Business Law Assignment

This Business Law assignment discusses the concept of restraint of trade clause and its enforceability. It also explores the liability of partners in a general partnership. The assignment provides relevant laws and applications to support the analysis. The subjects covered include Business Law and Partnership Act. The document type is an assignment.

Business Law Assignment
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Table of Contents
Question 1..................................................................................................................................3
Question 2..................................................................................................................................6
References..................................................................................................................................9
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Question 1
Reasonable restraint of trade clause
Issue- Whether David is liable to cease the operations of Hair-Glo Ltd in South Australia and
replying to the letter regarding repayment of loan instalment of $100,000 to Standard Bank
Ltd.
Law- The employment contract usually include restraint of trade clause, to protect the
interests of the employer after the employee leaves the organization. However, such clauses
are most commonly accounted in the contracts of senior as well as professional employees
along with business sale agreements. The major types of restraint of trade clauses include;
 Non-compete clauses prevent an individual from challenging their former employer
for a certain period of time. It could also prevent them from establishing their own
business establishments or to work with the competing business in the region.
 Non-solicitation clauses prevent an individual from asking for clients of their former
employer for a certain period of time.
 Non-recruitment clauses prevent an individual from employing the employees by
their former employer for a certain period of time.
 Confidentiality clauses prevent an individual from utilizing the confidential
information of their former employer.
For the enforceability of the restraint of trade clause, it must be reasonable, which means, that
the employer must prove that they have legitimate interest behind imposing the restraint and
the restraint is not reasonably essential. The restraints must be limited considering the time
period and geographical location as per the particular needs of the employer towards restraint
conduct. Considering this, the employer might be considering a post-employment restraint of
trade clause in the employment agreements; however, the restraints imposed on the employee
might vary. The clauses generally recommend that an employee cannot utilize confidential
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information and trade secrets of their former employer. In addition, the employee cannot
work for any competitor for a certain period of time after leaving the organization and they
cannot ask for the clients, staff as well as customers from their former employer.
Furthermore, for the restraint of trade clause to be enforceable, it must be reasonable in the
circumstances. If it is determined by the court that the restraint on trade is beyond what is
being provided to the business with adequate protection, the clause will not be considered to
be enforceable (Law Council of Australia, 2017). On the contrary, if the clause does not
afford to have adequate protection, the court, then considers if the restraint is harmful towards
the public interest or not. Thus, it is essential for the party in search for enforcing the restraint
usually the employer must establish i.e. reasonable between the parties to the contract.
For setting up a business, loans can be taken by various banks and it is to be repaid in
instalments by the client applying for the loan. It is the duty of the client to repay the loan
instalments (Federal Register of Legislation, 2019). However, in case of assurance that the
client will pay the instalments, some private banks might not require any security but, it is the
ethical responsibility of the client to repay the amount if he/she has been provided with loan
by any private bank without any security.
Application- David was a sales representative for Nu Shampoo Pty. Ltd. This company
performs the business of distributing hair-care products throughout the South Australia
region. It was mentioned in his contract that whenever he leaves the organization, he could
not engage in the industry of hair care products for 5 years (Queensland Law Handbook,
2019). The terms in the contract could be termed as reasonable, because it was upon the
employer at the time of appointing the employee to decide the terms of contract as well as
upon the employee to agree upon the terms of the contract in case he/she wants any kind of
negotiation. After leaving the organization in 2017, David registered a company called Hair-
Glo Pty Ltd. of which he owns 99% shares and 1% shares are owned by his sister Monica
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who is elected by David as the sole director and CEO of the company (Reddie, 2018). Being
the CEO of the company, it is the responsibility of Monica to sign a contract on behalf of the
company and she also appointed David as the Operations Manager for Hair-Glo. Firstly, it
should be considered as the infringement of contract terms by David under which, he was
prevented from doing business for 5 years in the competent industry. It is also evident that the
company named Hair-Glo, in which he is Operations Manager, is also selling similar hair
products and is selling shampoo as well as conditioner to hairdressing salons throughout
South Australia (PCC Lawyers, 2017). It shows that the company is in direct competition
with Nu Shampoo and is attracting its customers and specifically hairdressing salons in the
region. It has been found that David is approaching many of the clients, who know him from
his employment with Nu Shampoo Company, which shows clear infringement of terms of
restraint of trade clause (Butlers Business Lawyers, 2018).
