Business Law Case Study: Klever Komputer Repairs Analysis

This case study examines a business law scenario involving Klever Komputer Repairs, focusing on three key issues. The first issue concerns the formation of a business partnership between Ali, Bob, and Cheng, analyzed under the South Australian Partnership Act 1891. The analysis considers profit sharing and common business operations, drawing on case precedents like Degiorgio v Dunn and Cox v Coulson. The second issue involves determining liability for a software purchase made by Cheng, evaluating the roles of partners and their authority. The analysis references sections of the Partnership Act and cases like Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd and Mercantile Credit Co Ltd v Garrod to assess which parties are liable for the debt. The third issue addresses whether Josie, who performs repair work, is an employee or an independent contractor. This assessment uses the control test, integration test, and multi-factor test, referencing cases like Zuijs v Wirth Brothers Pty Ltd, Humberstone v Northern Timber Mills, and Hollis v Vabu Pty Limited, to determine her employment status and its consequences for the partnership.

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Question 1
Issue
Whether a business partnership was present between Ali, Bob and Cheng, or not?
Rule
A partnership is a collective ownership which is defined as the relationship present between
individuals who carry on business with a view to profit in common (James, 2017). In South
Australia, the Partnership Act, 1891 (SA) is applicable. Under section 2 of this act, a partnership
can be formed in an express or implied manner, based on the intentions of the parties. In this
context, the points which have to be seen include sharing of profits, sharing of gross returns and
common ownership of property. It is not compulsory for a partnership agreement/ deed to be
formed. The key here is for a partnership to be present, instead of the same to be put down in
words (SA Legislation, 2018).
As there are no set criteria of creating a partnership, the presence of it is often disputed. And in
such cases, there is a need to go back to see if the basic elements required to form a partnership
are present. In this regard, there is a need to go back to the basics of partnership definition. The
partnership under the governing act is carried on between two and two individuals, carrying on
business in common where the goal is to earn profits (Christensen and Duncan, 2009). In
Degiorgio v Dunn [2004] NSWSC 767, a band was formed at the insistence of Dunn. As per
Degiorgio, a partnership was present which made him entitled to sharing of profits. However, the
court held that the parties were carrying on business and with a view of profit but this was not
being done in common. Here, the payment of establishment was done by Dunn and Degiorgio

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had been paid, for each performance, a fixed fee, Dunn was not acting on Degiorgio’s behalf but
Degiorgio was doing so (Austlii, 2004).
Another example of Cox v Coulson [1916] 2 KB 177 helps in showing that merely sharing the
profits is not enough to show that a partnership had been present. In this case, Mill owned a
theatre which was rented by Coulson for a play. Box office receipts were shared between the two
where Mill got 40% and Coulson got 60%. The travelling expenses had to be paid by Mills and
same was for actors, and the theater rent, advertising and lightning had to be paid by Coulson.
While the performance was going on, owing to the prop gun being loaded accidently, a member
of audience was injured. A case was brought against Coulson due to him being deemed as
partner of Mill. However, the court held that a partnership was not present here as only the gross
returns were shared and each party had liability for their expenses and liabilities (Weebly, 2018).
Application
In this case, in order to show that a partnership was present between the three, there is a need to
fulfil the criteria laid down under the Partnership Act. As per this section, there is a need to show
that a business was being carried on by two or more people with a view of earning profits in
common. Here, Ali, Bob and Cheng were more than two individuals and less than 20, fulfilling
the first criteria. The next criterion is to show that the profits were being shared between the
parties. Here Cheng was getting a share of 8% of the net profits, which fulfils even this
requirement.
However, when it comes to running a business, in common, the same becomes a dicey situation.
Applying the case of Degiorgio v Dunn in this case, there was a lack of commonality here. Even
though there was sharing of profits, but there was nothing to show that a business was being run

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between Ali and Bob, and Cheng in a common manner. More importantly, applying the case of
Cox v Coulson, here there was a sharing of profits. Cheng would only attend the management
meetings and could also contribute in the management decisions, but he did not run the business
of the company. Cheng having no other employment does not fulfill the requirement of him
being a director to satisfy the conditions laid down in the governing act. Merely sharing of
profits does not satisfy the requirement of business being run in common by Cheng.
Conclusion
Thus, based on the discussion carried on above, it can be concluded that a business partnership
was present only between Ali and Bob but not with Cheng.
Question 2
Issue
The key issue of this case relates to the individuals who can be made liable for the debts for the
software.
Rule
Under section 5 of the Partnership Act, the partners have the power of binding the partnership
firm. As per this section, the partners in a partnership firm are deemed as the agent of the firm
and also of the other partners. However, this is not the case when the partner has no authority of
acting on behalf of the firm and where the individual dealing with the partner is aware of this
lack of authority. Under section 6 of this act, where an act is undertaken for the firm or is

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executed in the name of the firm, where there is presence of intention of binding the firm, by a
person who has relevant authority, is binding on the firm (SA Legislation, 2018).
In partnership, there is interplay of express and implied authority. Where the partner is expressly
told to do certain thing, it is known as express authority. The implied authority is something
which is implied by the conduct of the partners (Conviser, 2014). Another important aspect is
apparent authority where it becomes apparent that an individual is the partner of the firm, even
when this is not the case. Even in such cases, the partnership firm or partners are held liable for
the undertaken conduct of the partner (Murdoch, 2014).
In Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541, the partnership
agreement clearly provided that the construction contract had to be entered on Tambel’s own
behalf and not on the partnership’s behalf. CE was not aware of the partnership of Tambel with
Hexyl. Upon the breach of contract, proceedings were initiated by CE against both. Hexyl argued
that there were not liable due to the lack of actual authority and that Tambel did not have the
authority of acting on their behalf. The court agreed with Hexyl in this case (Jade, 2018).
In Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103, Garrod and Parkin were partners in
business and the latter was more of a silent partner. Without the authority of Garrod, Parking
sold the car to MC and they in turn sued the partnership to recover the price of the car. The court
held that here Garrod was liable for acts of Parkin (La Trobe University, 2016). In Crouch and
Lyndon (a Firm) v IPG Finance Australia Pty Ltd [2013] QCA 220, Wood loan money to firm
based on false representations. Even though Scott was not aware of this, he was made liable for
the actions of Wood, owing to the work being done based on the apparent authority of the firm
(Cooper, 2013).

