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198 Chancery Procedure Amendment Bill.-Limited Liability Partnerships. CHANCERY PROCEDURE AMEND. “ I will consider them in their order. Ist. MENT BILL.
Is it desirable to prohibit by law persons from entering into partnership, and to prohibit them
and others from dealing together, on the terms By this Bill, which was introduced by the that the liability of one or more or all of the Solicitor-General on the 10th July, to “Amend partners should be limited ? It will perhaps the Course of Procedure in the High Court of
be said, this is not the question, as the law at Chancery,” it is proposed that in all cases in it has not, but practically it has, by its rule
present has no such prohibition. Theoretically which the Court of Chancery has jurisdiction that one partner has presumably authority to to entertain an application for an injunction bind another to an unlimited extent, and that against a breach of any covenant, contract or
such presumption cannot be rebutted in trading agreement, or against the commission or con- persons dealt with that the terms of partnership
partnerships, except by proof of notice to the tinuance of any wrongful act, or for the spe- are to the contrary. If there were no such cific performance of any covenant, contract, or rule, and the actual authority given by one agreement, it shall be lawful for the same partner to another had to be looked to, there Court to award damages to the party injured, and trading with limited liability. The ques
would be no difficulty in forming partnerships, either in addition to or in substitution for tion therefore is, assuming the general rule resuch injunction or specific performance, and ferred to to be expedient, ought it to be so such damages may be assessed in such man- qualified as not to prohibit such partnerships ner as the Court shall direct, and the
and trading? It will be observed from this given by the 15 & 16 Vict. c. 86, s. 63, of mak. posed that any compulsion should be put on
statement of the question, that it is not proing general rules and orders, shall extend and any person; only that a restriction should not apply to the mode in which such damages are
No persons would be compelled to be assessed, and the course of procedure of to enter into such partnerships,-no one to the Court in relation thereto.
deal with them, but all would be left free to do so or not, as suited their own judgments.
That this would be so as to the partners is LIMITED LIABILITY PARTNER- obvious; they would be undoubted volunteers.
If those who dealt with them knew the terms SHIPS.
of partnership, they would be so likewise ; if
they did not know, and did not inquire, it MR. BRAMWELL'S OPINION.
would be because they were content not to Having in a recent Number (p. 157, ante), know: if misinformed, 'it would be assuredly given the Commissioners' Report against the to know, viz., the partners, or had been fray
because they had not inquired of those certain proposed alteration of the Law with regard to dulently informed by them; a most improbable limited liability partnerships, we now lay be occurrence,-if legislated for, to be so penally: fore our readers the opinion of Mr. Bramwell, and moreover one which never need happen, if one of the Commissioners, who has come to an
there were a registry. opposite conclusion. He says
“The question therefore is as I have stated,
is it expedient that such partnerships should “The difference of opinion which at present be prohibited ? Ought A. and B. to be proexists and appears likely to continue between hibited from entering into partnership
on terms the majority of the Commissioners and myself, limiting the loss of B., or of both ? 'Ought C. with relation to any change in the Law of Part- to be prevented from dealing with them on nership, has made me think in desirable to state those terms? The burden of proving this is the conclusions at which I have arrived on that on those who assert it. This is not a technical subject, and the reasons which have led me to view. It is desirable in all cases, and in this I them; as well for the purpose of submitting believe most important, to see on whom is the them to the other Commissioners, as for that burden of proof. For even if we had none of of putting them on record for what they are the valuable evidence which has been given to worth.
us as to the mischiefs of the present restriction, “ We are directed to inquire, whether it to my mind it would have required an exceedwill be expedient that any and what alteration ingly strong case to have established the proshall be made in the Law of Partnership, so priety of the prohibition in question. If ever far as relates to the limited or unlimited lia- there was a rule established by reason, aubility of partners.'
thority, and experience, it is that the interest "This, like all questions involving change in of a community is best consulted by leaving to the law, may be divided into two. "Ist. What its members, as far as possible, the unrestrained ought to be the law, as an abstract question, and unfettered exercise of their own talents unaffected by existing laws, habits, usages, and and industry. Our modern legislation bas the inconvenience of change generally? 2nd. been founded on this principle, with the sancHow far do these considerations affect the ab- tion of the immense majority of those whose stract question ?
opinions are of any value. The restraint on Limited Liability Partnerships--Mr. Bramwell's Opinion.
