QUESTION 1 Issue The case study comprise of the two issues.

QUESTION 1
Issue
The case study comprise of the two issues. The first issue of the given circumstances
is should the company Hair –Glo Ltd in South Australia should cease the operations? The
second issue in the case study is can the Standard Bank sue David personally for non-
repayment of the $ 100000 loan instalment?
Rules
The company business structure bears a distinct identity from the owners of the
company, and the said separate entity principle is regarded as the prime benefit for the
persons to subscribe the shares of the company (Hannigan, 2012). It is significant to note that
by the virtue of the separate legal identity principle, the liability of the owners is limited to
the shares subscribed by them. Thus, on liquidation of the company owners cannot be called
upon to contribute their personal assets, rather the individual liability is limited to the amount
left to be paid on the shares subscribed. In addition to the above, the separate legal identity
renders the rights to the company to enter in the contracts by following the procedures laid
down in the Corporations Act. Thus, the principle gives right to the third parties to sue the
company in its own name. A number of cases have accorded the principle of separate legal
entity, the most popular being the Salomon v Salomon & Co Ltd. In the said case law, it was
stated that on liquidation, the claims of the debenture holder that is Solomon were settled first
irrespective of the fact that the family of Solomon and Solomon himself subscribed the shares
of the company. Thus, when the creditors initiated the claims, against the entity, the first
preference of the settlement was given to the debenture holder only owing to the separate
legal identity of the company from Solomon in the eyes of the law. Further, it is vital to be
stated that as the company is formed, an individual, group of individuals or an entity
conceives the idea for establishing a particular business and performs numerous procedures
required for opening a company at a given place. The said promoters perform the certain
category of preliminary work such as registration, documentation, and other procedural
formalities. Thus, the company’s personality is said to be dissimilar to that of their directors,
and other members.
However, the separate identity does not mean that the owners and the directors of the
company can indulge into any kind of activities without paying the heed to the interests of the

other stakeholders of the corporation. In order to safeguard the rights of the varied
stakeholders, there lies a provision of piercing the corporate veil in the common law as well
as the statutory law (Legalvision.com.au, 2016). The basic intention of the piercing provision
is that as the human agencies are working, in the name of the company, for attainment of the
goals sanctioned by law, with non-disturbance of the social order. Thus, when the directors,
shareholders or whosoever be in charge of the responsibility of overseeing the affairs of the
company, indulge in the commitment of the frauds, or illegal activities, the corporate
personality of a company would be disregarded, in order to gain an insight behind the scenes,
thereby allowing the determination of the real wrongdoer of the committed offence. Thus,
courts have the ability to disregard the corporate personality and look at the reality behind the
corporate veil in order to ensure that the justice is served. The principle has been repeatedly
pronounced in numerous case laws including that of Gilford Motor Co Ltd v Horne [1933]
Ch. 935 (CA), Daimler Co v Continental Tyre and Rubber Co [1916] 2 AC 307.
Application
The application of the above stated rules is stated as follows. In the given case study,
David has went on to register a separate company i.e. the Hair-Glo Pty Ltd, after quitting the
employment from the Nu Shampoo Pty Ltd. It must be noted that the said new registration is
in spite of the restraint of trade clause established by the company Nu Shampoo Pty Ltd. As
David has subscribed to the 99 percent share capital of the company, the real control of the
affairs of the company lies in the hands of David. The situation of the case study closely
resembles to that of the Gilford Motor Co Ltd v Horne. The courts had pronounced their
decision in the favour of the former company whose trade clause had been violated by the ex-
employee of the company and the present director of the new company. It was stated in the
judgement that owing to the violation of the restraint of the trade clause by the sole controller
of the new company, the corporate veil of the new company would be lifted to hold the
director of the company personally liable.
In another instance, Monica the CEO of the company Hair-Glo Pty Ltd, has taken a
loan from the Standard Bank in her managerial capacity to fund the start-up business of the
company. The company was repaying the loans as and when due, except the instalment of $
100000 in the year 2019. As the loan was contracted in the name of the company and was
being utilised to aid the business activities of the company itself, directors cannot be held
personally liable for the said failure of the loan instalment. The principle of separate
corporate personality applies here.

