Partnership

Partners bound by acts done on behalf of firm
Section 6 of the Partnership Act provides:
An act or instrument relating to the business of the firm, and done or executed in the firm name, or in any other manner, showing an intention to bind the firm by any person thereto authorised, whether a partner or not, is binding on the firm and all the partners: provided that this section shall not affect any general rule of law relating to the execution of deeds or negotiable instruments.
This section effectively means that acts done with the intention of binding the firm will bind the firm. However, partners will not be bound where any act was done or document signed, even if related to the business and done for its benefit, if it is done by a person in his or her own right and not on behalf of the firm. The question will always be: did the person act privately or for the firm? This provision is complimented by the following two sections.

Partners using the credit of the firm for private purposes
Section 7 of the Partnership Act provides:
Where one partner pledges the credit of the firm for a purpose apparently not connected with the firm’s ordinary course of business, the firm is not bound unless he is in fact specially authorised by the other partners; but this section does not affect any personal liability incurred by an individual partner.
This means that partners using credit of the firm for private purposes will not bind the partnership unless they are specifically authorised by the other partners. The limits of being ‘specially authorised’ are unclear however there is some authority to suggest that if an outsider had reasonable grounds to suppose that there was authority (Kendal v Wood (1870) LR 6 Ex 243 per Blackburn J) or a representation or some form of acquiescence (London Chartered Bank of Australia v Kerr (1878) 4 VLR (L) 330) existed, this would be enough to satisfy the section.
Notice of an agreement that a firm will not be bound by the act of a partner
Section 8 of the Partnership Act provides:
If it has been agreed between the partners that any restrictions shall be placed upon the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement.
Therefore partners who have restrictions placed upon their powers to bind the firm will not bind it when they exceed these restrictions if the other party to the transaction knows of the restrictions. This applies where the partner’s power has been restricted or terminated. In such cases notice of the restriction or termination must be given to the outsider. See Bowman v Bacon (1897) 18 LR (NSW) 12.

Liability in contract, tort and crime
Debts and obligations
Section 9 of the Partnership Act provides:
Every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in a due course of administration for such debts and obligations so far as they remain unsatisfied, but subject to the prior payment of his separate debts.
Joint liability means that, although liability is incurred by two or more persons, there is only one right of action against them. So, once judgment is entered against a partner or partners, further legal action cannot be brought against the other partners who could have been jointly liable had they been included in the action.
Liability of the firm for wrongs
Section 10 of the Partnership Act provides:
Where by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of the partner's co-partners, loss or injury is caused to any person not being a partner of the firm, or any penalty is incurred, the firm is liable therefore to the same extent as the partner so acting or omitting to act.
Further section 12 of the Partnership Act sets out that the liability for wrongs is joint and several. In this regard the Act provides:
Every partner is liable jointly with the partner's co-partners and also severally for everything for which the firm while the partner is a partner therein becomes liable under either of the last two preceding sections.
Thus liability for both civil wrongs and crime is covered by these sections. In order for liability to be established it must be shown that the wrongful act or omission of the partner:
 occurred in the ordinary course of the business of the firm or

 was authorised by the co-partners.

In relation to the meaning of the ordinary course of business of the firm see Polkinghorne v Holland (1934) 51 CLR 143. Importantly in Walker and others v European Electronics Pty Ltd (1990-1991) 23 NSWLR 1, Gleeson CJ stated at 10:
...the essential task remains one of identifying the nature and scope of the business of the firm and relating the wrongful act to the business so identified....The nature and scope of the business of a firm will fall to be determined by reference to the agreement between the partners.
Mahoney JA in agreeing with Gleeson CJ added at 11:
In considering whether the act of a person is done in the ordinary course of the business of a firm of which he is a member, it is, of course, necessary to determine what the business of the firm is. Sometimes the business of the firm is defined or described in the partnership agreement. In such a case, the court must decide, as a question of fact, whether the act in question can be and was done in the course of carrying it on. This may be decided by reference to specific evidence that an act of the kind in question is apt to be, or was, done in carrying on such a business. Or, in some cases, the court may be in a position to take notice of the fact that a business of the kind in question is apt to be carried on by doing acts of the relevant kind.
In other cases, where the business is not defined or described in the partnership agreement, it is necessary to decide, on the facts of the case, what the business is and what acts are apt to be done in carrying it on.

In National Commercial Banking Corporation of Australia Ltd v Batty (1986) 60 ALJR 379, the respondent was a partner with a person named Davis in an account­ancy practice in Katoomba. Davis was also a director of a company called Bushby Pty Ltd, and he deposited two cheques belonging to the company (Bushby) in the accountancy’s practice trust account. Davis later withdrew the proceeds from these cheques and misappropriated the whole amount. The appellant bank was held liable to the third party in conversion for collecting the proceeds for Davis and, on appeal, the appellant argued that s 10 of the New South Wales Partnership Act made the respondent liable. Davis in the meantime had died.

