The Concept of Partnership - Math Problem Example

Student’s name Course code+name Professor’s name University name Date of submission Part A Whether Cane and Abby breached any duties owed to Shin under the Law and Provisions Understanding whether Cane and Abby breached any duties owed to Shin under the general law and statutory provisions requires deeper understanding of the law itself and basics of the partnership, application of logic and comparison of the relevant case studies. To begin with, the association between Cane, Abby and Shin is purported to have been a partnership business and it is on this basis that Shin lays his claim. It is therefore necessary to cite relevant laws that can help understand whether there was any partnership agreement between Cane, Abby and Shin before looking at the possibility of a breached duties owed to Shin. There are considerable Partnership Acts but their applications are similar in every jurisdiction. For instance, New South Wales has the Act in s. 1. It reads; “Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.” Analysing the above definition in relation to the case involving the three, first, it is important to separate key issues. First, the partnership must be, “carrying on a business in common with a view of profit.” Did Cane, Abby and Shin reach mutual agreement to be carrying on a business in common with a view of profit? Of course, this was not the case because we are informed that through the computer game titled ‘the Alien Worlds’ the three agreed to “share all profits and/or income accruing from the sale, lease or licence of the abovementioned game.” There was no paper work signings since Shin refused to sign the agreement arguing that he needed his solicitor to draw up the agreement. Therefore, the fact that there was no formal agreement binding the three, part of s. 1 New South Wales “…relation which subsists between persons carrying on a business” was breached by Shin. It can be argued that the definition, as enshrined in the Act, cannot provide guidelines when dealing with complex concepts as this. However, an important aspect that locks Shin out is a ‘relation’ which many jurisdictions because of the same complexities, have considered being a written agreement. Good example of such involves a case involving Bradely Egg Farm v Clifford.1 However, it needs to be understood that sometimes a court of law can consider statutory definitions so as to understand whether there was an existing partnership between Cane, Abby and Shin. In doing so, court have pegged such understandings on three important expressions. First, whether there was carrying on business, second, there was something in common and whether there was a view of profit. Arguing on the basis of carrying on business, Cane and Abby might have breached any duties owed to Shin under this law if there was existing business. According to s 1B of the Partnership Act 1892 (NSW), business encompass occupation, profession or trade but such excludes ordinary domestic transactions. This brings carrying on business where Cane, Abby and Shin under this law were required to carry out continued activity. However, after falling out with Cane, Shin failed to attend subsequent meetings that were organised by Cane and Abby since September. If Shin claims there was existence of business between then he failed to satisfy the aspect of “carrying on” thus breaching s 1B of the Partnership Act 1892 (NSW). In fact, Shin’s association can be described as a once only activity which under this Act, fails to satisfy the aspect of ‘carrying on businesses.’ A once only activity as far as Shin is concerned was the meeting held in early January 2012 where Cane shared his intention of developing computer game. The ruling on denying a person who purports to be a partner just because of a once only activity was evidenced when Lord Esher, M.R. in re Griffin; ex parte Board of Trade (1890) 60 LJQB 235 at 237 made statement in the Court of Appeal saying; “Whether one or two transactions make a business depends on the circumstances of each case, I take the test to be this: if an isolated transaction, which if repeated would be a transaction in a business, is proved to have been undertaken with the intent of carrying on a business, then it is a first transaction in an existing business. The business exists from the time of the commencement of that transaction with the intent that it should be one of a series.” Considering other jurisdictions, what consists of ‘carrying on businesses’ is stipulated in English Companies Act 1862. Applying this Act during the case inovling Smith v Anderson,2 the judge argued that; ‘The expression ‘carrying on' implies a repetition of acts and excludes the case of an association formed for doing one particular act which is never to be repeated. That series of acts is to be a series of acts which constitute a business ...The association, then, must be formed in order to carry on a series of acts having the acquisition of gain for their object.’ (Nicholas, 2004) It therefore stands that from these statements; Lord Esher means that Shin’s case is clearly an isolated transaction which under this Act per se does not constitute a business. Furthermore, clear intention of Shin needs to be considered. For this reason, courts of law can reason that what matters between the three is not what they call or the court term as relationship, partnership or business but what in all, the situation or the intention of the three which, must have been agreed or entered into at the beginning. In such case, the court will need such agreement evidenced in writing. This will still lock out Shin since he refused to sign any document outlining the agreement. Nicholas (2004) notes that sometimes written documents may not be essential for the existence of partnership and in such cases; courts of law can depend on the oral words by the parties. Based on Nicholas’s suggestion, Cane, Abby and Shin did not have any existing oral agreement. According to the statement, the three friends agreed to work on their project with a view to profiting from the game. However, after this, Shin did not participate in any other activity until May 2012 when Cane and Abby went to see him regarding early version of the game. Apparently, Shin did not participate