Partnership law and its relevance to Bermuda law firms

Ever since Bermuda law was changed with effect from October 2009 so as to enable lawyers to practice law in Bermuda through the medium of limited liability, professional companies (incorporated under the Companies Act 1981), it seems as if there may have been some level of collective amnesia with respect to some basic principles of Partnership law, both as a matter of equity and common law, and as a matter of Bermuda’s partnership legislation (including, in particular, the Partnership Act 1902).

Consider, for example, the following scenario (with the Partnership Act 1902 in mind):

  1. A Bermudian lawyer sets up a Bermuda legal practice, ostensibly trading as a sole trader (with unlimited personal liability). The sole trader then enters into an ‘association’ with an international law firm, which results in that sole trader sharing (or outsourcing) all manner of marketing and support services with the international law firm (eg IT, accounting, information services, client relationship, professional indemnity insurance); using (and relying on) the branding and goodwill of the international law firm; holding oneself out to the rest of the world as a partner of the international law firm; and describing oneself as the Managing Partner of the Bermuda office of the international law firm.
  2. Although it would be difficult to investigate and verify the true state of the Bermudian lawyer’s financial and contractual arrangements with the international law firm, absent local reporting requirements or voluntary disclosure (relevant questions, for example, might be what is their local capital; what have they raised or borrowed from the international law firm to fund their business operations and activity; what are the profit share arrangements; what are the control arrangements?), the matters identified at 1 above would (absent countervailing evidence or indiciae) point fairly logically in the direction of a conclusion (or, at the very least, a reasonable suspicion) that the Bermudian lawyer is trading in a partnership with foreign lawyers, within the meaning of section 1 of the Partnership Act 1902, on the presumed basis that they are “carrying on a business in common with a view of profit“, and even if one takes into account the various rules for determining the existence of a partnership under section 2 of the Partnership Act 1902.
  3. But the scheme of Bermuda law (including the Partnership Act 1902, the Bermuda Bar Act 1974, the Supreme Court Act 1905, the Rules of the Supreme Court 1985, the Companies Act 1981, and the Bermuda Immigration and Protection Act 1956 – and various regulations made thereunder) suggests that it might not be entirely lawful to carry on the business of Bermuda law in partnership with (i.e. with a view of profit with) non-Bermudian partners (and/or with non-Bermudian lawyers); and the scenario gives rise to very difficult issues of risk management, ethical compliance, and legal liability, when it comes to identifying the particular partners who assume the liabilities of the partnership, whether with respect to employees, clients, the Court, creditors, or regulatory bodies. Note, in this context, the provisions of section 14 of the Partnership Act 1902, which provide that “every one who by words spoken or written or by conduct represents himself … as a partner in a particular firm is liable as a partner…”

While there are very strong arguments in favour of enabling the practice of Bermuda law by international law firms with offices in Bermuda, or by Bermuda law firms or Bermuda lawyers working in association with international law firms, it must surely be a sine qua non that any such law firm or lawyer fully complies with (and is seen to comply with) the provisions of applicable Bermuda law and regulation (even if the law is outdated and in urgent need of reform and updating) …

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