For the purpose of starting the business, Monica signed a contract on behalf of Hair-Glo with
the Standard Bank in 2017 from where she took out the loan of $1 million as the start-up
capital. She was given the loan without any prior security by the bank. Instead of performing
well in 2018, the company did not repay the loan instalment of $100,000 that was owing to
the Standard Bank Ltd (Legal Vision, 2019). The Standard Bank has threatened to sue David
personally for non-repayment of instalment. However, he could be responsible for returning
the amount owing to the bank because he is the 99% shareholder of the company that applied
for the loan. The bank would collect the amount pending from the major shareholder and
could take legal action against him because of non-payment of the remaining amount (Xynou,
2019).
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Conclusion- Assuming that the restraint of trade clause is valid in this contract, David is
guilty of infringing the terms of this clause and within a year, he established his own business
in which he is Operations Manager and holds 99% shares and is approaching the clients of
the company in which he was previously employed. The demand of Nu Shampoo is legal and
he must cease the operations of Hair-Glo in South Australia.
Secondly, it is the liability of David being the Operations Manager and 99% shareholder of
the company, to pay the instalments pending to the bank. So, the Standard Bank Ltd. has the
right to sue him for the repayment of the remaining amount.
Question 2
Issue- Whether Anne and Mary are liable for the transactions made by Jane and Sarah when
there was equal partnership relationship between all four partners.
Law- According to Partnership Act 1892, a partnership takes place when two or more than
two people conduct a business together and partnerships could either be general or limited
(Australian Government, 2019). The general partnership takes place when all the partners in
the partnership business are equally liable for the management of the business and each of
them has unlimited liability for the debts and obligations incurred upon them (Austlii, 2019).
Section 9 of the Partnership Act put every partner in an organization mutually liable for all
the debts and obligations of the firm incurred during their partnership.
It is considered as the liability of all the partners not to give benefit to external persons or
their friends and relatives by making loss to the company in which they are in authoritative
positions or are partners for business purpose. If any of the partners utilize the money or
property that belongs to the partnership business for their own purposes or other purposes, it
is considered as misapplication of the money or the property of the business (New South
Wales Consolidated Acts, 2019).
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The partnership agreements are generally made between the partners on the terms and
conditions they agree on but, in general partnership, all the partners are held equally liable for
the payment of debts and obligations. If, any of the partners infringe any of the terms and
conditions of the partnership agreement, the partner could solely be liable for the
infringement of the terms of the contract but, the debts and obligations need to be paid by all
the partners to the contract (Autralian Government, 2019).
Application- In this case, Anne, Mary, Jane and Sarah signed a partnership agreement in
terms of which, they were considered to be as equal partners for the business. It shows that
they entered into general partnership and not in limited partnership which demands limited
liability of one or more partners for debts and obligations of the business (Austlii, 2019). In
addition to it, it has also been mentioned in the agreement that each of the partners will have
the authority to enter into contracts of up to $10,000 but in case of contract amount exceeding
the decided amount; it will require the agreement from all the partners to the contract
(Western Sydney, 2017).
Considering section 9 of the Act, all the four partners will equally be liable for the debts and
obligations of the company, however, they have included a clause in the partnership
agreement under which, there was no requirement of agreement of all the partners for the
contracts amounting to $10,000 but contracts exceeding the decided limit required the
agreement from the sides of all the partners (NSW Government, 2019). In this context, when
Anne and Mary went overseas, they noticed that Jane had ordered the supply of printing
paper from her boyfriend and had paid $2000 for the printer papers where any other usual
supplier would have charged $1200 for them. However, the amount is exceeding the cost but,
it is to be paid by the company, it was the ethical responsibility of Jane not to utilize
company’s money to benefit her relatives or friends as she did. Secondly, it was also found
that there were two invoices awaiting payment addressed to the company, out of which one
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was from United Medical Suppliers Pty Ltd for the payments of $13,000 for the medical
instruments that were ordered by Jane. This invoice amounted to $3000 more than what was
decided between the partners to keep the limit of the contract to so that there would be no
requirement of agreement of all the partners. However, the invoice was of $13,000 but there
was not any agreement by all the four partners for the purchase of the medical instruments
and it was the sole decision of Jane to continue the contract for medical instruments with the
suppliers. The mistake has been committed by one of the partners but, it need to be borne by
all the four partners for the external party because in general partnership, the liability is on all
the partners to pay the debts and obligations taken on account of the company. Lastly, the
invoice from Uber Australia Ltd. in the name of company is not to be paid by the company’s
account and Sarah is obliged to pay the amount of $2000 to the Uber Australia for the driving
training course ordered for her. The service utilized by her was for her personal driving
course and the company is not liable to pay the amount due for personal purposes. It was a
previous argument between Sarah and others to operate a local ride share service on days
when they were not practicing but till then, there was no agreement by all four on this
decision and she organized driving training course for herself for which, she cannot held
company liable to pay the amount.
