Appeal judges reject pianists’ ‘partnership’ claim over gay dating app profits

The Inner House of the Court of Session upheld a ruling by the Lord Ordinary to the effect that while the parties had a “common intention” to enter into a business relationship, it did not amount to a “business in common”.

Lord Brodie, Lady Clark of Calton and Lord Glennie heard that the pursuers Steven Worbey and Kevin Farrell were seeking certain declarators and other orders which would entitle them to shares of the profits generated by two gay social network applications (apps).

Bender and Brenda

The partnership was averred by Edinburgh-based performers Mr Worbey and Mr Farrell to have subsisted between themselves and the defender Steven Elliott and others, with the objects of “development, promotion, preparation, marketing and exploitation of gay dating apps” called “Bender” and “Brenda”, which later became known as “Wapo” and “Wapa”, “for purposes of profit”, but the defenders denied that any such partnership ever existed.

The court was told that in October 2009, Messrs Worbey and Farrell were working in Vienna when their friend Mr Elliott, a web developer, went to visit them.

One evening during a discussion among the three in a bar, a previously discussed topic of developing a gay dating app re-emerged.

In the course of the conversation Mr Worbey came up with the name Bender and the name Brenda for a version of the app for lesbian users was suggested by Mr Farrell at a later date.

Other matters discussed included a facility to upload photographs, a GPS function to find out which app users were in proximity, and the question whether there should be a membership scheme whereby charges could be made for use of the app.

Mr Elliott expressed a willingness to spend time ascertaining whether he could learn how to create such an app and Mr Worbey and Mr Farrell agreed to fund Mr Elliott’s acquisition of a MacBook laptop computer to work on the project.

Business relationship

After the meeting, in an email dated 17 October 2009 Mr Elliott set out what had been discussed, describing himself as the developer with a controlling interest of 51% in a future company and the role of Worbey and Farrell as “a mixture of investors/marketing gurus etc” with a 49% stake.

Over the next 18 months Messrs Worbey and Farrell made cash payments as and when they could and submitted the application for registration of a trade mark as Mr Elliot continued to work on the app and created a business plan, which envisaged the registration of a company called Bender Social Networking Limited, with 80% of the shares in the company to be held by Mr Elliott and Messrs Worbey and Farrell investing £200 per month to cover the Mr Elliott’s running costs.

The pursuers made payments of £200 to Mr Elliott in January, February and March 2011 and on 18 March 2011, Mr Elliott emailed Messrs Worbey and Farrell offering two options for the future structure of their business relationship: the first was that they become shareholders in the company; the second was a royalty agreement under which they would receive a share of profits.

Mr Elliott expressed a preference for the second of these options which, he considered, better fitted the pursuers’ position as “initial investors/co-founders”.

Termination

However, after the pursuers failed to pay £200 to Mr Elliot in April 2011, he wrote to them by letter the following month enclosing a cheque for £2225 – the total amount paid by them towards the iPhone app project – and stating that the money was being returned “after you were unable to fulfill your obligations as per our agreement, rendering the agreement null and void”.

The pursuers raised an action and a proof before answer was required to determine whether there was a partnership between the parties as averred by the pursuers on record, but the Lord Ordinary held that, whatever might have been the nature of the business relationship between the parties, there was no partnership as defined in section 1(1) of the Partnership Act 1890, namely “the relation which subsists between persons carrying on a business in common with a view of profit”.

The pursuers reclaimed, arguing that, having found that the pursuers and defender by their emails and subsequent actings made clear that they regarded themselves as entering into some kind of business relationship with a view to profit, it followed as a matter of law that the Lord Ordinary ought to have found that a partnership existed.

No consensus ad idem

However, the appeal judges held that the Lord Ordinary was entitled to conclude that the pursuers were “investors in the intended business as opposed to members of a partnership” and that there was “no consensus ad idem” between the parties to create a contractual relationship.

Delivering the opinion of the court, Lord Glennie said: “As ultimately presented, the appeal raises a short and narrowly focused question of law, namely: whether, having held that ‘all concerned’ regarded themselves as entering into some kind of business relationship with a view to profit, the Lord Ordinary was bound, as a matter of law, to hold that they had entered into a partnership between themselves for the purpose of developing, promoting, preparing, marketing and exploiting certain gay dating apps.

“Having carefully considered the submissions made to us on both sides, and having looked carefully at the Lord Ordinary’s findings in fact and reasoning as set out in his opinion, we have come to the conclusion that this appeal, thus presented, must fail. We have reached this conclusion for two main reasons.

“The first reason is that, even if the Lord Ordinary’s findings are to be understood as meaning that the parties had entered into a business relationship with a view to profit, it would not follow that, as a matter of law, that relationship was necessarily one of partnership. What needs to be established, if it is to be proved that there is a partnership, is that they were carrying on the business ‘in common’.

“Many people carry on business together with a view to profit without being in partnership. There are a number of other possibilities and the question of whether the relationship is one of partnership or of some other kind depends upon whether it can be established that they are carrying on that business together ‘in common’. That is not a pure question of law but depends upon further fact findings and the making of an evaluation of all the facts.

“The second reason – we deal with it second, though logically it addresses a prior and more fundamental issue – is that, properly understood, the Lord Ordinary makes no finding that the parties had at any material time actually entered into a business relationship with a view to profit; on the contrary, he finds that although they envisaged entering into some kind of business relationship in the future, they had not actually reached the stage of a concluded contract; and therefore the question whether their relationship amounted to a partnership did not arise.”