Business Law Assignment: Corporate and Partnership Law Analysis

This assignment solution addresses two key legal issues related to business law: corporate and partnership law. The first part of the assignment examines the principle of separate legal personality, the concept of the corporate veil, and situations where the veil can be lifted, focusing on the liability ...Read More

Business Law
Running Head: Law Assignment
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Law Assignment 1
Contents
Question 1........................................................................................................................................2
Issue 2
Law 2
Application 3
Conclusion 4
Question 2........................................................................................................................................4
Issue 4
Laws 5
Application 6
Conclusion 7
References........................................................................................................................................7

Law Assignment 2
Question 1
Issue
The issue of the case is to check the liability of David with respect to two of the letters,
which he received from Nu shampoo Pty Ltd and standard bank.
Law
Separate Legal Personality Principle: - Company is a legal person in the opinion of the
law. It means the same has all the rights similar to a natural person. A company can conduct its
business activities in its own name and is able to take all the liabilities related to the same.
Corporation Act 2001 (Cth) (CA 2001) is the legislation of Australia that regulated companies in
this nation. Section 119 of the act says that upon registration a company becomes a legal person.
It means it gets a separate status from its members (Austlii.edu.au, 2019). It was held in the case
of Macaura v Northern Assurance Co Ltd [1925] AC 619 that a company may own property in
its own name. Section 124 (1) of CA 2001 list out powers of the company. As per these sections,
third parties have all the rights in against of a company as they have against a natural person and
can sue the company for breach of contract or any other default conducted by the same.
Many of the cases happened in the past where court proved the existence of separate legal
personality of a corporation. One of the leading cases is Salomon v A Salomon, where court
identified the company as a separate personality even the promoter hold the whole shareholding
and had full control on the management of the company. Another similar case is Lee v Lee’s Air
Farming Ltd (1961) AC 12. In this case, a person Mr. Lee owed 99% shares in a company and
was also acting in the capacity of the pilot. He died in an accident while performing his job and
his wife asked insurance claim from the company. In the decision of this case, the court held that

Law Assignment 3
the claim of Mrs. Lee was legal and valid. Although Mr. Lee was significant shareowner and
Managing Director of the company and yet the company was a different entity from its owner as
well as management (Bourne, 2016).
This is to conclude that corporations are a different entity from its promoters/shareholders
and directors. In this manner, such people have a limited role and liability. It means they cannot
be held personally liable for the acts that they do on behalf of the corporation. There is an
artificial veil between the identities of the company and members/director of the company.
Lifting of the corporate veil:- There are some situations where a court can held
controllers of the company personally liable. Court generally does this in those cases where such
people misuse the principle of separate legal personality and limited liability. There is not an
exclusive list of the incident when a court dishonors the existence of corporate veil but solely on
the preference of the judges dealing with a case. In the case of Jones Re Darby; Ex parte
Brougham [1911] 1 KB 95, the court lifted the corporate veil as the company was formed with
the purpose of defrauding creditors and investors. Further, in the case of Gilford Motor Co Ltd v
Horne [1933] Ch 935, the court held promoter of the company personally liable as he formed a
company in avoidance of contractual obligations. He could not do so as he was restricted to trade
in a particular business because of the restraint of trade term mentioned in the agreement
developed with the previous employer. He formed a company and conducted a similar kind of
business and therefore the court holds the person liable to his previous employer.
Application
David received a letter from Nu Shampoo Pty Ltd. that was his previous employer. As
per the agreement developed between David and Nu Shampoo, David could not carry the hair

Law Assignment 4
product business. Later on, he formed a company named Hair Glo Pty Ltd (Hair-Glo) which was
operating the business of hair products selling. David’s sister Monica was the managing director
of the company but David was the person who was managing the business. Although Hair-Glo
was a separate legal entity yet applying the principle of the lifting of corporate veil and decision
of Gilford Motor Co Ltd v Horne, David will be held personally liable to Nu Shampoo Pty Ltd
because he formed Hair-Glo to avoid his personal contractual obligation. In real Hair-Glo was
carried by David and he incorporated this company because he could not conduct the relevant
activities in a personal capacity.
In the case of another letter that was received from standard bank Ltd., neither Monica
nor David will be held liable. Monica signed the loan agreement on behalf of Hair-Glo and if the
company failed to repay the loan then the bank has right against the company not in against of
David and Monica. Nevertheless, as David formed the company to avoid the personal contractual
obligation hence court can lift the veil but the standard bank has no direct right against David.
Conclusion
David is personally liable to NU Shampoo but the standard bank cannot initiate action
against David.
Question 2
Issue
The issue of the case is to check the liability of Anne and Mary with respect to the
transactions done by other partners Jane and Sarah.