199 limited liability partnerships offends against "I protest entirely against entertaining the this rule; and I frankly own, that, whatever first and second of these objections, even supweight is due to the evidence given us I attach posing them to exist. I will not say the State more value to the operation of that general has no right, because to that expression no deprinciple, the extent of the effects of which no terminate idea is annexed; but I do say
that. one can foretell, and which has done so much it ought not to interfere to prevent, for their where permitted to act. If A. and B. are de- own sakes, any persons from entering into any sirous of entering into such a partnership, and engagement they may be willing to form. There C. of dealing with them on its terms, why may be real or apparent exceptions to this rule, should either of them be called on to give a as where the thing agreed to be done is malum reason for leave to do so,-beyond this, that in se; but for the purpose of protecting the they deem it for their interest, and that it is parties themselves, I say the State ought not their pleasure to do it, and their will? Who to interfere, but to leave every man to the most is likely to know better than themselves what zealous and best informed of all protectors, will be to their interests ? Let the objector himself. make out his objection, and show why they “Before considering the objections raised, it should be prohibited.
may be remarked that the prophecy of mis“But besides the considerations arising from chief is discredited by the experience of other general principles, a great quantity of most countries, where the law, which is to cause valuable evidence has been furnished to us, them here, is to be found ; and no reason is which, as far as it goes to show the probable given why that law which does not cause them advantages of such partnerships in this country, elsewhere, should cause them here: is indeed speculative, but which, so far as it “ Let us, however, consider the suggested shows the mischiefs of their prohibition, is mischiefs. It is said, 1st, the partners would most positive and certain. We bave also the enter into rash and hazardous speculations, result of the experience of other countries, and lose their money. What does this mean? comprising the most commercial communities Enterprises in which the probability of loss is in the world, and the testimony is uniform as great ? _But in one sense this is unobjection-to the utility of such partnerships. I say uni- able. Every prudent man constantly engages form, because no one says that, on the whole, in such. A man pays 1l. to receive 1,0001., if they are found to be objectionable in the his house should be burned. Is it more than countries where they exist, with, I think, one 1,000 to 1 that his ll. is lost without any reexception; and for the opinion so expressed turn—that his house is not burned, and that no reason is given, while it is abundantly con- he had better have kept his 1!. in his pocket.. tradicted by others more conversant with the But does any one call him rash in such an outfacts upon which it is professedly founded.
lay? Is it rash or wrong to venture 1,000l. on “As I cannot, however, do justice to the an enterprise which in nine times in ten fails, benefits shown to have accrued from such if, on the tenth, 20,0001. are the return for the partnerships elsewhere, and expected to result 1,000l.? Is it rash in A., B., C., and so on from them here, and to the mischiefs experi- to the first ten letters of the alphabet, that each enced from our prohibition of them, without should do this? If so, make a partnership of great length, I must content myself with this the same number; let the whole ten do the general reference to the evidence.
