The most common types of business partnership disputes generally relate to the existence of a partnership or the dissolution of a partnership. This article will consider what a partnership is, these two types of disputes and how they can arise.


What is a partnership?

In simple terms a partnership is a relationship that exists between persons carrying on a business in common with a view of profit. A partnership can be formed by two or more individuals, trusts or companies. The partners of a partnership share the control and management of the business to ensure consistency in the direction of the business. A partnership is not a separate entity, and all  the partners are personally liable for the debts of the partnership’s business.

Partnerships are generally governed by partnership agreements and are regulated by the partnership legislation of the relevant jurisdiction. The fact that a partnership relationship is not recorded in a written agreement does not mean that a partnership does not exist. It can be in writing, oral, partly written and partly oral or even implied from the parties’ conduct.1


When does a partnership exist?

Not all business relationships are partnerships. For a partnership to exist the parties to the business relationship will:

    1. have mutual agency;
    2. share in business’ profits;
    3. share in the business’ losses;
    4. make common capital contributions; and
    5. not be able to assign the partnership relationship.2

A case example of a dispute over the existence of a partnership is Chickabo Pty Ltd & Ors v Zphere Pty Ltd & Ors (2019) 57 VR 406 (Chickabo). In Chickabo, the plaintiffs were corporate partners of a partnership and individuals who were directors of those corporate partners. The individuals were known as ‘principals’ of the partnership. The defendants included Zphere Pty Ltd which was a corporate partner of the partnership, Mr Graco who was the sole director of Zphere and principal of the partnership. The partnership had an understanding where the principals would get themselves elected to boards of the partnership’s clients so as to direct business to the partnership. Mr Graco then retained a board position on one of the partnership’s clients.

On the sale of the client’s shares, Mr Graco received a profit which he diverted to himself and a third-party corporation that was not part of the partnership. The plaintiffs alleged that Mr Graco had a partnership relationship with the partnership and owed the partnership a fiduciary duty not to profit from the relationship with its clients. Mr Graco argued that he was not personally a partner but Zphere Pty Ltd was. The court found that Mr Graco was a partner because he was bound by the terms of the partnership deed, notwithstanding that he had only signed the deed in his capacity as director of Zphere Pty Ltd.


Dissolution of Partnership

A partnership can come to an end in a number of ways, namely: 

  1. the expiry of an agreed fixed term;
  2. the ending of the agreed business enterprise the partnership was carrying on; 
  3. the activities of the partnership becoming illegal;
  4. a partner becoming bankrupt or dying;
  5. the court dissolving the partnership, for example due to a partner’s: 
    • mental incapacity;
    • permanent incapacity to perform their duties in the partnership; 
    • conduct prejudicially affecting the carrying on of the business; or
    • wilful or persistent breach of the partnership agreement; 
  1. a partner giving notice that they wish to leave;
  2. whenever there is a change in the people (or entities) making up the partnership.

A case example of a dispute over the dissolution of a partnership is Lastavec v Effective Security Pty Ltd [2022] QCA 171 (Lastavec). In Lastavec the parties were in a partnership to conduct two land development projects. The partners each made contributions to one of the projects which was subsequently profitable. The applicants then refused to make any contributions towards the second project until the respondents had provided the partnership records which were solely in the respondents’ possession. The respondents also held the funds of the partnership. The second project subsequently suffered a loss, the partners fell into a dispute and dissolved the partnership.

On an application to the Queensland District Court (QDC) regarding the apportionment of the profits and losses, the QDC judge ordered that the applicants contribute to the loss suffered in the second project. The applicants appealed the QDC judge’s decision to the Queensland Supreme Court of Appeal (QCA). The QCA found that the QDC judge had erred in accepting the respondents’ argument to apportion the loss on the second project without apportioning the profits on the first project. The QCA then allowed the applicants’ appeal and ordered they be paid their capital contributions and one half of the partnership profits.


What does this mean for your business?

It is important to obtain legal advice when it comes to any business relationship as well as the best way to exit a partnership because the parties will more likely avoid the costs and time spent on litigation. Our astute commercial litigation team tailors its legal approach to suit the company size, advising clients on how to avoid litigation, as well as managing disputes when they arise.

See here for the ways we assist clients like you. You can also contact us for a no cost appraisal of your needs.


 1 Fazio v Fazio [2012] WASCA 72 at [53], [189]-[191]

 2Yacoub v Cmr of Taxation (2012) 292 ALR 128


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Accordingly, the information on this site is provided with the understanding that the authors and publishers are not providing legal advice. As such, it should not be used as a substitute for consultation with professional legal advisers. Before making any decision or taking any action, you should consult with a professional lawyer from Rouse Lawyers.

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