed to purchase sugar for its business and

13 [1907]2 Ch.236
14 [1853] 90 RR 454
15[1853] 18 BEAV 75
entrusted the job to purchase the sugar to Craven. Craven immediately supplied the required
+quantity of sugar from his own stock at the prevailing market rates. Craven made a good amount
of profit and later, the partners of the firm came to know about this. They demanded the
difference amount of Craven’s cost price and selling price to the firm be paid to the firm. Craven
contended that there was no deception and he had used only his personal resources and if he
wanted he could have sold the sugar to other people at the same market rate.
It was held that the firm was entitled to an account for the profit made by Craven as well as to be paid the
profit Craven earned in the said transaction. This is so because all partners must work for the greatest common
good and no partner is entitled to personal profits from the transactions of the firm. Further more, a partner is
duty bound to give account of all the things that concern and affect the business of the firm.

Based on the aforementioned cases, the courts can be seen to uphold these duties of partners that are based on
trust.

CONCLUSION

In conclusion therefore, it is quite clear that the duties and obligations provided for under the Partnership Act
No. 16 of 2012 are exercised on a basis of trust among partners and if breached subsequently lead to luck of
trust among partners and can lead to the dissolution of a partnership.

The fabric of any partnership is trustand without trust apartnership is doomed to fail.