same thing ten times; by the hypothesis each “What, on the other hand, is the character will have gained 1,000l.; and if it was
ght in of the testimony the other way? Certain in- the whole to do so, how was it wrong or rash jurious consequences are foretold on the appli- in each? A most hazardous may still be a cation of the law of limited liability to this most wise speculation. The objection, therecountry. Of course this kind of evidence is fore, that great and excessive risks would be necessarily speculative and theoretical. The run is worthless, unless it means they would witnesses for the most part are gentlemen en- be unwisely run; and this it is said they would gaged in commerce. I do not say that to their be-that business would be carried on reckdisparagement. They are persons of the lessly and unwisely. Why should this happen? highest position, and I have unqualified con- The partner whose liability is limited has his fidence in their integrity; but it is reasonable subscribed capital to lose. But it is said that to suppose that their judgments may be some- he might be willing to risk it where success what influenced by their natural satisfaction would return it twenty times, and failure would with things as they find them, and a wish they simply lose him its amount, and make his. should not be interfered with. It must not be partners insolvent. But I say this again supforgotten that there are names of practical men poses either that success is probable, or that it as of great weight on the other side ; and the is proportionately improbable. In the latter large majority of non-practical witnesses, the case it is unwise; in the former it is wise and indifferent bystanders, writers of renown, and right. I do not think that any person would others, are in favour of the suggested change. enter into a speculation which he thinks un
“The objections are, that mischiefs would wise, merely because he knows the extent of arise from such partnerships,
his loss ;-why he should venture a given sum "1st. To the members;
of money on disadvantageous terms, merely * 2nd. To those who deal with them; because his loss is fixed; terms which, taking " 3rd. To the public; i. e., all persons not the probabilities of success and failure, and the included in the first and second classes.
Limited Liability Partnerships-Mr. Bramwell's Opinion. probable amounts of both, are not an equiva- jured. That, however, is an injury which no lent. I can understand why he should refuse law, no restriction, will prevent, but which he to risk his all on the wisest speculation; viz., could much better guard against if he could because no possible gain could equal the pos- refer to some registry, learn the nature of A.'s sible loss. A. B. has an estate of 1,0001. a trade, that he traded partly in commandite cayear. There is every reason to believe that he pital, and to what extent, instead of, as at prehas a coal mine, which, on an outlay of one sent, being ignorant of what are A.'s business 10,0001., would return as much annually. and means, and whether the appearances he would be most prudent in him to subscribe makes is with his own or borrowed capital. 1,000l. to the 10,000l., if his liability stopped But then it is said that on the insolvency of there; but if, as a consequence of that, he the firm the limited partner would be preferred, might possibly lose his estate, I can readily in frand of the general creditor ; that accounts understand that he would be right not to and alleged profits and losses could be falsely do it.
stated. Now every one who has any experi“ This shows, it may be said, that there may ence in courts of justice knows that frauds are be more speculative enterprises with a system never long from their origin to their maturity, of limited liability than at present. I admit it, and it would be always easy to detect any sudand see no subject of regret in that. The un- den change in the general aspect of the affairs limited partner has his capital, if he has any, of the partnership." But why should the un the use of his partner's, and his own character limited partner be guilty of this supposed and position at stake to induce him to be care- fraud ? Would his inclination er opportunity ful. I cannot see that limited liability is likely be greater than under other forms of partnerto lead to unwise speculations; and I think it ship? He always has himself, often wife
, chilno objection that it may lead to hazardous, dren, relatives, to protect, quite as near to him provided they are prudent speculations. But as his limited partner. His regard, therefore, I desire further to say, it does not follow that for the person to be served would be no greater such speculations would be multiplied. At than at present. Then would the opportunity present they exist, with this difference,--they be greater? Are imaginary profits invented are now constantly in the hands of rash and now in cases of money borrowed ? Do we find dishonest persons, with no capital or charac- that to avoid a charge of fraudulent preference ter, instead of being in those of prudent and such profits are imagined so as to warrant the reputable, companies--partnerships-got up, repayment? I believe not; and it is to be renot for the purpose of the speculation, but for membered that such a proceeding, if both parthe profit of the getting up and of the working ties were privy to it, would be an indictable of the partnership.
