Analysis of Corporation Law - Case Study Example

FACTS OF THE CASE Jack, Jill, and Marco were software engineers of Prologic Ltd before they were made redundant after the downturn of IT industry. They are good friends and held social meetings to discuss various new ideas. Jack told Jill and Marco of his idea of developing a new computer game which idea is shared by Jill. The three friends decided to develop the new computer game called Galactic Explorer with the intention to profit from it. Seven months later the final version of Galactic Explorer was produced. In August 2006, Jack made a draft stating therein that the three of them will have equal share from the proceeds of the said game. Jack and Jill signed it but Marco refused because the latter wanted his solicitor to make the draft. Before a new draft was made, Marco had a fallen out with Jack that resulted to Marco’s failure to attend their subsequent meetings. On December 2007, Jack and Jill granted exclusive license of the copyright of Galactic Explorer to Hyper Games Ltd (HG) with a royalty of $200,000 per annum. When Marco learned about it, he was disappointed and demanded his share of the royalty. But Jack and Jill countered that he is not entitled to receive his share since he has not attended meetings for over a year and had subsequently abandoned the project. ISSUES a) Whether or not the case at hand is a joint venture or a partnership; b) Whether or not Marco would be entitled to share the profits made from the licensing of the copyright in the Galactic Explorer game; and c) What remedy, if any may Marco seek against Jack and Jill. CONCLUSION Partnership as defined in Section 1 of Partnership Act 1892 “is the relationship which exists between persons carrying on a business in common with a view of profit and includes an incorporated limited partnership”.1 Carrying on a business includes trade, occupation, and profession. Under the said Act, any company or association incorporated under the Corporations Act 2001 of the Commonwealth or formed by any other act of Parliament is not a partnership under the Partnership Act. In section 20 of the Corporations Act 2001, carrying on a business gives reference to the person carrying on a business, or a business of that kind whether alone or with other persons.2 Section 2 of the Partnership Act further provides for the rules in determining the existence of partnership. Regard shall be had that the sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.3 In addition, section 2(e) of Partnership Act 1892 clearly provides “that a person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by the person of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such.4 It was held in Khan v Miah [2000] 1 WLR 2123 that, “there was no rule of law that the parties to a joint venture did not become partners until actual trading commenced. The true rule was that persons who agreed to carry on a business activity as a joint venture became partners when they actually embarked upon that activity.”5 In view of the foregoing provisions, it can be ascertained that there exist a partnership under the Partnership Act 1892 between Jack, Jill, and Marco. They decided to carry on a business with the intention of having profit to be shared equally between them. There being no objections from the draft agreement, the proposition recorded in the agreement bind the three as partners and shall have the rights and obligations, and liabilities under the Partnership Act. In the case of Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; (1974) 131 CLR 321, it was held that the joint venture was a partnership based upon the following considerations: (1) the parties became joint venturers in a commercial enterprise with a view to profit; (2) profits were to be shared; (3) the policy of the joint venture was a matter for joint agreement and it was provided that differences relating to the affairs of the joint venture should be settled by arbitration.6 This decision of the High Court of Australia strengthened the existence of the partnership. The absence of Marco during meetings for over a year does not have the effect of being expelled from the partnership nor stripped him from his rights to the share of the profits incurred from the copyright of the Galactic Explorer game which they have created together as a result of their hard work and brilliant ideas. It is clearly provided in section 25 of the Partnership Act that majority of the partners cannot expel any partner unless the power has been granted by express agreement between the partners.7 Provided further in section 26 (1) that “where no fixed term has been agreed upon for the duration of the partnership, any partner may determine the partnership at any time on giving notice of the partner’s intention so to do to all the other partners”.8 Not having done these, Marco remains a partner and is eligible to receive his share of the profits. Furthermore, a partner is duty bound to inform other partners of the true accounts and full information of all things affecting the partnership of which such transmission of information could be done directly to the partner or through the partner’s legal representative.9 Thus, Jack and Jill’s contention that Marco is not entitled to his share of the royalty because of his being absent for over a year is not tenable. It is stated in section 20 (1) of the Partnership Act that “all property, and rights and interests in property, originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in the said Act as partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement”.10 The above provision as explained in the case of Canny Gabriel Castle Jackson Advertising Pty Ltd contends that “the partner’s share in the partnership is not a title to specific property but a right to his proportion of the surplus after the realization of assets and the payment of debts and liabilities. It has always been accepted that a partner has an interest in every asset of the partnership and this interest has been universally described as a “beneficial interest”, notwithstanding its peculiar character”.11 The assets of the partnership, individually and collectively are referred to as partnership property, hence, they belong to the partnership, that is, to the members of the partnership. In In re Fuller’s Contract (1933) Ch 652 at p 656 as cited in the case of Canny Gabriel Jackson Advertising Pty Ltd, “. . . as between the partners, the partnership property must be dealt with in a particular way, but so far as all the rest of the world is concerned, there is no limitation on the interests of the partners; the partners have the beneficial interest in the partnership assets, which are held together as an undivided whole, but they respectively have undivided interest in them”.12 Marco had spent his time, effort, and creative ideas which led to the success of Galactic Explorer and resulted to licensing of the copyright. Such contribution gives Marco the right to the Galactic Explorer and as partner the right to whatever income or profits the partnership acquired from the sale, lease, or license of the said game as stipulated in the draft agreement. A partner must account the partnership for any benefit that any partner received without the consent of other partners as a result of any transaction concerning the partnership, or for any use by the partner of the partnership property.13 This particular provision of the Partnership Act 1892 significantly increases the tenability of Marco’s contention. Despite the inability of Marco to attend meetings for over a year it is the duty of Jack and Jill to inform Marco of any transaction and benefit derived from such and not to exclude him by reason of his absence. In addition, the principles of partnership are drawn broadly in Keith Spicer Ltd v Mansell [1970] 1 WLR 333 and compressed into two: (1) subject to contrary agreement between them, each partner owes a duty of good faith to the others; and (2) irrespective of agreement between them, every partner is an agent of the other partners for the purpose of the business of the partnership.14 This case constitutes an equitable interest and can be rectified by means of a court order which conveyed to grant a person what is rightfully his to receive. Bibliography Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; (1974) 131 CLR 321 In re Fuller’s Contract (1933) Ch 652 at p 656 Keith Spicer Ltd v Mansell [1970] 1 WLR 333 Khan v Miah [2000] 1 WLR 2123 Section 1 Partnership Act 1892 Section 2(e) Partnership Act 1892 Section 2(2) Partnership Act 1892 Section 20 Corporations Act 2001 Section 20 (1) Partnership Act 1892 Section 25 Partnership Act 1892 Section 26 (1) Partnership Act 1892 Section 28 (1) Partnership Act 1892 Section 29 (1) Partnership Act 1892 Read More