Shantilal Khimji Shah v Thakorbhaai Nanalal Patel & 2 others [1986] KECA 76 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that a majority of partners can dissolve an indefinite-term partnership by notice, ending the remaining partner's hope of continuing alone.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the partnership created by the deed of February 15, 1978 was a partnership at will
- 2.Whether the Patels' notices were effective as notices of dissolution under section 36(1)(c) of the Partnership Act
- 3.If so, whether the partnership stood dissolved under section 36(1)(c) of the Act
- 4.Alternatively, whether the notices were effective as notices of retirement from the partnership
- 5.If so, whether the notices terminated the partnership between the Patels and Shah
- 6.If so, whether Shah had the right under the deed to carry on the business as continuing partner
Key legal issues
#Whether the partnership was a partnership at will
By the majority, the partnership was for an undefined time with no agreement to the contrary in the deed excluding dissolution by notice, so the statutory presumption of partnership at will was not displaced; the dissent took the opposite view, holding clauses 2, 3 and 21 to 24 struck at the heart of a partnership at will.
The court examined the deed as a whole. Clause 2 opened with 'subject to the provisions hereinafter contained' and clause 27 allowed determination by any means not previously provided for, so dissolution by notice fell within clause 27. Provisions for death, retirement and bankruptcy did not infect or cut down clause 27. The majority applied English authorities on construing whether an agreement excludes dissolution by notice.
Whether the Patels' notices were notices of dissolution or retirement
The notices were notices of dissolution under section 36(1)(c) of the Partnership Act; the word 'dissolve' was used deliberately and the notices did not comply with clause 21's twelve-month requirement for retirement notices.
The court gave the words of the notices their literal meaning without special interpretation. Had retirement been intended, the notices would have referred to clause 21 and explained why a shorter notice was being given. Construing them as dissolution notices produced a result consistent with the fair meaning of the agreement and the parties' contemplation when executing it.
Whether Shah could carry on the partnership business alone
He could not. A partnership is the relation subsisting between persons carrying on a business in common with a view of profit; with three of four partners having dissolved the partnership, Shah alone could not carry on a partnership, though he might carry on business under the same name if the agreement so provided.
Section 3(1) of the Partnership Act defines partnership as a relation between persons, so a sole person cannot possess that quality of relationship. Shah might register as a sole proprietor under the Business Names Act, but the partnership itself had to be dissolved for him to start a business of his own. The deed here did not provide for continuation by one partner after dissolution.
Legal principles established
#- Where a partnership is entered into for an undefined time, any partner may dissolve it by notice under section 36(1)(c) of the Partnership Act unless the partnership deed contains an agreement to the contrary.
- A notice by three of four partners to the fourth dissolving the partnership is a means of determining the partnership covered by a clause providing for determination by any means not otherwise provided for.
- The power in section 30(1) of the Partnership Act is a power to dissolve the firm, not merely to retire from it, notwithstanding the marginal note.
- A partnership cannot be carried on by one person; section 3(1) of the Partnership Act requires the relation between persons carrying on a business in common with a view of profit.
- Where two sections of an Act deal with the same matter, one unqualified and one qualified, effect must be given to the section containing the qualification.
Court orders
#- 1.The appeal is dismissed with costs
The bench
#Judges wrote separately. A dissent does not bind; a concurrence may narrow the ratio.
Wrote the judgment
Wrote the leading judgment. Held that although the partnership was for an undefined time, there was no agreement to the contrary preventing dissolution by notice; a notice by three of the four partners dissolving the partnership was a means of determination covered by clause 27 of the deed; the notices were notices of dissolution, not retirement; the partnership was dissolved under section 36(1)(c) of the Partnership Act. Would dismiss the appeal with costs.
So I would hold that notice by three of the partners to the fourth dissolving the partnership is one of the means not provided for by the agreement before its clause 27 but then covered by it in that clause.p. 7
Wrote the judgment
Wrote a separate concurring judgment reaching the same result. Held the notices were not notices of retirement because they referred to dissolution and did not invoke clause 21's one-year notice requirement; the partnership was for an undefined period and dissolved by the notices under section 36(1)(c) of the Partnership Act. Would dismiss the appeal with costs.
I am not convinced that the meaning of dissolution therein used could mean retirement. If the notices were meant for retirement, they would have referred to clause 21 of the deed with a possible explanation as to why a shorter notice, less than one year, was necessary.p. 11
Wrote the judgment
Dissented. Held that clauses 2, 3 and 21 to 24 of the deed deprived the partners of their rights under a partnership at will, so it was not a partnership at will; clauses 23 and 24 ousted section 36(1)(c); the notices were effective as notices of retirement and Shah had the right under clause 24 to continue the business and buy out the Patels. Would have allowed the appeal, set aside the High Court orders and entered decree in accordance with the alternative award.
It is clear then that the appellant is right in all he says. I would therefore allow the appeal, set aside the orders of the High Court, and substitute therefor the following order.p. 17
- On appeal from
- High Court of Kenya at Nairobi
- Misc Civil Cause No 355 of 1980
- Jurisdiction invoked
- Appeal from the ruling and order of the High Court, with leave obtained under section 22(3) of the Arbitration Act
Relief refused
#Setting aside the High Court opinion and substituting a declaration that the Patels retired rather than dissolved the partnership, so that clause 7 of the arbitrator's award would be the basis of the decree
The majority held the notices were notices of dissolution under section 36(1)(c), the partnership was dissolved, and Shah was not entitled to carry on the business alone
Costs
The appeal is dismissed with costs (to the respondents)
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
Gachuhi Ag JA has reached the same result, so the order of the Court is that this appeal is dismissed with costs. Orders accordingly.
So I would hold that notice by three of the partners to the fourth dissolving the partnership is one of the means not provided for by the agreement before its clause 27 but then covered by it in that clause.
The marginal note to this section refers to “Retirement from partnership at will” as it does for section 26 of the English Act but it is mis-leading. The power given is to dissolve the firm, not to retire from it.
Here, the Patels and Shah entered into a partnership where no fixed term had been agreed upon (that is the phrase in section 30) or for an undefined time (that comes from section 36) so any partner could give notice to the other or others of his intention to dissolve it
A partnership is the relation which subsists between persons carrying on a business in common with a view of profit.
Issues in the judgment
#The dissenting judgment of Platt Ag JA is printed three times, in full triplicate, in the judgment text.
The dissent's concluding sentence is truncated mid-clause in the first two occurrences ('I would grant the appellant') and only completes in the final repetition ('I would grant the appellant his costs, both here and below.').
Contradictory dating in the dissent: Mr Bakrania's letter emphasising notice of dissolution is dated April 3, 1979, though it is described as following the April 26-27, 1979 events.
Kneller JA cites 'section 22(3) Arbitration Act (cap 29)' although the Arbitration Act is elsewhere in the judgment cited as cap 49 and cap 29 is the Partnership Act.
The court itself flags an unresolved discrepancy about the age of the firm: the partnership deed envisages a start on July 1, 1977 while the business is said to date from 1925.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Shantilal Khimji Shah v Thakorbhaai Nanalal Patel & 2 others [1986] KECA 76 (KLR)", Case Analysis (1986). Civil Appeal No 2 of 1984. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1986/76/eng@1986-07-09
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.