offence; and certainly it might be most power“ 2nd. The next class that it is supposed to fully checked by a provision that it should be necessary to take care of is the creditor ; he make the limited a general partner. While on who deals with the partnership. In the first this point I cannot help saying, that, as has place the creditor would prefer to decide for been observed, there are dishonest creditors as himself, instead of being taken care of. But well as debtors, and that limiting the liability if it be thought necessary to protect him in of the latter might tend to the amendment of spite of himself, it must be asked, how is he the former, and prevent the giving of credit
, to suffer ? What mischief is he to be pre- which is at present given in the belief that vented from running into? Loss from the in- shareholders unacquainted with the mischief solvency of the partnership? But where is going on will ultimately have to pay for it there greater chance of insolvency than in un- " 3rd. The public are to be taken care of. limited partnerships, if there is no greater It is said that the competition with unlimited chance of unwise trading? It may be said liability partnerships would be unfair on the there is in this way: A. and B. are partners ; latter. This is a strange argument to be used A. has nothing to lose; B. subscribes 1,000l.; by those who say that limited liability partnerthey risk it in an enterprise where it is an ships would never be trusted; but I own I caneven chance whether they lose 10,0001. or gain not understand it. The interest of the public 20,0001.; an obviously good speculation. It is in unrestricted competition. If limited liathey win, they gain 9,5001
. each; if they lose, bility partnerships turn out to be more profitB. Ioses 1,000l., H. nothing, and the creditors able than others, or can profitably sell at lower 9,000l. Here is obviously a prudent specula- rates than others, they are preferable to those tion for A. and B., though most injurious to others, and the sooner all are on the best footthe creditors. The case is an extreme one,ing the better. But the truth is, the objection and to the last degree improbable; and, after is imaginary; the experience of other countries all, how is the creditor a sufferer, and what show that there will be some of each, as there just ground of complaint has he? He knots are now some private and some joint-stock the nature of the speculation, or he does not; banks. Unlimited liability partnerships will if he does, he charges accordingly, and he be- be adopted by those who prefer them, and for comes, in truth, a sharer in the risk. If he purposes for which they are preferable. The does not know its nature, and if he has not in- limited will be resorted to on-similar considequired, it is his own fault; if he has, and has rations. If no one finds them preferable for been misinformed, he is defrauded. In the any purposes, they will not be used, and the last case alone can he be justly said to be in- permission to form them will be nagatory. I
Limited Liability Partnerships-Mr. Bramwell's Opinion.
201 do not believe that that will be the result, but of future earnings; the more capital the more if it were to be anticipated, the experiment gains by the whole body of the community; should be tried. Because, although I fully the more ways of employing capital, the more feel the inconvenience of changes in the law, 1 ways of making those gains ; consequently, I think it due, in the present case, to the autho- should say we never can have too much of it. rity of those who advocate it, that an opportu- And so far from thinking the objection under nity should be afforded of forming these part- consideration well founded, the direct opposite nerships; it being merely an additional power of it seems to me to be the truth. I am into that possessed already, and one which no- clined to think that limited liability partnerships body need exercise.
