Report to Supervising Partner Assignment 2022

Running head: REPORT TO SUPERVISING PARTNER
Report to Supervising Partner
Name of the Student
Name of the University
Author Note

1REPORT TO SUPERVISING PARTNER
Table of Contents
Part A...........................................................................................................................................2
Part B............................................................................................................................................4
Part C............................................................................................................................................6

2REPORT TO SUPERVISING PARTNER
Part A
Third party liability is an important aspect in deciding whether to form a company or a
partnership to enter into the business. As per section 5 of the Partnership Act (1958)1 of
Australia, every person who is a partner in a firm is known as the agent of the firm and any act
carried out by the partner is considered the act of the firm. This means that his actions bind all
the partners of the firm and the firm is liable to third parties for the consequences arriving from
such acts. However, if the partnership is able to prove that the particular partner had no authority
to act in the manner that he did, then the firm ceases to have any liability on such acts of the
partner. This section also states that if the third party is not aware that the person he was dealing
with is a partner in the firm or if he is aware that the partner had no authority to enter into an
agreement with him, then the partnership cannot be held liable for such agreements. This binding
of partners is applicable in case of all states except for New South Wales. By virtue of the
Partnership (Limited Partnership) Amendment Act 19912, some partners are allowed limited
liability over the others. In case of a limited partner, the amount of liability will not exceed the
amount as shown in the register of the partnership. In case of any contribution made by them
towards the debts and contributions of the partnership, the liability of the limited partner is
reduced to the part of the amount that is unpaid as per his liability in the register. In case of a
deceased partner, his estate is severally liable for the debts contracted before his death. However,
the estate can be used to make payments related to other agreements first and not the partnership
related agreements. In Australia, companies limited by shares are the most common forms of
companies. Their structure and liabilities are similar to that of limited liability partnerships. In
case of these companies, the liability of the members is limited to the unpaid amount on the
1 Http://Classic.Austlii.Edu.Au/Au/Legis/Vic/Consol_Act/P84a1958135/ (Webpage, 2019)
<http://classic.austlii.edu.au/au/legis/vic/consol_act/p84a1958135/>.
2 Lib.Oup.Com.Au (Webpage, 2019) <http://lib.oup.com.au/he/samples/adams_BOLG_sample.pdf>.

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shares held by them and their estates cannot be attached to repay the debts or obligations of the
company. However, this is not always possible and there are instances where the court lifts the
‘corporate veil’. Although there are no specific guidelines to the situations in which a corporate
veil can be lifted, this is usually done by the court when the company is set up for fraudulent
purposes or to avoid an existing legal liability. As held in the case of Daniels V Anderson3, the
company is responsible for any misdoing on the part of its employees. In the mentioned case, the
company’s damages awarded to it by the auditors were reduced due to the negligence of the
employees. Hence, the activities of the management can be used by the outside parties to reduce
their own liabilities that they owe to the company. Other powers available to the third parties are
assuming that the company followed all of its internal procedures properly while entering into a
transaction with the outsiders. This is known as the Turquand4 rule. In case of any breach of
duty by the company citing internal procedures as a reason, the outside parties can hold the
company liable for fulfilling the requirements of its duty. In case of any misleading activity by
the authorised agent of the company, the company can be held liable for the non-performance of
the duty by such an agent, if the outside party is able to prove that the agent was an authorised
one. In many situations, the company can be held liable for the activity of the person considered
to be the brain of the company. As held in the case of HL Bolton V TJ Graham5, the persons
responsible for running a company like its directors and managers are considered the brain of the
company and any activity entered into by the company is considered to be authorised by them.
Hence, the decisions made by them are considered to be the activities of the company.
3 "The Business Judgment Rule - Should We Follow The Australian Example Papers Prepared For The Current
Commercial Law Workshop 12 South African Mercantile Law Journal 2000", Heinonline.Org (Webpage, 2019)
<https://heinonline.org/HOL/LandingPage?handle=hein.journals/safrmerlj12&div=9&id=&page=>.
4 The Rule of British Bank v Turquand in 1989
5 "H L Bolton (Engineering) Co Ltd V T J Graham & Sons Ltd [1957] 1 QB 159 – Law Case
Summaries", Lawcasesummaries.Com (Webpage, 2019) <https://lawcasesummaries.com/knowledge-base/h-l-
bolton-engineering-co-ltd-v-t-j-graham-sons-ltd-1957-1-qb-159/>.