Law Assignment 5
Laws
Partnership legislations are there to regulate the conduct of partners, their rights, and
obligations. In New South Wales state of Australia, Partnership Act 1892 (NSW) (hereafter
referred to an act for the purpose of this question) is applicable. Here to mention that unlike
companies, the liability of partners of a firm is unlimited towards third parties. Partners often
develop an agreement among them, which decides authorities and obligations of them. A
partnership agreement is not a public document and therefore a third party cannot check the
authority or no authority of a partner. Partners of a partnership firm act on behalf of the firm and
other partners. In this manner, they have an agency relationship with each other. As a partner of
the firm is an agent of the firm and other partners, the same has the capability to bind them with
his/her conduct. According to the provisions of Section 5 (1) of the act, every partner has the
right to bind the firm by his/her conduct that he/she do in the regular course of business. Two
types of authority can be there, expressed, and implied. Where a person acts even outside of
expressed authority the third party can take the assumption of implied authority
(Legislation.nsw.gov.au, 2019). However, for such an assumption, the conduct of a partner must
be related to the partnership business. In the case of Mercantile Credit Ltd v Garrod [1962] 3 All
ER 1103, a partner acted outside of expressed authority but court secured rights of the third party
against firm and other partners as being an outsider, the third party could not check whether the
partner had expressed authority or not, as the conduct was related to partnership business.
Moving the discussion towards the mutual relationship of partners, this is to state that
they have a fiduciary and trustworthy relationship. As each partner is an agent for all and
therefore it becomes the liability of the same to work considering the interest of all the partners
as the conduct of one affect others too. Section 29 of the act says that it becomes the liability of

Law Assignment 6
every partner to disclose the profit that he/she earned from the business of the firm. In the case of
Birtchnell v Equity Trustee, Executors & Agency Co Ltd (1929) 42 CLR 384 and Bentley v
Craven (1853) 52 ER 29, court provided that partners must not make secret profits while acting
on behalf of the firm.
Application
In the given case, partners of the firm decided that they could enter into business
transactions valued up to $10000. One of the partners named Jane purchased printing papers for
the firm in consideration of $2000 from her boyfriend’s shop. The actual cost of papers was
$1200 in the market. Here she did not act in the best interest of other partners and breached the
provisions of section 29 of the act. Applying the provisions of Birtchnell v Equity Trustee,
Executors & Agency Co Ltd, and Bentley v Craven, she is liable to return the secret profit i.e.
difference amount of $2000 and $1200. In the other transaction, she purchased medical
equipment for the firm in consideration of $13000. She transacted going outside of her expressed
authority as according to the expressed authority she could only do the transaction of value up to
$10000. Nevertheless applying the provisions of section 5 of the act and decision of the case of
Mercantile Credit Ltd v Garrod, other partners will be liable towards third-party United Medical
Suppliers Pty Ltd because such third party could not check the authority of Jane and transactions
was related to the partnership business.
Sarah, another partner of the firm brought a driver training course from Uber Australia
Ltd for the consideration of $2000. Again applying the provisions of section 5 of the act, other
partners will not be held liable to the third party. Conduct of Sarah was outside of expressed
authority and Uber Australia could not take the assumption of implied authority.

Law Assignment 7
Conclusion
Jane is liable to return secret profits to firm viz. $800. Anne and Mary will be held liable
towards United Medical Suppliers Pty Ltd. At last Anne and Mary will not be held liable towards
Uber Australia Ltd.

Law Assignment 8
References
Austlii.edu.au. (2019) Corporations Act 2001 - Sect 119. Retrieved From:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s119.html
Bentley v Craven (1853) 52 ER 29
Birtchnell v Equity Trustee, Executors & Agency Co Ltd (1929) 42 CLR 384
Bourne, N. (2016) Bourne on Company Law. Oxon:Routledge.
Corporation Act 2001 (Cth)
Gilford Motor Co Ltd v Horne [1933] Ch 935
Jones Re Darby; Ex parte Brougham [1911] 1 KB 95
Lee v Lee’s Air Farming Ltd (1961) AC 12
Legislation.nsw.gov.au. (2019) Partnership Act 1892 No 12. Retrieved From:
https://legislation.nsw.gov.au/inforce/f9dfc85e-8f91-e79f-99e5-8042677519f3/1892-
12.pdf
Macaura v Northern Assurance Co Ltd [1925] AC 619
Mercantile Credit Ltd v Garrod [1962] 3 All ER 1103
Partnership Act 1892 (NSW)