are more desirable in a country where profits " But to be consistent, if there is anything are low than where they are high; as where in the first and second objections, why do not profits are low less inducement exists for similar considerations cause an interference saving, and the consequent accumulation and with private partnerships with unlimited liabi- augumentation of the wealth of the community, lity ? Admitting that limited liability will lead than where they are high. The argument is, to more, it cannot be denied that unlimited we do well enough, and so need not do better. will and does lead to come mischiefs. Why “There is another objection, which appeals are not such partnerships superintended ? It more to the ear than the understanding. may be said, they cannot be reached; they have When stated with precision it seems to be this: De favoar to ask. That could easily be ma- that there is a natural justice in, or connexion naged. Prohibit all trade and partnerships between, buying goods and paying for them. except by license, say, from the Board of I ask, why should a man who buys goods pay Trade, and then their proposed proceedings for them? Either he has undertaken to do so, could be reviewed; or tax every proposing or he has not. If he has, make him liable to trader, as a preliminary to his right of trading; the extent of his undertaking ; to his last or punish him if he failed. No doubt, rash shilling and acre, if he has pledged them. But speculation would thereby be somewhat if he has not, if he has not undertaken at all, checked. It will be said, the public would not or if he has limited his liability, I not only see endure it. I agree. Nor if it had once en- no reason why he should be called on to do joyed the right of forming partnerships with that which he has not engaged to do, but I limited liability, would it tolerate that right think it a positive dishonesty to attempt to being denied it. The reason for not interfer- make him.' I take the case of a dormant ing in such cases is, that it is felt that persons partner as an example : A. has entered into a judge best for themselves. The State, after partnership with B.; he has bargained that all, acts by its officers; and they cannot know B. shall not pledge his credit ; he has agreed each man's private interest as well as he does to find certain capital; he has performed his himself; while the interference with private engagement faithfully. C. has sold goods to affairs in cases of proposed partnerships with B.; B.'s fraud, folly, or misfortune makes him limited liability, and the belief in its utility, insolvent. The existence of the partnership is exist merely from the opportunity which the discovered, and A. is called on by C., who had law at present affords of exercising it.
never heard of himn, and never trusted him, to “As to the third objection, it is one which pay. This claim is, in my judgment, inconin principle is opposed to all the great corpora-sistent with common sense and common tions chartered by the Crown or Parliament. honesty. They are, on the principle contended for, all Again, it is said, that as profits would have exceptional and wrong. The liability is limited, gone to pay a debt, he who takes them ought to and they preclude the possibility of competition pay it. If he did not undertake to do so, why by private persons. No reason is given for should he use a profit on a transaction with A. permitting them, that I know, except that to make good the loss on another with B.? without them works executed by them would “I do not therefore concur in the objections not be executed at all, while other enterprises which have been urged. No doubt some misare; which is in effect to say that how done is chiefs may ensue, for it would indeed be a immaterial, provided they are done somehow. wonderful law that was unattended with any ;
*There is another argument against our but they must be contrasted with the advanadopting limited liability partnerships — that tages on the other side. These I have rethey may do well in a new or poor country, frained from giving, as they are to be found but not in a rich or old one like this. It is stated in the evidence. said, we have abundance of capital; witness "If I had to choose between the proved and the price of land and of the public funds. It anticipated advantages and disadvantages of has been well asked, when did this become the the prohibition or permission of limited liability case in England? At what period did the de- partnerships, I should unhesitatingly decide in sirableness of limited liability partnerships favour of the permission ; but I repeat, I think cease with us? I ask, what is the meaning of no one can predict the amount of benefit to be the expression 'we bave abundant capital ?' derived from leaving persons to act for themDoes it mean we have too much, and should selves; and it is to the value of that principle, be better off by destroying part, or exactly and to the probable results of its application, enough, so that we should be worse off if one that I attach the greatest importance. I think, pound richer or poorer ? Capital is the means therefore, the permission to form partnerships
Limited Liability Partnerships--Mr. Bramwell's Opinion. with limited liability desirable intrinsically. It interest. If A. owes me 1,0001., and is worth remains to be considered whether there is any- 1,0001, he is not in a very distinguishable thing in our laws, habits, or usages to make it situation from that of being my partner, our otherwise.
