A recent High Court decision concerning whether a man and woman who planned to open a hotel in France were in partnership illustrates the wisdom of formally documenting agreements to set up in business and of taking appropriate legal advice.
In June 2018, after they had discussed developing a property in France into a boutique hotel, the woman decided to invest. They met in Dorset the following month to discuss the project. It was agreed at the meeting that he would be paid £2,000 per month, which was described as a salary. They did not enter into a written agreement, and the only record was a photograph one of them had taken of a whiteboard used during the meeting.
The project was not a success and in February 2022 she told him that she wished to exit it. Their relationship broke down and on 15 December 2022 she sent him an email proposing that the property be sold and that any remaining funds after costs were paid be split equally between them. She later brought proceedings seeking to terminate their agreement. She contended that a partnership had commenced at the meeting in Dorset. He, however, claimed that he was to be an employee until funding from third-party investors was secured.
In the Court’s view, the agreement at the meeting was clearly for a partnership. They had agreed a share of the profits. Although she had invested the funds, he had purchased a BMW for the business and was it was intended that he would contribute a sizeable collection of art and furniture. The partnership also kept joint records.
There were a number of factors that pointed away from the existence of an employment relationship. He was not subject to any control. He had the vision for the property, which he could and did change frequently and unilaterally. He engaged contractors, arranged utilities and liaised with potential investors. The fact that he was paid regular sums described as salary was not conclusive: in all other respects he looked like a partner.
The Court disagreed with the woman’s characterisation of the partnership as being a partnership at will that she could leave at any time. However, it was obvious that the venture had failed: the capital had been spent and the property was nowhere near to being a hotel or attracting external investment. She was therefore entitled to, and did, terminate the partnership by her email in December 2022.
The Court made orders that there had been a partnership, that the woman had terminated it on 15 December 2022, and that the affairs of the partnership were to be wound up and all necessary accounts and inquiries taken and made up.
