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At the heart of many entrepreneurial ventures lies a handshake, a shared vision, and, sometimes, a lack of formal paperwork. The recent case of Van Eden v Delcloo and Another is a cautionary tale of what happens when business partners don't clearly define their relationship.
The backstory
Jacobus van Eden and Filip Delcloo were friends (we use past-tense because as one would assume they no longer are friends). Together, they dreamed up a wedding venue business on Delcloo's property. Van Eden funded the development, and Delcloo contributed the land. They registered a company, Bark at the Moon (Pty) Ltd, to run the venture. But they never formalised their agreement in writing.
When the relationship soured, Van Eden approached the court to dissolve what he claimed was a partnership but Delcloo denied the existence of a partnership, arguing that the company was the only legal entity involved.
The legal question
Was this a partnership or just a loose arrangement between friends?
The court applied the classic essentialia of a partnership:
- Each party contributes something
- The business is for joint benefit
- The goal is profit
- The agreement is legitimate
The court found that all four elements were present and as such a partnership between the parties was established. The company was merely a vehicle for the partnership, not a substitute for it.
The outcome
The court declared the partnership terminated and ordered the appointment of a liquidator to:
- Sell the property,
- Settle liabilities,
- Divide the net proceeds equally.
Delcloo was also ordered to pay costs.
Why this matters
This case is a powerful reminder that:
- Agreements don't always need to be in writing: We contract every day without entering into written agreements. We go to restaurants, order food, eat, pay and leave all while never entering into a written contract. That does not mean that no agreement was reached.
- Unintended consequences: Partnerships are a particularly onerous form of operating from both a liability and IP perspective. Consideration should be given to the ownership, use and control of the IP that is contributed to the partnership as well as the IP developed in the operation of the business.
- Formal agreements benefits: Even among friends, a written agreement can prevent costly disputes.
Final thought
Many people assume that, without a signed written agreement, no binding agreement exists. This case highlights the risks of such thinking. It is usually a good idea to record your understanding in writing by entering into a written agreement. However, not all agreements are created equal and having a specialist lawyer prepare your agreement may save you significant issues and costs (legal disputes are notoriously expensive) later on. Remember: if it walks like a partnership and talks like a partnership, the law may treat it as one, even without paperwork.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