Conclusion- So, Anne and Mary could be held liable for the payments that have been made
on behalf of company for the company’s purpose but not for the personal expenses as done
by Sarah. Similarly, the amount accounted for more than $10,000 requires agreement from all
the four partners so, action could be taken against Jane for initiating the contract without the
agreement by all the four partners as well as in their absence.
References
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Austlii. (2019). Partnership Aact 1892. Retrieved from Austlii.edu.au:
http://www7.austlii.edu.au/cgi-bin/viewdb/au/legis/nsw/consol_act/pa1892154/
Australian Government. (2019). Partnership. Retrieved from Business.gov.au:
https://www.business.gov.au/planning/business-structures-and-types/business-
structures/partnership
Autralian Government. (2019). Partnership. Retrieved from Business.vic.gov.au:
https://www.business.vic.gov.au/setting-up-a-business/business-structure/partnership
Butlers Business Lawyers. (2018). What is a reasonable restraint of trade clause? |
Employment Law Update. Retrieved from butlers.net.au:
https://butlers.net.au/employment-update-restraint-trade-clause/
Federal Register of Legislation. (2019). Corporations Act 2001. Retrieved from
legislation.gov.au: https://www.legislation.gov.au/Details/C2018C00031
Law Council of Australia. (2017). Corporations Law. Retrieved from lawcouncil.asn.au:
https://www.lawcouncil.asn.au/tags/corporations-law
Legal Vision. (2019). What is a Restraint of Trade Clause? Retrieved from
Legalvision.com.au: https://legalvision.com.au/restraint-of-trade-clause/
New South Wales Consolidated Acts. (2019). PARTNERSHIP ACT 1892 - SECT 9 Liability
of partner. Retrieved from Austlii.edu.au:
http://www7.austlii.edu.au/cgi-bin/viewdoc/au/legis/nsw/consol_act/pa1892154/
s9.html
NSW Government. (2019). Western Sydney Strategic Partnerships. Retrieved from
Create.nsw.gov.au: https://www.create.nsw.gov.au/funding-and-support/western-
sydney-strategic-programs/western-sydney-strategic-partnerships/
PCC Lawyers. (2017). Contracts of Employment - Part 1. Retrieved from pcclawyers.com.au:
http://pcclawyers.com.au/news-centre/2018-newsletters/385-contracts-of-
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employment-part-1?
utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original
Queensland Law Handbook. (2019). Individual Employment Contracts. Retrieved from
Queenslandlawhandbook.org.au: https://queenslandlawhandbook.org.au/the-
queensland-law-handbook/living-and-working-in-society/employment/individual-
employment-contracts/
Reddie, J. (2018). Australia: Contracts of employment - Part 1. Retrieved from mondaq.com:
http://www.mondaq.com/australia/x/741010/Contract+of+Employment/Contracts+of
+employment+Part+1
Western Sydney. (2017). Partnerships and Programs. Retrieved from Westernsydney.edu.au:
https://www.westernsydney.edu.au/schoolsengagement/for_schools/partnerships
Xynou, G.-M. (2019). Restraint of trade clauses in employment contracts. Retrieved from
Lexology.com: https://www.lexology.com/library/detail.aspx?g=12d5dc11-9574-
4726-8232-2e1d5be8212a
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