Commercial Law: Partnership and Liability

Running head: COMMERCIAL LAW
Commercial Law
Name of the Student
Name of the University
Author Note

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Issue 1
Whether any kind of business structure is identifiable from the given circumstances.
Whether any particular status is identifiable in relation to Jane, Julia and Mahit.
Rule
The partnership business is a form of business where multiple individuals carry out
business in a common capacity backed by the sole motive of earning profit. The word
partnership has been defined u/s 5 of the PA (Cth)1 (PA).
The rules for the assessment of the relationship of partnership has been provided u/s 6 of
the PA2. A partnership needs to be jointly owned and carried out by more than two
individuals where all the individuals claiming to be the partner are exercising an additional
control over the business of the firm other than the sharing profit.
U/s 6(3)(d) the PA3, an individual will not be considered as a partner only because of
advancing loan and claiming the rate of interest to be contingent upon the profit earned by
the business arising from the business operations.
It has been held in the case of Smith v Anderson4 that a business structure needs to be
satisfy three structure for being conferred with the status of partnership. There must be a
business operation being carried out, the business being carried out in a common capacity and
the business is required to be carried out with the sole motive of earning profit.
It has been discussed in the case of Wiltshire v Kuenzli5, that the mere extending of loan
cannot be construed to be the admission of a person as a partner for the sole reason of the
1 The Partnership Act, (Vic) 1958, s. 5
2 The Partnership Act, (Vic) 1958, s. 6
3 The Partnership Act, (Vic) 1958, s. 6(3)(d)
4 Smith v Anderson (1880) 15 Ch D 247
5 Wiltshire v Kuenzli (1945) 63 WN 47

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interest of the loan being paid out of the interest as well as being contingent upon the interest.
An additional control will be required to be conferred and exercised by the person to be
rendered as a partner in the firm.
Application
In the present instance, Jia and Jane resolved to create their owing range of lipstick –
Rouge and they decided to utilise the online mode for marketing their product over the social
media. Both Jia and Jane has invested their own monetary resources for the placing an order
for a small batch of lipstick to a cosmetics manufacture. This need to be viewed under the
light of the element of partnership as provided under the PA as well as the common law.
There is an operation of business being carried out between Jia and Jane while promoting
their product. There is a motive of carrying earning profit as well as they have been jointly
carrying out the profit. Hence, they can be said to have carried out partnership business as per
the provisions u/s 6 of the PA6 as well as the principles established in the case of Smith v
Anderson7.
Mahit has advanced a loan to the business carried out by Jane and Jia. But Mahit has
extended that loan with the sole intention of assisting her friend and has no intention of
exercising any additional control over the business. However, he has been remitted with the
amount out of the profit after the shares of Jane and Jia being deducted. Hence, although Jane
and Jia can treated as partners, Mahit cannot be treated as a partner as provided U/s 6(3)(d)
the PA8 as well as under the principles established in the case of Wiltshire v Kuenzli9 that the
mere extending of loan cannot be construed to be the admission of a person as a partner for
the sole reason of the interest of the loan being paid out of the interest as well as being
6 The Partnership Act, (Vic) 1958, s. 6
7 Smith v Anderson (1880) 15 Ch D 247
8 The Partnership Act, (Vic) 1958, s. 6(3)(d)
9 Wiltshire v Kuenzli (1945) 63 WN 47

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contingent upon the interest. An additional control will be required to be conferred and
exercised by the person to be rendered as a partner in the firm.
Conclusion
A partnership business has been carrying out between Jane and Jia. Mahit cannot be
treated as a partner in that firm.
Issue 2
Whether any of the business partners are liable for the damages suffered by Clarissa.
Rule
Negligence is said to have occurred when the an individual has failed to apply the standard
of care that he has been obligated to carry out under a given set of circumstances and the
consequence of which is an injury to a another person who was probable to have suffered an
injury for the said breach of duty. There are five essential elements that are required to be
satisfied for the purpose of bringing an action of a person under the purview of the tort of
negligence.
The first essential that needs to be established for the purpose of making a person liable
for act of negligence is the presence of a duty of care to be exercised to that person under the
position he has been holding in the given set of circumstances. This can be further supported
with the case of Donoghue v Stevenson10. The presence of the duty of care needs to be
established and assessed under the test established in the case of Caparo Industries PLC v
Dickman11. The first test is whether there exists any reasonable foreseeability regarding the
duty of care. The second test is whether the wrongdoer as well as the aggrieved has any
10 Donoghue v Stevenson [1932] AC 532
11 Caparo Industries PLC v Dickman [1990] UKHL 2