In the hypothetical barbershop scenario, X and Y are co-owners of a barbershop in Ottawa and have entered into a formal agreement regarding how the barbershop will be run. The question is whether or not this agreement constitutes a partnership. Partnerships are defined in the B.C Partnership Act Section 2 as “…the relation which subsists between persons carrying on business in common with a view of profit”. A.E Le Page ltd. v. Kamex Developments cemented the principle established in the Partnership Act that the mere fact that a property is owned in common and that profits are derived therefrom does not of itself constitute the co-owners as partners. In this regard, the fact that X and Y are co-owners of a barbershop which aims to generate profit is not determinative of the question of whether or not a partnership exists between X and Y. Employing the court’s reasoning in A.E Le Page, it is necessary to look at the intentions of the parties as disclosed by the facts of the case.
In the hypothetical example, does the agreement by X and Y establish the requisite intention to to carry on a business in common with a view to a profit? In order to answer this question, it is essential to consider how the term ‘in common’ has been interpreted by the courts in the context of partnership agreements. In A.E Le Page, the court considered the fact that the co-owners clearly intended to ‘maintain their rights as co-owners’ and ‘wished to identify and keep separate their respective beneficial interests for tax purposes’ to ultimately conclude that a partnership did not exist. When analyzing the agreement between X and Y, the bulk of the provisions are dedicated to delineating the rights and responsibilities of X and Y as separate individuals and isolating their respective interests to particular days of the week only.
While the court in Volzke notes that nothing in the Partnership Act speaks to control and that control has nothing to do with the existence or non existence of a partnership, based on the reading of the agreement it seems clear that the decision to assign each individual exclusive control of the business during certain days of the week has less to do with control and more to do with establishing a clear understanding that each individual would only be entitled to the profit generated on those days of the week. This serves to support the notion that the individuals are not jointly sharing in the profit generated by a single business. This is further demonstrated by the fact that the two individuals are free to engage in various activities such as advertising to increase the profitability of their respective business operations, not the profitability of the business as a whole. The fact that each individual is only entitled to the profit generated on their exclusive operational days is highly suggestive of an intention to identify and retain their respective beneficial interests as identified in A.E Le Page. This is further illustrated by the fact that the agreement separates each individual’s tax responsibilities.
In Volzke, one factor that assisted the court in determining that a partnership existed was the fact that the parties explicitly referred to themselves as partners. Despite the fact that the agreement between X and Y employs the term ‘Partner’ to describe the relationship between X and Y, a full and holistic reading of the agreement as articulated in Pooley leads to the conclusion that the ultimate intention of the parties was not to create a partnership but to share certain costs while maintaining separate beneficial interests in their respective activities.