in the development of the early version. On the other hand, Shin can argue that from the first meeting held, there was hope of profit. In the recent past, courts have argued that even if there was hope of profit, still there could be no business. This relates to case involving French v Strying3 whereby co-owners of a race horse reached an agreement to share profits and expenses accrued from the activity. In that case, the court argued that though there was hope of getting profit, there was insufficient evidence to show that there was business. This is basically the same situation with Cane, Abby and Shin. Up to the last time Shin was falling out with Cane due to ‘personal’ reasons there existed only ‘hope of profit’ but not business. To concretise this claim, though Cane and Abby signed the document, Shin needs to be advised that law courts are likely to rule against the existence of business even between the other two. Such possibility can be linked to a case involving Turnbull v Ah Mouy.4 The two parties were in a signed agreement that reads; ‘It is understood that we are to have one-fourth interest in Turnbull’s remaining stock of rice… We are to receive 2.5% commission on all rice sold through our hands’ (Martin, 2010) After three months of operation which was single handedly done by Ah Mouy, it incurred a loss and Turnbull sued Ah Mouy for the loss. Defending itself, Ah Mouy argued that it was just a one of agreement and therefore the decision to sue was a breach of the Act. The court held the defense adding that such also did not constitute carrying on of a business. Furthermore, Shin should be aware that courts are unlikely to uphold his claim owing to a situation where jurisdictions might be forced to impose the concomitant obligation on the three. Explaining the perspective of the concomitant obligation vis-à-vis this case, assume John owns a pub which he allows Mike to operate on Saturdays with Mike’s capital. They agreed that Mike to surrender the pub at the end of the day and in so doing, John will be entitled to agreed percentage of the proceeds at the end of the day. During these Saturdays, Mike will incur maintenance costs. Therefore in the event that the above agreement fails, Mike or John may be tempted to reason that court’s opinion regarding the existing agreement may be affected by the need to impose the concomitant obligation. If this is also what Shin is hoping for then the judicial system may be tempted and the repercussion is that there will be effect in the development of the law in the interpretation of the definition of the provisions of the s. 1 and s. 1B of the Partnership Act 1892 (NSW) or any other Act in other jurisdictions. A clear case where court was forced to view the nature of a particular relationship and such influenced the need to impose the concomitant obligation regards Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance)5. Without shifting burden of proof, Shin will be forced to prove to the court if there was something in common among them. Sometimes, plaintiffs have sufficient evidence to prove to the court that transactions in which s/he was involved together with others constituted carrying on business. That is, Shin may claim by arguing that he was told about this idea in early January 2012 during the meeting and to further show commitments, he was there when giving the name, ‘Alien Worlds’ and during the signing. Do these constitute or have records to prove ‘in common’? Martin (2010) explains that in common is a situation where the parties involved have evidence showing that they have been carrying that business in common. In other words, parties are not supposed to be doing their own activities for mutual benefit as was evidenced in the case involving Taxicabs Co Ltd v Stone6and Keith Spicer Ltd v Mansell7. Basically, by the time Cane and Abby granted Hyper Games Ltd (HG) an exclusive licence of the copyright of the ‘Alien Worlds’ game in return for a royalty of $200 000 per annum, there was no business in common with a view of profit involving the three as he had failed to attend other ‘business’ dealings since September 2012 up to the time he is making the claim (after January 2013). And the last aspect to be considered under general law is whether there was a view of profit among three. This factor needs that individuals purporting to be in an agreement show evidence that there was mutual understanding to share the profits out of the proceeds or carrying on the business. First, Shin will need to prove to the court if there is any written document showing a ‘view of profit’. The fact of this matter is that the three friends decided to work on the idea with a view to profiting from the new computer game, named ‘the Alien Worlds.’ This was not only verbal agreement but a ‘view to profiting’ was dependent on ‘work on the idea’ which Shin did not participate in. Secondly, in accordance with section 2 of the Act, showing evidence of a view to profit as a result of carrying on business is itself insufficient since it can be prima facie one regarding existence of a partnership. And therefore Shin needs to be advised that since he is pegging on only prima facie evidence, contrary evidences are likely to rebut his. Conclusively, Shin does not only lack concrete evidence to challenge the general law that Cane and Abby breached any duties owed to him but also cannot claim benefits accrued as a result of Cane and Abby granting Hyper Games Ltd (HG) an exclusive licence of the copyright of the ‘Alien Worlds’ game in return for a royalty of $200 000 per annum. In as much, he can still challenge his claim basing on statutory rules that help determine whether there was existence of partnership among the three. Section 2 of the partnership Act provides three rules that can be used; Co-ownership Sharing of gross returns Receipt of a share of profit Based on the principle of co-ownership, Shin has no obligation to claim royalty as a result of licencing the copyright and therefore no breached duties owed to him. Section 2 of the Partnership Act explains that co-ownership based on tenancy in common, joint tenancy, joint property does not in itself amount to partnership. It further adds that whether such properties are jointly owned or such people share any proceeds or profits do