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Part B
Fiduciary duty refers to the basic duties that the partners of a firm owe to each other. In
Australia, the fiduciary obligations are known as the ‘duties of loyalty’. These duties suggest that
a partner cannot engage in an undisclosed conflict of duty. This suggests that in any situation a
partner should not take up activities that are unlikely to be beneficial to the firm, even if they are
likely to benefit from them individually. A fiduciary duty arises in a partnership from the
beginning. This is due to the nature of the partnership where all parties of a partnership are all
joint principals in the same undertaking or they are agents to each of the partners. There is no
separation of their individual duties or obligations. In case the partner is likely to take up
conflicting activities as mentioned above, then he should do it only with the consent of the
others. The major aspects in which the fiduciary duty of a partner lies are fair dealing, loyalty,
care and duty of disclosure. The partner should always perform these duties by keeping the best
interests of the firm in mind. In case of Limited Partnerships, the situation is similar to that of
Limited Liability Company. Fiduciary duties can be eliminated from these types of business
through a business agreement signed between parties. This results in the entity conveniently and
legally skipping some of the duties which are considered to be its responsibility in ethical terms.
A company is significantly different from a partnership concerning fiduciary duties. This is
because, as soon as it is incorporated, the company becomes a separate legal entity and its
liability becomes separate from that of the owners. In case of a company, even though the
shareholders are responsible for and involved in making most of the decisions of a company, the
fiduciary duties are vested in the hands of the directors. This is because of their involvement in
the daily activities of the company and their access to more detailed information. This was also

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suggested by the case Canadian Aero Service Ltd v O’Malley6. However, the same cannot be
applied to all the stakeholders involved in a firm. One of these is the employees of the firm. As
held in the case of Blackmagic Design Pty Ltd v Overliese17, the court suggested that
employees do not have any obligation to disclose competing ideas to their employer. This case
law suggested that all the parties to a company are required not to act in a manner that causes
conflict of interest in the company. Hence, they have no obligation of disclosing about activities
that may not be beneficial to the company in future, unless as required by an agreement
beforehand. According to the guidelines of the court in the case Fraser V NRMA8, disclosing
relevant information is a part of the fiduciary duties of the directors of the organisation and its
members in relation to the proposals to be discussed as a part of the matters to be discussed in
the annual general meeting and any other details which are requested to be sought by the
members and their proxies. This judgement is relevant to most of the guidelines concerning the
disclosure of information. Information should be disclosed in a manner that is deemed to be
adequate for decision making in all respects. This includes the information that is required by the
creditors, investors, shareholders and other parties related to the firm. Another important case in
this regard was Goldex Mines Ltd V Revill9. This case suggests that when a company sends
misleading information to its shareholders, then the duty of the shareholders is breached, even if
such information was required to be sent by the law or it was a choice of the responsible
authorities. The above mentioned duties, although not explicitly mentioned or highlighted as
6 STANLEY BECK, "THE QUICKENING OF FIDUCIARY OBLIGATION: CANADIAN AERO SERVICES V.
O'malley", Cbr.Cba.Org (Webpage, 2019) <https://cbr.cba.org/index.php/cbr/article/view/2966>.
7 "Barnet Jade - Find Recent Australian Legal Decisions, Judgments, Case Summaries For Legal Professionals
(Judgments And Decisions Enhanced)", Jade.Io (Webpage, 2019) <https://jade.io/j/?a=outline&id=210260>.
8 "Barnet Jade - Find Recent Australian Legal Decisions, Judgments, Case Summaries For Legal Professionals
(Judgments And Decisions Enhanced)", Jade.Io (Webpage, 2019) <https://jade.io/j/?a=outline&id=210260>.
9 "The Exercise Of Directors' Powers:--The Battle Of Afton Mines 11 Osgoode Hall Law Journal
1973", Heinonline.Org (Webpage, 2019)
<https://heinonline.org/HOL/LandingPage?handle=hein.journals/ohlj11&div=32&id=&page=>.

