Partnership Law in Australia - Assignment Example

? Partnership Law (In Australia) Introduction The definition of a partnership business relationship can be very confusing especially where no written agreement is available. There is however a number of factors which can be considered in determining whether a business association is a partnership. According to Lindgren (474), a partnership is made of two or more people who, by consent, have come together with the intention of carrying out business and making profit. What makes the definition of a partnership difficult is the fact that a partnership may even exist even in cases where the partners do not have an express written agreement. Question 1 In the case of The Money Doctors, the business is a partnership due to the fact that the three persons had come together with the intension of carrying out a business venture and make profit. Although they did not have a written agreement, this business relationship has everything that a business partnership has and it therefore makes them a partnership. The partnership is made of Adam, Moe, and Jeff because they were the proprietors of the business. Flo, Adam’s Wife, cannot be described as a partner in this endeavour because of two main factors. To begin with, the money that she contributed to the business was a loan which was supposed to be refunded to her in the course of doing business. Secondly, her second role in the business was as an employment receiving an annual salary. As a result, although she was related to the partners and contributed to the initial capital, she cannot be described as a partner in the relationship. As seen in the decisions made in Birtchnell v The Equity Trustees, Executors and Agency Company Limited [1929] 42 CLR 384 19291, the court decided that the actions which the partner carried out should have been in the interest of the partnership. In this case, the court predicated its decision on the fact that in a partnership, every action carried out by any of the partners must be seen as being carried out in the interest of the partnership. Therefore it found that when the accused failed to remit the profits which he had gained by acting in the capacity of a partner, he had failed to observe the law and betrayed the other partners. The profits made by the accused were therefore seen as supposed to have been shared with the rest of the partners due to the nature of the business association that existed between him and the partners. The same case appears in the Money Doctors case where the partners are acting in the interest of the partnership and the rest of the group. This therefore defines The Money Doctors as a partnership. In Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974], the court decided that the business venture constituted a partnership based on three major factors which the court looked upon. First, the court quoted the fact that the partners had come together with the aim of carrying out commercial ventures. Secondly the court quoted the Partnership Act of 1892 and pointed out that since the partners intended to share the profits equally as produced by the business venture, that this then constituted a business partnership. Thirdly, the court referred to the fact that the partners were concerned with the financial stability of each other. The fact that the parties involved met these three main factors which are used to describe a partnership led to the court deciding that the relationship was a partnership. These three factors are also eminent in the case of The Money Doctors and therefore the Money Doctors can be seen as a partnership. In Kang-Kem v Paine (2004)2, the court used the same rules to determine the existence of partnership between the two persons before the court. The court used the definition of a partnership as provided in the 1892 partnership act. It also used some parameters to determine the existence of the partnership. Among the factors considered included the joint tenancy, the sharing of gross returns and the sharing of the profits by the partners. These same factors are present in the case of the Money Doctors and therefore make them a partnership. Question 2 According to partnership rules, every partner in the partnership acts as an agent for all the other partners in the partnership as well as for the partnerships itself. As a result, any action taken by any of the partner is seen as the action of the others and the partnership as a whole. This means that when Jeff ordered those computers from ECO, he acted on behalf of the rest of the partners and therefore the contract he entered into with ECO is a contract between ECO and The Money Doctors. Although the Partnership act of 1892 is explicit that every partner acts as the agent of the partnership and the rest of the partners in the partnerships, there are other provisions which can protect the partners and the partnership from harmful actions by one of more of the partners in the partnership. This can be seen as argued in Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd [1985] where the court argued on the prima facie nature of the principle of partnership agency. In this case, the court argued that although the partnership act determines that the act of an individual partners should be seen as the act of the partnership, both the partnership law and common law recognise the probability of a partner acting in a manner that does not benefit the other members of the partnership. Both the partnership law and the common law provide that if a partner in the partnership acts in a manner that is contrary to the pre-agreed conditions of the partnership, and without the consent of the other partners, that such an act will not be considered as having been carried out in the interest of the partnership or the other partners and that the other partners cannot be taken liable. In the case of the Money Doctors and the computers which Jeff bought, the act cannot be seen as having been carried out in the interest or agency for the Money Doctors partnership because of two principle issues. The first issue is the fact that the partners had agreed that