The High Court, by majority, held that the deposit of the cheques in the partnership account was not a transaction in the ordinary course of the firm’s business and was not within the actual or apparent authority of Davis. This meant that the respondent was not liable for Davis’s wrongful act.
In finding that Davis, by depositing the cheques, was not acting in the ordinary course of the business of the firm, support was found in the fact that the cheques were made out to the company, not the firm, and that the cheques were substantially larger than any others which had been paid into the trust account: (at 381 per Gibbs J and 391 per Brennan J). Further, unlike other cheques paid into the account, these were payable to a third party, were not deposited through the usual trust account deposit book, and were not deposited by the secretary who normally carried out the banking. Deane J suggested at 398 that an examination of the actual practices of the particular firm was required.
According to Brennan J, each partner is an agent only in and for the business of the firm. Acts beyond that business will not bind the firm. His Honour stated at 388:
If a partner’s act is not in fact ‘for the purpose of the business of the partnership’ the firm is bound by his act only if it is ‘an act for carrying on in the usual way business of the kind carried on by the firm’ and the absence of authority is unknown to the person with whom he is dealing. Acts done in the usual way of carrying on a partnership business are usually done for the purpose of the business and unless the person with whom the partner is dealing knows that the act is not done for that purpose, he may assume that it is.
On the issue of whether Davis acted ‘with the authority of his co-partner’ in depositing the cheques to the credit of the trust account, the court found that Davis had no wider authority than the ordinary authority he had as a partner. The High Court noted that sec 10 of the New South Wales Act referred to ‘authority’ whereas sec 11 of that Act, in contrast, referred to ‘apparent authority’. This prompted Gibbs CJ to comment (at 381):
The contrast between the two sections might suggest that sec 10 refers only to actual authority (including, no doubt, implied authority), and does not refer to apparent (or ostensible) authority. However, it has been said that ‘the liability of partners which is declared by these sections is merely a branch of the law of principal and agent’. Under the law of agency, as commonly stated, the principal is liable for a tort committed by his agent acting within the scope of his authority, whether the authority be actual or apparent ... In many cases, actual and apparent authority will ‘co-exist and coincide’.
Here it was held that the apparent authority of Davis vis-a-vis the bank did not extend to doing anything outside the ordinary course of the business of the firm. When the account was opened up it could not be said that Davis was authorised to deposit cheques which neither he nor Mr Batty had any right or authority to deposit.
The fact that the firm has not received any benefit from the wrongful act does not excuse it. Further it does it matter that the transaction was not in itself wrongful if it is to be carried out in a wrongful manner.
See also Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 6) [2007] NSWSC 124; 63 ACSR 1 at [1159].

Liability for misapplication of money or property received by the firm
Section 11 of the Partnership Act provides:
In the following cases, namely:
(a) Where one partner acting within the scope of his apparent authority receives the money or property of a third person and misapplies it; and
(b) When a firm in the course of its business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm;
the firm is liable to make good the loss.
This section needs to be read with the succeeding section of the Act.
Subsection (a) relates to instances where the partner is acting within his or her apparent authority and actually misapplies the money or property. In Mann v Hulme (1961) 35 ALJR 153, M and R were solicitors in partnership. Mr and Mrs H were clients of the firm and dealt with R. R prepared their wills and discussed the possibility of making investments on their behalf. R told Mr and Mrs H that the firm had clients engaged in the building trade who wanted to borrow money on second mortgage from time to time, and he offered to invest their money in this way. In return, Mr and Mrs H would receive interest. R assured them that their investment would be quite safe.
Mr and Mrs H sued M and R on the basis that the money received by R was misapplied. There is no question that at the time the money was received by R, he carried on practice as a solicitor in partnership with M. However, M neither took part in nor had any knowledge of these dealings. On appeal to the High Court, the court was asked to consider the matter in the light of the Partnership Act and the material issue was whether R was acting within the scope of his apparent authority as a partner in the firm in his dealings with the respondent and her husband.
Their Honours said at 156:
But even if no mention was made of ‘second mortgages’ there can be no doubt that the moneys were placed in Richardson’s [R’s] hands for the purpose of making specific investments from time to time upon securities prepared by him, and such a finding would be sufficient to bring the case within sec 11 [of the New South Wales Partnership Act].
Therefore M was liable for the money.
Subsection (b) relates to cases whereby money or property is received by the firm in the course of its business and this money or property is misapplied by one of the partners. In Rhodes v Moules [1895] 1 Ch 236, Rew was a solicitor in partnership with Messrs Hughes and Masterman. Mr Rhodes was a client of the firm and the firm had acted for him on previous occasions. Mr Rhodes wanted to borrow some money on a property and asked Rew as his solicitor to assist him to effect the mortgage. Some clients of the firm, the Moules, were willing to lend the money. As security for the mortgage, Mr Rhodes gave Rew some share certificates and these were misappropriated by Rew.
One of the questions facing the court was whether the other two partners were liable for Rew’s actions. The court held that the partners were jointly and severally liable for the value of the shares under both subsection (a) and (b). According to Lindley LJ at 249:
The only conclusion at which I can arrive is that the plaintiff’s certificates came into Rew’s hands when acting within the scope of his apparent authority. The case is thus brought within the first half of s 11 of the Partnership Act, 1890. But it is also, I think, brought within the second half.
The judge said that ‘the inference that the plaintiff’s certificates were received by the firm in the course of its business’ was justified.
In contrast in National Commercial Banking Corporation of Australia Ltd v Batty (1986) 60 ALJR 379 mentioned at [3.21], the High Court found that the firm was not liable for the wrongful actions of the partner because they were not within the scope of the partner’s apparent authority and because the firm had not received the money in the ordinary course of the firm’s business. Thus both subsections (a) and (b) were not satisfied.

