Thursday, 4 August 2011

UK: England and Wales: section 38 of the Partnership Act 1890

Section 38 of the Partnership Act (1890) provides that after a partnership's dissolution, the authority of each partner to bind firm continues so far as is necessary to wind up the partnership's affairs and to complete transactions begun but unfinished at the date of the dissolution. Earlier this week, in Boghani v Nathoo [2011] EWHC 2101 (Ch), the High Court set out various propositions concerning the operation and effect of Section 38 (at para. [37]):
  • The obligations of partners to third parties continue notwithstanding the dissolution of the partnership.
  • In England, if not in Scotland, the satisfaction of those obligations by performance, release or novation or the payment of damages will not usually involve reliance on the terms of s.38.
  • S.38 does not entitle the surviving partners to engage in new bargains or contracts so as to bind a deceased or former partner.
  • Even in relation to transactions, not being new bargains or contracts, begun but unfinished at the time of dissolution s.38 applies only if and to the extent that the completion of such transactions is necessary to wind up the affairs of the partnership.
  • S.38, if applicable, confers a power; it does not impose any additional duty.

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