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Application
In this case, based on the incidents which took place, the sales company demanded payment
from Klever Komputer Repair. This is because Cheng undertook a contract of purchase of
software from Dale for $30,000. Based on section 5 of the Partnership act, this act of Cheng
would bind Ali, Bob and the partnership firm owing to the three being partners, and Cheng here
being deemed as the partner of the firm. Here, Cheng had no authority of acting on behalf of the
firm but this was not known to Davis with whom the transaction was undertaken. Even when
Davis visited the partnership, Cheng was portrayed as the other partner. Davis never knew that
there was a limit on partners of not making purchases over $10,000.
Based on the case of Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd, the partnership
would be made liable for the undertaken order of the software. This is because Dale was not
aware of Cheng not having the relevant authority on acting on their behalf. Here Cheng had not
authority of acting on behalf of the partnership firm. Based on this, only Cheng would be liable
for the software purchase. However, based on Mercantile Credit Co Ltd v Garrod, all the
partners would be liable, as they were all partners. This is more so because Cheng was portrayed
as partner of the firm, before Dave, when he had visited the firm earlier. This would cancel out
the success of case being against Cheng only based on Construction Engineering (Aust) Pty Ltd v
Hexyl Pty Ltd. This is further supported through apparent authority and the case of Crouch and
Lyndon (a Firm) v IPG Finance Australia Pty Ltd.

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Conclusion
Thus, based on the discussion carried in previous segments, it can be concluded that all three
partners and the partnership firm would be liable for the software payment, despite the limit of
$10,000 being imposed on partners.
Question 3
Issue
Whether Josie is an employee in this case or not? What will be the consequence where Josie is
deemed as the employee of the partnership?
Rule
In order to hold a person as an employee of the company, or as an independent contractor,
certain tests have been evolved. In this regard, there is control test given under Zuijs v Wirth
Brothers Pty Ltd [1955] HCA 73. Based on this case, the control of a person over other
determines the presence of employer employee relationship. There is also the integration test,
where the level and magnitude of integration of a person in the employer’s business determines
this status (Austlii, 2018). In Humberstone v Northern Timber Mills (1949) 79 CLR 389, wearing
information was deemed as presence of this relationship (Swarb, 2016). The mutli factor test is
the best test in this regard, which was initially given in Stevens v Brodribb Sawmilling Co Pty
Ltd [1986] HCA 1, and had been confirmed later on in Hollis v Vabu Pty Limited (2001) 207
CLR 21. Based on this test, the situations in between the two individuals are taken to hold the
presence of this relationship. Hollis v Vabu Pty Limited presents aspects like pay flat per

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delivery, bicycle being provided, strict starting time and the like as the factors for presence of
this relationship (Marshall, 2006).
Application
In the given case study, in order to hold Josie as a contractor, there is a need to fulfil the tests
stated above. Based on Zuijs v Wirth Brothers Pty Ltd, Josie had full control over her work as she
worked based on her time and from her home. Based on the integration test as was present in
Humberstone v Northern Timber Mills, Josie was not integrated in the work of the partnership
firm. Most importantly, the multi factor test needs to be applied here. Based on this, each aspect
of Josie’s work needs to be analysed. Here, Josie was paid on hourly basis at a set rate as is done
with the independent contractors. The employees are not paid on hourly basis. She is given
flexibility of working. She can easily work from home where she gets flexible timings as she
needs to look after her kids at school holidays. Permitting this to be done, Josie fulfilled the
qualities of an independent contractor. In order to do the repair work, the software used by Josie
was supplied by partners, which would make her an employee of Klever Komputer Repairs.
These factors show that Josie indeed was an independent contractor.
Where Josie is determined as an employee of the firm, Klever Komputer Repairs would have to
pay the relevant Payroll Tax as claimed upon by the Commissioner for Payroll Tax.
Conclusion
Thus, based on the discussion carried in previous segments, it can be concluded that Josie was an
independent contractor.

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References
Austlii. (2004) Degiorgio v Dunn [2004] NSWSC 767 (26 August 2004). [Online] Austlii.
Available from:
http://www7.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2004/767.html [Accessed on:
20/01/18]
Austlii. (2018) Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73; (1955) 93 CLR 561 (15
December 1955). [Online] Austlii. Available from:
http://www.austlii.edu.au/au/cases/cth/high_ct/93clr561.html [Accessed on: 20/01/18]
Christensen, S.A., and Duncan, W.D. (2009) Sale of Businesses in Australia. 2nd ed. Leichhardt,
NSW: The Federation Press.
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Cooper, K. (2013) Crouch and Lydon v IPG Finance Australia [2013] QCA 220. [Online]
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James, N. (2017) Business Law. 4th ed. Milton Qld: John Wiley & Sons Australia, Ltd.

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