Incoming and outgoing partners
Section 17 of the Partnership Act provides:
(1) A person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he became a partner.
(2) A partner who retires from a firm does not thereby cease to be liable for partnership debt and obligation incurred before his retirement.
(3) A retiring partner may be discharged from any existing liabilities by an agreement to that effect between himself and the members of the firm as newly constituted and the creditors, and this agreement may be either expressed or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted.

Basically, a partner will be only liable for debts and obligations incurred while he or she is a partner. Retiring partners will be liable for debts and obligations incurred while they were partners, subject to being discharged by the new partners and creditors. However consent of the incoming partners or of creditors to the debts will often be drawn as an inference from the parties conduct. See Ex parte Peel (1802) 6 Ves 602; 31 ER 1216.

Special provisions dealing with ‘continuing guarantees’ given by partners are also dealt with in the Act – section 18.
When a partner retires from a firm he or she should place an advertisement in the Gazette, a Sydney newspaper, and a local newspaper published in the area where the firm carries on business, so as to give notice to outsiders. Failure to do so could give rights to outsiders on the basis that the person still appears to be a partner; that is, on the basis that he or she is an apparent partner.

Liability of non-partners - by ‘holding out’ or estoppel
Section 14 of the Partnership Act provides:
(1) Every one who by words spoken or written, or by conduct represents himself, or who knowingly suffers himself to be represented as a partner in a particular firm, is liable as a partner to any one who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made.
(2) Provided that where after a partner's death the partnership business is continued in the old firm-name, the continued use of that name or of the deceased partner's name as part thereof shall not of itself make his executors or administrators' estate or effects liable for any partnership debts contracted after his death.
This section makes it clear that it is the person who is represented as a partner or who represents himself or herself as a partner that is liable to outsiders who have on the faith of the representation given credit to the firm. Such a person might be described as a ‘partner by estoppel’. Estoppel means that if any person expressly or by conduct represents to another that a certain situation exists and the other person acts to his or her own detriment, then the person who made the representation will not be allowed to deny the truth of what he or she said.
In Re Buchanan & Co (1876) 4 QSCR 202, it was held that the section places liability upon the person who represents themselves, or allows themselves to be represented, as a partner — not upon the actual partners.
Thus to incur liability under this section three tests need to be fulfilled:

• 
  A representation must be made that the person is a partner. This can be done by the person themselves or by any of the partners generally. It will be a question of fact whether a representation has been made. Further the representation need not have been made directly to the person who acts upon it. In Martyn v Gray (1863) 143 ER 667 it was said by Williams J at 674:
  

If the defendant informs AB that he is a partner in a commercial establishment and AB informs the plaintiff, and the plaintiff, believing the defendant to be a member of the firm, supplies goods to them, the defendant is liable for the price.

 Credit must be provided by a third party who believes the representation to be true: see Martyn v Gray (1863) 143 ER 667. Credit would include the receiving of property or the incurring of an obligation.
 The third party must rely upon the representation: see Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397.

Admissions and representations by partners
Section 15 of the Partnership Act provides:
An admission or representation made by a partner concerning the partnership affairs, and in the ordinary course of business, is evidence against the firm.
The firm will be responsible in the circumstances contemplated by the section for statements of a partner when they are made by the partner who is acting within their actual or apparent authority.

