Legal Aspects of Business: Contract and Partnership Law Case Studies

Desklib provides past papers and solved assignments for students. This report analyzes Australian contract and partnership laws.

Business and Corporate Law
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Table of Contents
Introduction..................................................................................................................................................3
Question 1.....................................................................................................................................................4
Issue...........................................................................................................................................................4
Rule............................................................................................................................................................4
Applicability..............................................................................................................................................4
Conclusion.................................................................................................................................................6
Question 2.....................................................................................................................................................7
Issue...........................................................................................................................................................7
Rule............................................................................................................................................................7
Applicability..............................................................................................................................................7
Conclusion.................................................................................................................................................8
Conclusion....................................................................................................................................................9
References...................................................................................................................................................10
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Introduction
To govern the business in a fair and transparent manner both the business corporation and
company laws are essential to regulate companies in an ethical way. In this report, it considers
two case studies and its solutions as per the government laws, rules and legislation. The statutory
contract laws and Acts are enacted in Australia for the purpose of enforcement of the provisions
of contracts and agreements. The parties entering into the contract are under a legal obligation of
fulfilling their performance mentioned in the court and if any party fails in doing so, the other
may approach to the court for indemnity and incur compensation for its losses.
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Question 1
Issue
Is the contract between Nu shampoo and David for restraint of trade being valid under the
Contract Law?
Rule
In the following case, the rules of the Australian contract laws are applied as the facts of the case
states that the two parties named David and the Nu shampoo company who entered into an
agreement having a trade restraint clause. In the context of another agreement which is between
the Standard Bank Ltd and David, the same rule of contractual law shall be applied.
Applicability
The case in the given scenario states that during the period of 2009-16 David was employed as a
representative of sales for NU shampoo Pty Ltd and the company is engaging is distributing sales
in all over the country of Australia. In accordance with the terms of the contract law, if David is
leaving the company then he shall not engage in such similar companies at least for five years.
As per the Australian contract law, the contract laws are used to enforce the promises made in
the agreements by both the parties (Marshall, 2012). For a contract to be legally binding, there
are certain essential elements which are to be fulfilled for its enforcement. These essential
includes:
 The drafting of an agreement between both the parties.
 A valid consideration to form the agreement.
 The parties shall be capable of entering into a contract that is there shall be the attainment
of the majority age, sound mind and not declared incapable or insolvent to enter in
contract.
 The parties shall have the intention to form the contract that is there shall be a willingness
to fulfil one's part and performance.
 There shall be certainty in the agreement that is the agreement shall not be ambiguous
and unclear (Australian contract law, 2018).
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In 2017, David left the company Nu Shampoo Pty Ltd and registered on the name known as Hair
Glo Pty Ltd by bowing 99% shares of the company. The other 1% shares are owned by the
David sister named Monica who appointed as sole director and CEO of the company. Monica
signs a contract on company behalf along with the David who becomes the operational manager
for the company Hair Glo. The company operates in Adelaide and sells the conditioner and
shampoo to the hairdressing salon sin all over the country of Australia and many people already
know David from the company Nu shampoo.
Here David has signed an agreement with Nu shampoo and the instant company is eligible to get
the contract enforced in the court as the contract signed between both the parties is legal and has
fulfilled all the essential requirement of the contract. The trading restraint clause is agreed by
David in the contract and he is under an obligation to fulfil and abide by the clause.
In this case, there is the applicability of the Doctrine of Restraining Trade which is explained by
Justice Brandeis in a landmark judgment of the Chicago Board of Trade v. US 246 US 231
(1918) at p 238 which till now operates as a judicial precedent in Australia. In this case, J.
Brandeis held that every agreement which concerns trade and where it includes trade regulation
also includes trade restraint. The essence of the contract is to bind or to restrain from trade
practices (Australian competition law, 2017).
Further, in the case of Petrofina (Great Britain) Ltd v Martin [1966] Ch 146, J. Diplock also
held that a contract in which there is provision of restraint, one party agrees with the other to
restrict his freedom of trade in a particular field for a particular time (Arup, 2012).
The Australian laws also have their source in judicial precedents and thus, the decisions of the
higher court are binding upon lower courts. Part IV of the Competition and Consumer Act 2010
further provides validity to the doctrine of Restrain as it provides the following provision in
respect of restraint:
 Employment restrains
 Partners restrain
 Restrain on sales of a business (Smith and Duke, 2014).
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Monica is not an active participant in the functions of the company after signing a contract on
behalf of the Hair Glo and took a loan amounting $1 million as startup capital for a company
where no security was taken by the bank.
The company did well in the year 2017 and 2018 but in the year 2019, the company failed in the
repayment of the instalment amounting $100000 borrowed from the Standard Bank Ltd. After
that two letters were received by David one from Nu Shampoo Pty Ltd by stating that the
operations of the Hair Glo shall be ceased and another letter from the Standards Bank Ltd by
threatening to sue David personally for the payment of $100000 and enforcing liability.
The letter received from bank states the liability of David to pay the instalment amount as the
loan is also a contract between the bank and the customer. When the loan is approved there exists
a contract between both the parties and there is also a liability on the party to repay the loan in
the prescribed time. Though David may be retrained from trade practice in the region, he is still
liable to pay the instalment of the loan he has taken.
Conclusion
Hence, to conclude the counsel submits that the Contract Laws of Australia are in the form of a
codified statute which is framed as the Competition and Consumer Act of 2010. All the contracts
and agreements enforced in the Australian Civil court are governed by the provisions of this Act.
In the instant case as well, the law of the contract shall be applied as the agreement is between
parties of a company and is done in furtherance of business operations. And along with statutory
laws the Australian law has its base in judicial precedents as well where the decisions of the
superior court are binding on the lower courts.