Conclusion
Thus, on the application of the above principle it can be stated that David would have
to cease the operations of the business of the company Hair Glo Pty Ltd because the restraint
of trade clause as established by Nu Shampoo Pty Ltd has been dishonoured. The corporate
veil would be lifted here and David would be held personally liable. Further, he would not be
personally liable for the business loans taken by the company for the advancement of the
business of the company.
QUESTION 2
Issue
The issue of the given case scenario is what are the liabilities of the firm and the
partners in relation to the mentioned contracts by the partners?
Rules
The partnership refers to a business structure where the several individuals (limited to
twenty at a time) associate together for the common purpose to earn the profits via the
conduct of trade, profession, or business. This is in return of the investment of the capital,
sharing of the profits and sharing of the management responsibilities as well among the
partners. The distinguishing characteristics of the partnership business structure is that the
firm is not recognised separate from the partners, which makes the partners personal liable
for the activities of the partnership firm, if the funds of the firm are insufficient to settle the
claims of the expenses. In addition, it is to be vitally stated that each partner must act in good
faith toward the other partners and the partnership firm as well.
In the Australian context, respective state partnership acts administer the matters
concerning the partnership and standardize the rights and liabilities of the partners concerned
therein. In the context of Western Sydney, Partnership Act 1892 No 12 (NSW) would guide
the partnership functions, rights, and liabilities of the partners. The section 24(5) states that
every partner is entitled to take part in the administration of the partnership trade. The section
29 of the act requires each of the partners of the firm to justify to the firm any form of profits
and benefits derived by the partner in absence of the consent of the other partners from any
transaction that relates to the partnership business. The duty to disclose the profits has also

been casted on the surviving partner after the firm is wound up or dissolved due to the death
of a partner, towards the representatives of the deceased partner.
Further, it has been stated that the third parties can assume that all the partners of the
firm manage the business of the firm, unless the divergent facts have been specifically stated.
Thus, when the partners enter into contracts with the third parties that relate to the activities
pertaining to the normal course of business, third parties do not need to know about the
internal matters of the partnership firm. Thus, an existence of internal matter does not
undermines the capability of the third parties to enforce the contract and settle their claims.
The section 24(2) makes it mandatory for the partners to get the reimbursement of the
expenditures that have been incurred for the business of the firm.
Application
On application of the principles as stated above, following observations are reached.
As Anna and Marry have gone overseas, Jane and Sarah have been given the responsibility to
manage the affairs of the partnership firm. One of the contract as entered into by Jane on
behalf of the firm is that when she contracts to buy printer papers for $ 2000 for the business
activities. The significant thing to be noted here is that the normal price of the said papers as
to be contracted from any other supplier was $ 1200. Thus, an element of conflict of interest
is wide visible here and Jane has entered into the said contract for personal benefits. Applying
the principle of the section 29, being the partner of the firm, Jane owes and agency duty
towards the firm and other partners. Owing the said duty, the partner Jane would be required
to disclose to the firm and the partners, the secret profits earned on account of the conflict of
the interest .She will be required to redeem the secret profits earned amounting to $ 800. The
second contract in question of the case study is when Jane has contracted worth $13000, in
relation to the purchase of medical instruments. The said purchase contract was outside the
authority of the partner Jane because a limit was set for the transactions to be entered into
partners that was $ 10000 each. In this regard, the partnership firm has the liability for this
transaction as the contract was in the ordinary course of business of the firm. This means the
third party does not have a requirement to be aware of the internal matters of the firm. The
last contract instance is when a driver training course has been ordered by Sarah from Uber
Australia, which is not connected to the ordinary course of the business of the partnership
firm in the question. Applying the principles of law in this regard, it can be stated that the
third party are not entitled to the safeguard of adopting the assumption that there is an implied
authority with the said partner to do so. Thus, as the contract in question does not relates to

the ordinary course business activities of the firm, the firm will not be liable under the said
scenario.
Conclusion
The following conclusions are reached, with the aid of the discussions conducted in
the previous parts. For the first transaction of the printer paper purchase, the firm will have a
liability towards the third party. In addition, Jane would be required to disclose the secret
benefit derived worth $ 800 and to pay the same to the firm in relation to the said transaction.
For the second contract, it must be noted that the act were covered in the ambit of the
ordinary course of business, but the same were not authorised for Jane to be done because the
same exceeded the monetary limit. Therefore, firm will be liable in second contract as well.
In the third contract, firm has no liability and the third party cannot sue the firm. The third
party cannot assume implied authority because the said act did not relate to the normal
business activities.

References
Daimler Co v Continental Tyre and Rubber Co [1916] 2 AC 307.
Gilford Motor Co Ltd v Horne [1933] Ch. 935 (CA)
Hannigan, B. (2012). Company Law. UK: OUP Oxford.
Legalvision.com.au, (2016). How Can a Court Pierce the Corporate Veil?. Retrieved From:
https://legalvision.com.au/how-can-a-court-pierce-the-corporate-veil/
Partnership Act 1892 No 12 (NSW)
Salomon v Salomon & Co Ltd [1897] AC 2