Relationship of partners to each other
The fiduciary relationship between partners
Partners stand in a fiduciary relationship with each other. According to Dixon J in Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 407-408:
The relation between partners is, of course, fiduciary. Indeed, it had been said that a stronger case of fiduciary relationship cannot be conceived than that which exists between partners. ‘Their mutual confidence is the life-blood of the concern. It is because they trust one another that they are partners in the first instance; it is because they continue to trust one another that the business goes on’ (per Bacon VC in Helmore v Smith (1886) 35 Ch D 436 at 444. The relation is based, in some degree, upon a mutual confidence that the partners will engage in some particular kind of activity or transaction for the joint advantage only. In some degree it arises from the very fact that they are associated for such a common end and are agents for one another in its accomplishment ... The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm. Once the subject matter of the mutual confidence is so determined, it ought not to be difficult to apply the clear and inflexible doctrines which determine the accountability of fiduciaries for gains obtained in dealings with third parties.
The law presumes that a partnership is based upon the mutual trust of the partners and that these partners and on the confidence of each partner in the integrity of every other partner. It has been said that the utmost good faith is fundamental to this relationship. See Cameron v Murdoch (1986) 63 ALR 575 at 587.
The fiduciary obligations between partners may be varied by an agreement involving full disclosure between the parties. see Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1; Chan v Zacharia (1984) 154 CLR 178. The common law and equitable obligations of partners are incorporated into the partnership legislation by implication. This is so as long as they are not inconsistent with the Partnership Act (sec 46).
The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, which is ascertained both from the express agreement of the parties and from the course of dealing actually pursued by the firm. see Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 407-8 per Dixon J.
Fiduciary obligations regulate the relationship between partners during the business life of the partnership as well as during its dissolution. see Everingham v Everingham (1911) 12 SR (NSW) 5; 28 WN (NSW) 172; Chan v Zacharia (1984) 154 CLR 178.
Fiduciary obligations only cease upon the final settlement of accounts on winding up of the partnership.
The fiduciary relationship between partners does not necessarily commence with the partnership business or a prior agreement and may exist between prospective partners who have embarked upon business together before the precise terms of any partnership agreement have been settled (see United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1) or who have entered into partnership negotiations and embarked upon conduct with a view to forming a partnership: see Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1.
The fiduciary duties which partners owe to each other include:
 to act in good faith and honesty: see Cameron v Murdoch (1986) 63 ALR 575 at 587;

 to provide full accounts of all information and assets in a partner's possession or control which are material to the partnership business;

 to avoid any conflicts of interest;

 to avoid making a personal profit from partnership opportunities and information;

 to account for benefits obtained from partnership business.
The duty to render accounts
A partner must provide true accounts and full information regarding all things affecting the partnership to all other partners or their legal representatives (sec 28). A partner's right to true accounts and full information continues until an end is put to it by a release, by settled accounts or by the lapse of such time as may induce the court to refuse to interfere. see Wilson v Carmichael (1904) 2 CLR 190 at 195.
Where accounts are improperly destroyed by a partner, it is presumed that that partner had an improper purpose. see Gray v Haig (1855) 20 Beav 219; 52 ER.
A partner must disclose partnership opportunities to all other partners or their legal representatives while the partnership is a going concern see Birtchnell v Equity Tnustees, Executors and Agency Co Ltd (1929) 42 CLR 384; Chan v Zacharia (1984) 154 CLR 178) and must disclose any special knowledge about the condition of the partnership when dissolution is contemplated, especially where the partner with special knowledge proposes to buy out another's interest.

Right to inspect books and documents
Partnership books must be kept at the place of business of the partnership, or the principal place if there is more than one and every partner may, when he or she thinks fit, have access to, inspect and copy any of them unless there is an express or implied agreement to the contrary (sec 24(9)).
A partner may appoint an agent to inspect the books on his or her behalf subject to reasonable limitations. see Bevan v Webb [1901] 2 Ch 59. If the appointed agent has personal business interests which are adverse to, or conflict with, those of the partnership business, such an appointment may be objected to by the other partners. see Dadswell v Jacobs (1887) 34 Ch D 278.

Order for production of books
The books of a partnership that are in daily use may be ordered to be produced at the place of business of the partnership if there is a partnership action pending. However where a party cannot be trusted with custody of the books, production of the books in court may be ordered. See Mertens v Haigh (1860) 70 ER 616.
Partnership books and documents may be produced to and inspected by a defendant partner prior to serving his or her defence if the items are in the hands of the plaintiff partner and are necessary for the defendant partner to prepare his or her defence. see Pickering v Rigby (1812) 18 Ves 484; 34 ER 400.