every decision made for the partnership was to be agreed in advance by all the three partners. In this regard, when Jeff decided to order for the computers without the agreement and consent of the other partners, he was acting against the agreement because although the other partners had agreed that they wanted to invest in computers, they and not made the decision when to invest and which kinds of computers to buy. So when Jeff ordered the computers on impulse from ECO, he acted on his own and not according to the agreement between himself and the other partners. The second issue is that the partners had agreed that if they were to invest in the computers, they would only invest less than $10,000. Yet, when Jeff ordered for the computers, he ordered for computers worth $20,000, which was double the amount of the threshold determined by the partners. In this case, he was not acting in the agency of the other partners, or the partnership and therefore the contract was only between Jeff and ECO and not between ECO and The Money Doctors partnership. In the case of Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd [1985], the court argued that the prima facie3 authority can be negated or qualified by other pre-existing agreements within the partnership. In the case for the Money Doctors, the pre-existing agreements by the partners clearly negates the acts of Jeff to buy the computers without their consent and to actually buy computers worth twice as much as the threshold placed by the other partners. Question 3 With regard to the situation of Mrs. McTavish, there are a number of factors which must be considered in a careful way. To begin with, this was not just a business transaction but was also a criminal act. Moe deliberately took Mrs. McTavish’s money with the main aim of stealing it from her and running away. In this regard, although partnership laws indicate that every partner acts for the interests of the rest of the partners, in such a case, it becomes clear that the Moe did not carry out the act in the interest of the partnership but was engaged in an act of crime. In the case of Polkinghorne v Holland [1934]4 the court was dealing with the same kind of situation. In the case, the court was trying to establish whether partners in a partnership can be made accountable for the culpability of another partner. The court found that for the partners to be accountable for the accountability of another. In the case for The Money Doctors, it is clear that Moe acted in a criminal manner and it is would not be fair to take the partnership accountable for the crime committed by the one partner. In this regard, Moe is the one who is liable and accountable for the loss of Mrs. McTavish’s money. Although it can be argued that Moe was acting in the agency for Jeff, the person who was originally dealing with Mrs. McTavish’s investments, it is clear that his actions were actions of criminality and did not only affect the Mrs. McTavish but also affected the other partners because they did not receive the money. This can also be seen as described in the above question as to how the Prima facie authority can be circumvented by other pre-existing agreements among the partners. In this case, Moe acted in the agency of Mr. Jeff regardless of the fact that Jeff, who was supposed to handle Mrs. McTavish did not give him express permission to act for him. Apart from that, he also made a very serious decision of investing $1,000,000 into a different investment vehicle which The Money Doctors had not used in the past. This was a decision which required Moe to consult not only with Jeff but also with Adam before taking this kind of a decision. By failing to consult with the others, he therefore did not act in the good faith of the partnership. Moe also broke other rules of partnership by starting a competing business, Southern Land Opportunities (SLO), which is against partnership law. In partnership law, a partner is not supposed to operate, or to be a partner in another business which is a competitor to the original partnership. This is because this kind of situation can lead to the person having conflicts of interests as has been seen in the case of Moe and Mrs. McTavish’s investment. Regardless of the fact that Moe was not supposed to engage in a competing business, he started a competing business with another partner. In this case, even in the event hat Moe did not steal Mrs. McTavish’s money and run away, he still had violated the rules of partnership and did not qualify to be a partner in the Money Doctors partnership. Conclusion Partnerships are some of the most difficult businesses to manage. From a legal point of view, partnerships legal cases are very difficult to deal with especially due to the fact that a majority of partnerships are not formalised and the partnership is run on implicit agreements. Most people who start partnerships don’t have any written agreements and this makes it harder to manage the partnership especially if disagreements erupt. The partnership act of Australia was first written in 1892 with the aim of handling this kind of cases. However, it does not fully cover the issues raised by partnerships, especially where not legal agreements have been entered. However, in the spirit of brining sanity to the partnership business, both partnership act and the common law are geared towards making sure that such cases are handled in a way that is fair to everyone. Bibliography Birtchnell v The Equity Trustees, Executors and Agency Company Limited [1929] (1929) 42 CLR 384. HCA 24 (High Court of Australia, October 15, 1929). Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] . HCA 22; (1974) 131 CLR 321 (High court of Australia, June 05, 1974). Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd [1985] . HCA 13; (1985) 155 CLR 541 (High COurt of Australia, March 12, 1985). Kang-Kem v Paine . [2004] NSWSC 3 (Supreme Court of New South Wales Decisions, February 03, 2004). Lindgren, Edward. "Partnerships." Business Law of Australia, 2009: 474. Polkinghorne v Holland [1934]. HCA 28; (1934) 51 CLR 143 (High Court of Australia, August 7 , 1934). Read More