The Law of Partnership in Australia & New Zealand - Essay Example

Name: Class: Unit: IRAC 1 Possibility of partnership Background According to the general law, a partnership is based on a relationship that exists between people carrying business with a common aim of making profit. For the income tax purposes, partnership is based on association of persons who receive their income jointly. Whether a partnership exists is based on all the surrounding circumstances. The main element in determining the existence of partnership is mutual assent and an intention to become partners (Fletcher, 2000). Facts The restrictive clause makes Pierre unable to open a restaurant within a 100 km radius for 1 year after leaving employment. He resigns his position as head chef in January 2017. In February 2017, Pierre enters into negotiations with John to form an internet based venture selling kitchen supplies to restaurant-not covered by the clause. Pierre and john make oral agreement to and agree Pierre should find a suitable warehouse to lease for the business and set the business website. John starts ordering stock and furniture for the warehouse. John places orders on a credit account with Stainless Pty Ltd and Ceramic Pty Ltd worth $2,500 and $3,500 respectively. John places an order for shelving worth $8,000 in March 2017. John takes the stock and shelving into his garage. Disagreement between John and Pierre occurs which makes them discontinue with their plans. The invoices for kitchen supplies and shelving have become due and payable and John wants Pierre to participate in payment. Issue: What is Pierre legal position? Is there a possibility of partnership business between Pierre and John? What are Pierre rights and obligations in regards to John? Rules Whether a partnership exists or not is based on the light of all the circumstances that exists. The main determinant is the intent of the partners but cannot act alone as a justifications. To determine the existence of partnership, there is a need to look at the following in the case of Pierre and John: Joint ownership of assets. Business name registration. Joint business account. Extent of parties’ involvement. Capital contributions. Entitlement to share net profits. Extent of contributions. Business records. Trading in joint names and the public recognition. Application The determination of whether a partnership exists between Pierre and John is based on the person alleging the partnership to prove the fact. This is according to case: Morden Rigg & Co. and RB Eskrigge & Co. v. Monks [1923] 8 TC 450. It starts with an analysis on the relationship between the partners and use the objective tests to the given facts based on the context to determine the nature of the relationship. First, it is important to look at the agreement with John and determine whether there is existence of mutual assent and intention by both parties to act as partners (Fletcher, 2000). This can only be established through use of a written or oral agreement as a prima facie evidence. In the case of Pierre and John, there were no any written document to show mutual assent and intention, despite this, there was an oral agreement as stated. A stated intention of partnership cannot fully justify the establishment of a partnership as seen in this case. This is due to fact that a partnership has to be verified through a conduct. This can be supported by case: Re Megevand; Ex Parte Delhasse [1878] 7 Ch. D 511, Montefiore v. Smith [1876] 14 SCR (NSW) 245. The intention to form a partnership was not sufficient to justify that John and Pierre were in a partnership business. Both partners were required to have an understanding of what the partnership entailed which is more than just a general oral understanding evidenced in this case. This is justified by case I.R. Commrs v. Williamson [1928] 14 TC 335. As evidenced by several cases, an intention and assent are not sufficient without conduct. They must be looked based on all the relevant context and the parties conduct as evidenced in case: Jolley v. FC of T 89 ATC 4197, [1989] 21 ATR 3253. According to Australian law, a joint venture is also indicated by the joint ownership of the business assets. This also applies to the business debts where there is joint ownership of assets. The partners are liable to the business debts to the extent of their personal properties. But in this case, john and Pierre had not formally entered into the partnership despite the intent. It is important to note that despite the oral intent, the disagreement came out before they could start the business. The existence of partnership is made strong by the registration of a business name. This is a positive factor that helps in determining whether there is existence of a partnership. Despite this, it is important to note that a business name is not required under the states and territory partnership law. The name is vital as it acts as a sign of existence of a partnership business to the third parties. This is not present in case of John and Pierre. Another factor to look at is the existence of a joint business account and the power to operate the account. This was not there in the case of John and Pierre which further discounts the existence of partnership. While it is not essential to have both parties operating the business, such action justifies the existence of a partnership. Despite this, it is clear that both parties were working together in acquiring the supplies for the partnership. They participated in different activities aimed at founding a partnership business which did not materialise. It can be argued by the case: Lang v. James Morrison & Co Ltd [1911] 13 CLR 1 where one person can carry out the businesses as an agent of the other party. Another factor to look in determining the existence of partnership is the extent of capital contribution. Based on their negotiations, they had agreement that John had to order the stock and furniture where he places an order on a credit account with the Stainless Pty Ltd for $2,500 and Ceramic Pty Ltd for $ 3,500. This part of transaction is done by John alone without the input from Pierre. There is also an order of shelving amounting to $ 8,000. The sharing was based on an oral agreement where Pierre was expected to look for a suitable warehouse to lease. Sharing capital at the start of a business works in favour for the existence of a partnership. Despite the agreements, there is no clear intent on sharing of the capital contributions. There is no any agreement on sharing of profit and loses as evidence in the case: I. R. Commrs v. Williamson [1928] 14 TC 335. Sharing of profits and loss acts as a prima facie evidence of the existence of a partnership business. This did not happen since the business collapsed at the initial stages. There are no business records to justify