VIC Partnership Dispute - Conflict of Interest?

[jane111]

I started up a market with a friend one year ago. We are 50/50 partners with no partnership agreement drawn up. The market is on one Sunday a month, during the day. I approached my business partner 4 weeks ago and asked if she wanted to start up night markets in a different location. Being on a Saturday night once a month (a different weekend to our market). She initially said yes, then later that day changed her mind and said she was fine with me going ahead with the night market without her. I plan on running them with my boyfriend. Now she has come back and said that she feels it is a conflict of interest and doesn't want me to do them. Legally under commercial law, where do I stand?

 

[Sophea]

Hi Jane111,

Firstly, in the absence of an agreement, it would be up to a court to decide whether your relationship is one of partners or not. Assuming you are though, the law imposes upon partners fiduciary obligations toward each other and specifically 'duties of loyalty'. This means a partner cannot:

1. engage in an undisclosed conflict of duty: that is, the partner could not act in circumstances in which:
   • it has a conflict between its duty to one partner and its duty to another third party; or
   • the person's duty to the partner conflicts with the person's own interests; and
2. make a profit for themselves: that is, the partner cannot make a profit for themselves out of an opportunity that came to them as a partner.

A person who owes a fiduciary duty can only act in these circumstances with the fully informed consent of their partners.

A fiduciary’s liability arises even if the person to whom the duty is owed was unlikely or even unable to have made a profit from an opportunity exploited by the fiduciary: Warman International Ltd v Dwyer (1995) 182 CLR 544 at at 558.

Therefore, you have done the right thing in seeking consent from your partner to undertake this other venture - making it available to the partnership to exploit. However if your partner's consent is not obtained, you cannot act in conflict with the best interests of the partnership. You need to establish whether the night market would in fact conflict with the interests of the day market.

This is quite a complex area of law and whether or not you can take up the night market opportunity by yourself or with another business associate will depend on many factors. As a starting point i would sit down and really nut out the realities of this other night market venture to determine how it will conflict with the existing day market and determine why she is against it. Perhaps there will be room for negotiation. If you can get her consent you can go ahead.