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Court of AppealDismissedCivil Appeal No 2 of 1984

Shantilal Khimji Shah v Thakorbhaai Nanalal Patel & 2 others [1986] KECA 76 (KLR)

Court of Appeal
9 July 1986
17,031 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~68 min to read original · ~4 min brief

The bottom line

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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

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Executive summary

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Four accountancy partners (three Patels and Shah) signed a partnership deed on February 15, 1978 carrying on Mehta Patel and Company in Nairobi. In April 1979 the three Patels each gave notice under section 36(1)(c) of the Partnership Act (cap 29) of intention to dissolve the partnership with effect from April 30, 1979. Shah treated the notices as notices of retirement, accepted them, and asserted a right to carry on the business alone under clauses 23 and 24 of the deed. The dispute was referred by consent to an arbitrator, Mr S K Guram, who stated a special case with alternative questions of dissolution or retirement and published his award on July 25, 1980. Masime J, by ruling of November 8, 1982, held the partnership was at will, the notices were effective notices of dissolution, and the partnership stood dissolved under section 36(1)(c), with the award to be treated as a decree. Shah appealed to the Court of Appeal after obtaining leave. Kneller JA and Gachuhi Ag JA (majority) held there was no agreement to the contrary in the deed excluding dissolution by notice; clause 27, which covered determination by any means not otherwise provided for, caught dissolution by notice, and the notices were notices of dissolution, not retirement, since Shah could not carry on a partnership alone. The appeal was dismissed with costs. Platt Ag JA dissented, holding clauses 2, 3 and 21 to 24 ousted section 36(1)(c), the notices were retirement notices (irregularities waived by Shah), and Shah could buy out the Patels and continue the business; he would have allowed the appeal.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether the partnership created by the deed of February 15, 1978 was a partnership at will
  2. 2.Whether the Patels' notices were effective as notices of dissolution under section 36(1)(c) of the Partnership Act
  3. 3.If so, whether the partnership stood dissolved under section 36(1)(c) of the Act
  4. 4.Alternatively, whether the notices were effective as notices of retirement from the partnership
  5. 5.If so, whether the notices terminated the partnership between the Patels and Shah
  6. 6.If so, whether Shah had the right under the deed to carry on the business as continuing partner

Key legal issues

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01

Whether the partnership was a partnership at will

Holding

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.

Reasoning

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.

p. 7
02

Whether the Patels' notices were notices of dissolution or retirement

Holding

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.

Reasoning

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.

p. 7
03

Whether Shah could carry on the partnership business alone

Holding

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.

Reasoning

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.

p. 11

Legal principles established

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  • 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

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  1. 1.The appeal is dismissed with costs

The bench

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Judges wrote separately. A dissent does not bind; a concurrence may narrow the ratio.

majority

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
concurring

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
HP
dissenting

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

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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

p. 7

Costs

The appeal is dismissed with costs (to the respondents)

Quotable passages

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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.
p. 7Final orders - dismissal of 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. 7Construction of determination clause in partnership deed
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.
p. 7Construction of section 30(1) Partnership Act
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
p. 7Application of sections 30 and 36(1)(c) of the Partnership Act
A partnership is the relation which subsists between persons carrying on a business in common with a view of profit.
p. 5Definition of partnership

Issues in the judgment

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minor

The dissenting judgment of Platt Ag JA is printed three times, in full triplicate, in the judgment text.

minor

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.').

minor

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.

minor

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.

minor

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

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Practical implications

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Frequently asked questions

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Cite this brief

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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.