not amount to partnership. Therefore Shin needs to be advised that under section 2 of the statutory rules, definition of co-ownership do not make him entitled to the proceeds and do not amount to the breaching of any duties owed to him. In addition to this, the Act further states that even if there has been sharing of gross return by the three, does not itself make the association termed as partnership. Last is the receipt of a share of profits which according to explanations provided earlier can only be argued as prima facie evidence constituting existence of partnership. Statutory rules also explain aspects that constitute a partnership or situation where one can argue to have formed a partnership. The rule recognises that what constitutes a partnership is an agreement that may be in written form or verbal expression. Based on this, first, Shin can argue that their arrangement was verbally expressed and therefore existence of a partnership. It needs to be noted that in most jurisdictions, existence of partnership must be evidenced in writing. Martin (2002) gives such jurisdictions as the British Statue of Frauds. Martin (2002) further argues that partnership agreements that are intended to last for more than one year should be evidenced in a writing and such enforced or such be presented as a deed. Since Shin failed to sign the document presented, he is not bound as a partner within the confines of statutory rules and therefore not breached. Basing on section 14(1) of the Partnership Acts, Shin also does not qualify to be a partner by estoppel. This principle applies to existing partners who retires. In any case, if this is the argument Shin will make then there was no holding out agreements agreed upon when departing the other partners. By holding out, Martin (2002) explains that this is the situation where a member who wishes to retire from the partnership ought to have nominated someone to represent him or her and the nominee is willing to continue with partnership as a partner. This did not take place thus ruling out the possibility of the claimant arguing on the basis of a partner by estoppel. Concretising this with section 24 of the Act is that all the three are required to equally share capital and profits of the business but only if there was shared responsibility. Generally, it can be concluded that by both general law and statutory rules, Shin do not qualify as a partner regarding the event that took place from the first time the idea was brought by Cane to the time Cane and Abby were granting Hyper Games Ltd (HG) the exclusive licence of the copyright of the game. Considering partners inter se there ought to have been agreed or expressed terms of operation or partnership contract in writing and such binding the parties concerned. Considering section 19 of the Partnership Act (NSW), the agreed terms of partnership can be varied but such done through the consent of the three. Since there is no existence of such variations or and alterations, Cane and Abby did not breach any duties owed to Shin under the general law and statutory provisions. Part B Remedy(s) Shin may seek against Cane and Abby The arguments in part (a) has established that Shin is a not a partner in accordance with Partnership Act 1892 (NSW) and thus not in a fiduciary relationship with Abby and Cane. Therefore licencing the copyright of the ‘Alien Worlds’ to HG without his consent did not breach any fiduciary relationship in accordance with ss 28, 29 and 30. Arguing from partnership agreement-clause point of view, Shin’s interest was not in any way conflicting with those of the ‘partnership’ signed between Abby and Cane. As the case of Birtchnell v Equity Trustees (1929) two partners were found to be in conflict with one other partner when it was realised that they authorised selling of the car and the proceeds not given to that partner. In such case, it was evidenced that the disadvantaged partner was indeed a member. From the facts presented, the duty of the partnership was to develop the game and hope that it will be profitable. This indeed does not provide sufficient information regarding the extent Shin may seek remedy from Abby and Cane. As such, there may be an involvement of commercial law to understand such definitions. Further to this, drawing a conclusion regarding remedy to be sought needs more facts so that there can be determination of the likelihood of the mentioned occurrence and whether such occurrences amount to breach of the partnership agreement. However, as the facts are, Shin does not qualify for any remedy under Partnership Act 1892 (NSW). Considering fiduciary duties under the Partnership Act 1892 (NSW), Shin would have been more likely entitled to an account of profits as enshrined in ss. 28-30. But Shin cannot enjoy the principle of utmost good faith, honesty and disclosure of materials or information since Cane and Abby believed he ceased from being a partner. Under s. 28, Shin may claim that her duty was breached and therefore needs remedy since information regarding the deal was not communicated to him. However, Abby and Cane can argue that such roles were external to the partnership (the existing agreement between the two as signed in August 2012) and thus they were not under any duty to inform Shin regarding the deal. More details regarding the terms of contract or agreement between Cane and Abby versus Hyper Games Ltd (HG) is also required to argue this point with relevant section of the general laws and statutory rules. Finally, depending on more facts, Shin’s claim for breach of the partnership or entitlement to remedy in accordance with s 30 of the partnership Act is more likely to fail. And therefore, Shin may not be entitled to any consequences of the agreements such as proceeds from the royalty or in accordance with s30, entitlement to an account of profits. References Martin Dixon, ‘Confining and defining proprietary estoppel: the role of unconscionability’ (2010) 30(3) Legal Studies 408, 413. Martin Dixon, ‘Proprietary Estoppel and Formalities in Land Law and the Land Registration Act 2002’ in E Cooke (ed), Modern Studies in Property Law Volume 2 (Hart Publishing 2003) 1759. Nicholas Hopkins, ‘Understanding Unconscionability in Proprietary Estoppel’ (2004) 20 Journal of Contract Law 210, 219. Read More