6REPORT TO SUPERVISING PARTNER
fiduciary duties by the relevant statutes of the country, are considered to be the duties of the
relevant authorities and are to be fulfilled in all circumstances.
Part C
As a part of the analysis, referencing to the guidelines of the case of ASIC v Vizard
(2005)10 is an important step. This case is significant in making a user understand the
significance of the roles and responsibilities of the director of a company. The given case is
related to Steve Vizard, who was a non-executive director at Telstra, a telecommunications
company. While acting as a director of the company, Vizard had access to documents which
outlined the strategy of acquisition of some technology firms. Using this information, he formed
a family trust under his accountant’s management. Using this trust, he managed to purchase the
shares of the firms which were going to be acquired by Telstra. Even though he incurred losses
from these transactions, he did not use the funds belonging to Telstra. However, the court held
Vizard liable for breaching the section 183 of the Corporations Act 2001. This section of the act
suggests that a person who is a director, officer or an employee of a company obtains
information due to their position in the company should refrain from using it to obtain benefits
for themselves or others. They should also not cause detriment to the corporation. This also
states that the duty continues even after they cease to hold the previous position in the company.
If the court is convinced that a person is guilty of contravening section 183, then he would be
declared as guilty of contravention according to 1317E of the Corporations Act. Vizard was
ordered to pay a penalty of $390000. This penalty was considered to be a civil charge because
Vizard negatively impacted the interests of the members of the company as well as that of the
company. Due to the losses incurred by the firms, the debt paying ability of the company was
also impacted adversely. He also breached the responsibilities vested on him as a director. This
10 <http://www.clta.edu.au/professional/papers/conference2007/2007VC_ASICERICP.pdf>.

7REPORT TO SUPERVISING PARTNER
case is extremely relevant in understanding the concept of responsibilities and regulations of the
directors of an organisation. The major breach of responsibilities by the director was obtaining
confidential information in an illegal manner which otherwise would not have been available to
him for access. Based on this information, he based his decision of holding or selling the shares
of the firm. This impacted the strategies of the firm in a negative way. The major concern of this
activity of Vizard was the impact that it could have on the firm and the clients dealing with it.
Hence, in case of breaches of this kind, the most significant aspect was to understand whether the
activity of the director caused any harm to the firm or not. The court used the powers provided
by section 206C of the corporations act. This section suggests that a court possesses the authority
to prohibit a person from being a part of the management team of any corporation for a specific
period of time. The reason for this disqualification is to protect the shareholders and other parties
from being vulnerable to the misconduct of such persons. In the given case, Vizard was banned
for a period of 10 years from managing the activities of any corporation. This highlighted the
fact that the entire responsibility of the corporation lies with a director and hence he must at all
times act by keeping the best interests of the company in mind. This case is of extreme
importance in describing the responsibilities of the directors of a company. While Vizard
accepted that he broke the law in the court and paid a penalty for his misdoings, this case
highlighted the power available with the directors. As they have access to confidential and
sensitive information of the company, they should use it very carefully. Any misdoings on their
part cause damage to more than one party involved in the company. The act of Vizard, even
though done through his own funds, resulted in losses to the company and ultimately affected its
ability to pay its creditors. He affected the investments of all the stakeholders in the organisation.
In conclusion, it can be said that the director’s responsibility towards an organisation is that of a

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fiduciary towards its principal and he should never act in a manner which compromises the
beneficial interests of the entity and its related parties.