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. 192-219) 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.

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.
3
 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:
(i) agency: every partner is an agent for the firm and his
other partners, s.7.
(ii) 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);
(iii) 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. (1931-32)
 15

Contents in partnership agreement: important

areas

 Contribution to capital  Remuneration for

 Distribution of profits
acting in the
partnership business
 Apportionment of
 Introduction of new
losses partner
 Management of the  Change in the nature
business 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.
o Contribution on equal basis;
o Distribution of profits on equal basis;
o Apportionment of losses on equal basis
o Management of business to be undertaken by every partner
o No remuneration for acting in the partnership business
o Introduction of new partner with the consent of all partners
o Change in the nature partnership business with the consent of
majority partners
o 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

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.
18
 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.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 1975. 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:
1. By agreement: (i) through expiry of duration of
partnership; (ii) through mutual agreement btw partners;
2. 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:
(i) insanity of partner, s.37(a) PA;
(ii) permanent incapacity of any partner to perform his duties, s.37(b)
PA;
(iii) 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].
(iv) willful and persistent breach of partnership agreement (by any
partner other than the applicant) e.g. partner refuses to keep
accounts;
(v) when the business of the partnership can only be carried on at a
loss;
(vi) 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

1. 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]
2. 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:
1. have the property of the partnership applied in
payment of the debts and liabilities of the firm,
and
2. 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]