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Question 2
Issue
What are the liabilities of Anne and Mary which arises under the mentioned issue?
Rule
As per the facts provided in this case, the rule of the Partnership Act 1963 of Australia is applied
as the case is between four partners in a firm who are equal in respect of activities of the firm as
well as in profit sharing. The provisions of the Partnership Act shall apply to the activities done
by the partners for the business purpose of their firm. The clauses mentioned in the partnership
deed regarding the activities of the firm and the extent of liability of the partners shall also be
governed by the Partnership Act.
Applicability
In accordance with the case provided in the scenario, it states that Anne, Mary, Jane and Sarah
are University graduated and are a practitioner in the same year. They are in a fiduciary
relationship of trust with each other and they decide to form a business partnership firm in
Western Sydney. In this, they signed the agreement of partnership where all partners are equal
and the agreement between the partners have the equal authority to enter into the contracts
amounting $10000 but in case the contract is in excess of the amount as per the requirement,
consent of all the parties shall be required.
As per the facts mentioned in the instant case, the sharing of profit is a prima facie evidence that
there is the existence of a partnership firm between all the partners. Hence, there shall be the
applicability of the Partnership Act of 1963 which is currently in effect in Australia. Under the
provisions of Partnership Act of 1963, the activities of partners, as well as a partnership firm, is
governed and there are respected provisions relating to the rights and liabilities of the partners
(Fortney and Gordon, 2012).
As per the facts mentioned, the applicability of Section 10 of the Partnership Act is attracted as
this provision provides for the liability of the partners as well as firms for all the acts of the
business if such act is done by the partner who is authorized to do such act or business. Here the
purchase of printer paper is an act in furtherance of the business run by the partnership firm and
so there is liability of all the partners equally to pay for the invoice bill (Austlii, 2018).
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Further, Anne and Mary went abroad for a year leaving Jane and Sarah to run the business
practice and before they went Anne noticed that practice has run out of the paper for the printer
and that the note for Jane is left so as to get the order for new supply. When Anne and Mary
returned, they found that Jane Paid $2000 for buying printer papers from a business which is run
by her boyfriend on the other hand usual supplier charged $1200 for the same supply. Also, they
found two invoices, which addressed for the awaiting of payment sent by the United Medical
Suppliers Pty Ltd for $13000 and the other amounting $2000 from Uber Australia Ltd for
providing driving training ordered by Sarah.
The provisions of the partnership deed also stated that the partners can enter into contracts up to
$10,000 but for an amount exceeding it, there shall be a consent of other partners required. In the
instant case the partners are liable to pay the invoice because the contract of purchase done by
Jane is lesser in amount and hence, no consent was required.
Section 13 of this Act also states the liabilities of the partner who operates in this respect in the
firm. It states that every partner is liable jointly for the debts and obligation of the firm until he
remains a partner in the firm (Australian capital territory, 2015).
Further, the driving training course ordered by Sarah is also up to the value as mentioned in the
partnership deed entered by the partners. This amount is also not exceeding the amount
mentioned in the deed which requires the consent of other partners. Hence, under section 10 if
the Partnership Act 1963 the partners are under a legal obligation to pay the bill as the offer is
accepted in continuance and prolongation of the activities carried on by the partnership firm.
Conclusion
Hence, the partnership laws in Australia are also codified under one consolidated statute and all
the issues and disputes arising in respect of any partnership firm or in respect of rights and
liabilities of partners, it is resolved as per the provisions provided by the Act. It is required that
all the clauses of the partnership deed shall be consistent with the provisions of the Partnership
Act of Australia.
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Conclusion
As per the abovementioned discussions, it can be concluded that in both the cases it is important
that the business actions are conducted in an ethical manner for long term business success. It is
imperative that the business must abide by contractual roles and responsibilities. It is also a point
of consideration that the partners abide by the provisions of the deed and have respect for each
other’s rights. The partners are required to abide by their partnership responsibilities and shall
make sure that in running the business of the firm no violation is done of any provision of the
statutory law. The partner shall also be willing to perform their part. The business transactions in
Australia is not at absolute freedom and there is an intervention of the Australian legislature in
the activities of the companies. And also, there is an intervention of the legislative authority seen
in the activities of the partnership firms.
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References
 Arup, C., 2012. What/Whose Knowledge-Restraints of Trade and Concepts of
Knowledge. Melbourne UL Rev. Vol. 36. Pp. 369.
 Austlii, 2018. PARTNERSHIP ACT 1963 - SECT 10 Partners bound by acts on behalf of the
firm [Online]. www.austlii.edu.au. Available at:
http://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/act/consol_act/pa1963154/s10.html
(Accessed on 4th May 2019).
 Australian capital territory, 2015. Partnership Act 1963 [Online].
www.legislation.act.gov.au. Available at:
file:///C:/Users/91735/AppData/Local/Packages/Microsoft.MicrosoftEdge_8wekyb3d8bb
we/TempState/Downloads/1963-5%20(3).PDF. (Accessed on 4th May 2019).
 Australian competition law, 2017. Restraint of Trade [Online].
www.australiancompetitionlaw.org. Available at:
https://www.australiancompetitionlaw.org/law/rot/index.html. (Accessed on 4th May
2019).
 Fortney, S. and Gordon, T., 2012. Adopting Law Firm Management Systems to Survive
and Thrive: A Study of the Australian Approach to Management-Based Regulation. U.
St. Thomas LJ, 10, p.152.
 Marshall, B.A., 2012. Reconsidering the proper law of the contract. Melbourne
international Journal Vol. 13. Pp. 505.
 Smith, R. and Duke, A., 2014. Agreements and competition law in Australia.
Competition and Consumer Law Journal Vol. 22. Pp. 54-79.
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