assets being 1,0031., and our capital also being "I think not. It is impossible for any law 1,0001., which I have furnished, and for which to be in a worse condition than our law of part- he has to account. The only difference I can nership. From the liability of the private part- perceive as regards the trader and his creditors nership to the last acre and shilling, up to the is, that the lender of money is better off than entire absence of all liability in the members he would have been as a limited partner. I of some incorporated companies, there is every say, therefore, that our present law not only variety of liability, on the extent and nature of presents no objection to the proposed alterawhich no one, not even the most accomplished tion, but sanctions it by its own theory, in lawyer, can speak with certainty. No doubt some cases by its practice, and only not in all, we are not called on to consider the general by the difficulty which exists of giving actual law of partnership; but it is important to refer notice to the parties dealing with the partnerto its condition to ascertain how far the pro- ship of the limited authority of each partner ; posed change would be a change—how far a -and that it urgently requires alteration, to novelty to the public, and what present mis- obviate the mischiefs and injustice which at chief it might prevent. Now the law does at present exists, and to prevent those cruel cases this moment permit partnerships with limited we see in practice, as, for instance, where unliability. Many insurance companies, though wary people holding a few shares in a bank unchartered, are carried on in that principle ; have been wholly ruined by its stoppage, and and I conceive all other trades or businesses reduced from plenty to want. theoretically may be so conducted. In point “All laws are objectionable which are of of law, I believe that A. and B. might buy 100 such a character, that those to be affected by quarters of corn of C., on the terms that C. them cannot be taught them; they are producshould be paid by A. alone, or out of an ascer- tive of surprises and hardships. This is the tained fund only. Practically this cannot be case with a part of our law of partnership. done, because it is impossible, in every case of Anything more opposite to what would be dealing, to bring home to the creditor the know- supposed to be the law, than the case of ledge of the partnership terms. The present Waugh v. Carver, I cannot conceive. Two proposal, therefore, is only to allow that prac- separate firms, trading at different places, bartically, which may be done theoretically in all gained privately to share a part of the profits of cases, and is done in many. Again, creditors the businesses which each separately carried under the present system often find another on. On the insolvency of one firm, the other species of limited liability, as, where directors was held liable for its debts, on the ground of joint-stock companies act ultra vires, for in- that profits are the creditors' fund. I believe stance, trade on credit without authority, the the decision was erroneous in point of law; shareholders are held not liable ; cases which but it has been too much followed to be not would be diminished if a more wholesome law reversed, unless by the legislature. How it is of partnership existed. Railway companies, consistent with the rule, that partnership quesand others incorporated in like way, are part- tions are questions of authority, it is difficult nerships with limited liability.
to see. A reasonable law based on an obvious "There is another argument which is sug- principle is easily incorporated into the general gested by the present state of the law. Money knowledge of the people ; but such a law as may be lent at any rate of interest, without a this, at the utmost, only inspires some with a partnership being constituted; say 50 per cent. vague alarm, that somehow a man may be a per annum. It may, I suppose, be lent at that partner without knowing or intending it; while rate, with a stipulation that it shall be reduced many, for want of as much knowledge as that, in proportion as the profits of the business it have most unhappily so found themselves. was used in, fall; or, as I infer from Lord “I have made these observations in case my Eldon's dictum in exparte Hamper, it may be opinion should be desired in addition to the lent to be paid for by a sum proportioned to weighty authorities we have collected and rethe profits, though not by a portion of them, ferred to ; and I wish to say, most sincerely, and'in neither case is a partnership formed that I believe I have added nothing to what thereby. If, however, this is so, why should has been said and better said before, while I not a portion of the profits be allowable? It have omitted so much, that I fear, in an atmay be said, a jury would find such an ar- tempt to be brief, I may have prejudiced the rangement to be colourable, and to be a part- case so ably made by others. 'If I am only nership; but they ought not to do so if they required to give a verdict, I do it unhesitatingly regarded their oaths, for by the hypothesis it in favour of a change in the law. The evidence is not colourable, which, I apprehend, is the and reasoning in its favour, in my judgment, case only where one thing is said and another infinitely preponderate; and the case of its meant. What is the difference between such advocates is conclusively made out. cases and a partnership? It is said that in a “I recommend, therefore, partnership all the partners jointly are owners Ist. That persons be allowed, as of right, to of the partnership assets, their goods and debts; form partnerships limiting the liability of but so in effect is a lender to the extent of his one or more or all of the partners.