the existence of a partnership. This includes lack of books of accounts, minutes for the meetings and the memoranda reached. Lastly, a partnership is supported more by the trading of joint names and public recognition. The banks and trading partners dealing with must have the idea that they are dealing with partners and not an individual. In this case, it seems that John placed orders on a credit account as an individual but not as a partnership business. The partners were not also able to work jointly to take the debts. This may make it hard for Pierre to honour the debt since it was taken by John as an individual but not as partners. There were no invoices, receipts, written contracts or advertisement in partnership names. Conclusion The partnership does not exist based on Australian partnership laws. From the analysis, there is no written partnership agreement between Pierre and John despite the formal agreement. The surrounding circumstances do not justify or support partnership as evidenced. Despite this, there was a mutual intent to form a partnership at the beginning. The disagreement happened before the partnership was formalized and there are no records to prove the existence of partnership. Rights and obligations to john Rules According to the law, every partner is liable to business debts incurred while he was a partner (Fletcher, 2000). Application On this case, Pierre may not be liable to pay the debts incurred due to fact that the partnership was never formalised. He is accorded the rights not to participate in clearing debts incurred by John since he is no longer involved in the businesses. Pierre has a right to dispute the existence of partnership business since it was terminated before they had started the process of formalizing it. He has a right to claim that there was no formal registration, contributions or joint property interest. Courts will enforce the restraint clause since it is reasonable in all circumstances. Conclusion The existence of partnership between Pierre and John is not conclusive. Thus, Pierre can only help John to clear the debt based on their oral agreement but he is not liable according to law. Despite this, he has an obligation to help John clear the debt since there was an oral agreement to start the businesses. This is an obligation based on goodwill since it is not supported by the law. Pierre may decide to take part in helping John since the defunct business was their idea despite the failure to take off. IRAC 2 Action the owner of Le Gourmet may take against Pierre Background A non-compete clause is used to protect the business interests after an agreement to employ someone. The non-compete clause should be based on reasonable scope to protect the commercial interests of the business against the employees in case they quit. Facts Pierre meets Francois in April 2017 who suggests they open a restaurant together. Pierre explains to Francois on the restrictive clause which binds him until January 2018. Francois advises to Pierre that they can get around the clause through establishing a company. Francois and Pierre open a new French restaurant in May 2017 (Delish Pty Ltd.). Pierre and Francois becomes directors each owning 50% of the company shares. Shortly, the owner of Le Gourmet becomes aware of Pierre new restaurant business and contacts his solicitor. Pierre is advised of impeding legal action for breach of the restraint clause by Le Gourmet owner. Issue: What is Pierre legal position based on relevant case law and legislation? What action (if any) the owner of Le Gourmet may take against him? Rules A corporate is an artificial legal entity separate from an individual, created by statute, which has all the powers of a natural person, can trade, own property, sue and be sued. Case: Breen v Williams (1996) 186 CLR 71, 92 (Dawson and Toohey JJ). Despite forming the company, it is possible for Le Gourmet to sue through piercing the corporate veil. According to law, it is possible to pierce the corporate veil due to existence of fraud, injustice to the third party and any wrongdoing (Anderson, 2009). Application It is possible for the court to find that Pierre opened the company with an aim of evading the clause which could amount to fraud, wrong doing and injustice to third party. This is supported by case: Gilford Motor Co v Horne [1933] Ch 935 where corporate veil was pierced due to fraud. The supreme court of Australia decision in the case: AGA Assistance Australia Pty Ltd v Tokody [2012] QSC 176 (25 June 2012) shows that it is possible to enforce the clause. In the case, the final injunctive relief was given to the employer where a former employee was prevented from working for a competitor in a period of up to 1 year from resignation. Based on case: General Billposting Company Ltd v Atkinson [1909] AC 118, where there is wrongful dismissal of an employee the employer cannot enforce the clause. In this case, Pierre resigned which makes it impossible to claim unlawful dismissal. Conclusion Due to the breach of the clause, the former employer has a right to seek an injunction which can force Pierre to comply and quit as a competitor for a period of 1 year. It is also possible that Le Gourmet can claim for damages based on the time of operation as a competitor. On the other hand, it is possible for Le Gourmet to restrain Pierre business to approach or solicit clients in the area. This is supported by Towers, Perrin, Forster & Crosby Inc v Taplin & Ors [1999] VSC 439. In this case, he can sell his business shares to the partner or stop the business operations until the restraint period. Le Gourmet owner have justified cause for the court to pierce the corporate veil. Pierre may be liable to a court case and might be restricted to operate as a director for a year, face fines and damages. On the other hand, he can argue in the court based on the unreasonable terms of the clause. He can argue that 100 km radius for 1 year is unreasonable and ask for nullification of the clause. References AGA Assistance Australia Pty Ltd v Tokody [2012] QSC 176 (25 June 2012). Anderson, H., 2009. Piercing the veil on corporate groups in Australia: the case for reform. Melb. UL Rev., 33, p.333. Breen v Williams (1996) 186 CLR 71, 92 (Dawson and Toohey JJ). Fletcher, K.L., 2000. The Law of Partnership in Australia & New Zealand. LBC information services. General Billposting Company Ltd v Atkinson [1909] AC 118. Gilford Motor Co v Horne [1933] Ch 935. I. R. Commrs v. Williamson [1928] 14 TC 335. Jolley v. FC of T 89 ATC 4197, [1989] 21 ATR 3253. Lang v. James Morrison & Co Ltd [1911] 13 CLR 1. Morden Rigg & Co. and RB Eskrigge & Co. v. Monks [1923] 8 TC 450. Re Megevand; Ex Parte Delhasse [1878] 7 Ch. D 511, Montefiore v. Smith [1876] 14 SCR (NSW) 245. Towers, Perrin, Forster & Crosby Inc v Taplin & Ors [1999] VSC 439. Read More