01/07/2013

The Supreme Court recently dismissed a claim by one party that he had entered into a partnership with another person pursuant to an “oral partnership agreement” and that this agreement effectively forgave a substantial debt owed by the person to the “business partner”.

The case of Daoud v Boutros involved a number of claims between the parties, one of which being whether an oral partnership agreement existed.

The case again confirms that all business relationships need to be properly documented as the surrounding circumstances and an oral agreement may not be sufficient to enforce such an arrangement.

The Judge indicated that he didn’t think either party’s evidence was entirely acceptable so he focussed on the so-called “contemporaneous material” to work out what really happened.  

The contemporaneous material consisted of loan and mortgage documents evidencing a loan from one party to the other while the allegation of the existence of a partnership was based on an oral agreement alleged by the “borrowing partner”.

The Judge referred to a 2009 decision which set out a number of factors the courts should consider in determining whether an agreement between parties can consist of written and oral terms.  The factors include:

•    when there is a written agreement that on its face appears to be a complete contract, it may be inferred that the written contract contains all the contractual terms;

•    it is open to a party to try and prove there were additional terms not contained in the written contract, conversely the other party may try to prove the written contract contains all the terms that were agreed; and

•    where a contract is partly written and partly oral, the terms of the contract are to be ascertained from a review of the surrounding circumstances as an aid to finding what the terms of the contract are.

The Judge found that the evidence in this case did not support a separate oral partnership agreement in addition to the written loan documents and therefore dismissed the allegation that the parties entered an oral partnership agreement.  The Judge stated:

“In my view, the evidence does not establish that there was an oral agreement that Mr Boutros’ debt to Mr Daoud would be forgiven.  Such an oral agreement would be contrary to the suite of contemporaneous documents in evidence….. the better view is that the 2008 loan and mortgage documents were a re-financing ….”

and

“I do not make a finding there was no business relationship …. there clearly was some kind of joint enterprise …. both had clearly expended efforts to that end …. I am of the view that there was no partnership between the parties.”

If the claimant had a written partnership agreement drawn up and executed he may have avoided the expense of court proceedings.

If you have any questions in relation to this article or need a written partnership agreement, joint venture agreement or other business documents, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.

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