Business Law Assignment: Contracts, Partnerships, and Legal Issues

This report provides a comprehensive analysis of two key legal issues in business law. The first part examines a case involving a restraint of trade clause, where an ex-employee, David, is accused of violating the terms of his employment contract with Nu Shampoo by starting a competing business. The analysis considers the enforceability of the restraint clause under Australian law, specifically focusing on its reasonableness and necessity to protect the employer's interests. The second part delves into partnership law, advising Anne, Mary, Jane, and Sarah on their liabilities as partners in a clinic. The report addresses issues such as Jane's unauthorized spending, Sarah's misuse of funds, and the potential for the partners to dissolve the partnership due to misconduct. The analysis refers to relevant sections of the Partnership Act 1892 (NSW) and examines the implications of joint and several liabilities, as well as the remedies available to the partners.

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

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Question 1
Issue
David’s legal position needs to be determined as per the breach of restraint of trade
clause imposed upon him by Nu Shampoo, his ex employer.
Law
Restraint of trade clause refers to the clause that stops a person from carrying out a
trade or occupation which he was engaged in his last employment. It is a common
phenomenon that a person who has been connected with a particular industry would certainly
have a long standing experience and contacts in the market which could give his last
employer a serious challenge to carry out a smooth business. Therefore the employers
incorporate restraint of trade clause in the service agreements of their employees in order to
restraint them to engage in the similar industry, in order to safeguard their own business.
The Restraint Of Trade Act 1976 as well as the Competition and Consumer Act 2010 deals
with restraint of trade clauses and the issues that comes along with it. The Restraint of Trade
Act entitles the organisations to lay down restrictions on their employees for members to
engage in similar employment after they leave the organisation. However such restriction
must be bound by a certain time period and must also incorporate certain necessary and
reasonable reasons for putting up such restriction as argued in Petrofina (Great Britain) Ltd v
Martin [1996] Ch 146, 180. A court of law would only enforce of restraint clause if it found
that the restraint clause was not reasonable or necessary for the organisation and it is
detrimental to any public policy. Enforcement of such clause would only be possible when
the organisation would be successful to establish that such imposition of the restraint of trade
clause is necessary for the best interest of the organisation and it is absolutely necessary to
protect their goodwill and basic right to carry out a profitable business without unnecessary

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challenges from someone who has been given the opportunity to grow in the same
organisation as held in Adamson v New South Wales rugby league Ltd (1991) 31 FCR 242.
The organisations put search restrictions for preventing competition and solicitation from
their ex employees which is commonly seen when such employees resign or terminated.
Therefore in order to protect the best interest of the company the organisations must
prove that the restraint of trade clause has been imposed is necessary and reasonable. It must
also establish that the imposition of such restraint of trade clause is not detrimental to the
public policy or to the rights of the ex employee. The company must prove that if such
restraint of trade clause is not enforced by the court, it would face serious challenges which
will be detrimental to the company, its shareholders as well as the stakeholders.
In case the company success to establish that the restraint of trade clause was
reasonable and necessary, the ex employee who has violated his restraint clause would be
held liable and would be charged with legal actions for violating such clause. Such person
shall be directed to stop his trade or occupation immediately and could also be held liable to
pay damages to his ex employee for violating its restraint of trade clause. The amount of
damages would be calculated in accordance to the profit made by such person that has create
a challenges for the organisation and for it to attain its best interest.
Application
David was an employer of Nu Shampoo which belt in hair care products around South
Australia, right before he left the company to start his own business around the same area.
She was restraint from engaging into you any trade or occupation that dealt with the same
products for a term of five years by Nu shampoo. Such restraint of trade clause was imposed
on David as he was a tenured employee with the company having extensive knowledge of
the internal management of the company as well as had a good contact with the clients of the

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company, who he handled himself when he was an employee. David Company, Hair-Glo was
incorporated with 99% of the shares held by David and the remaining 1% share by Monica.
This makes David the major shareholder of the company and thus having the power to take
the major decisions for the company as well.
Therefore which could be held liable for breaching the restraint of trade clause that
was imposed on him by his last employer, which can be however established as reasonable
and necessary as it is evident that David has the potential to give severe challenges to the
company where he last worked, for having all the knowledge of its internal governance and
client base. Therefore Nu Shampoo would be successful to establish the restraint of trade
clause as reasonable and necessary to impose on David.
In addition to the charges of breach of restraint of trade, David and his company
would also be held under legal actions for the non payment of the instalment of $10000 given
by standard bank for a start-up loan of $1 million taken by Monica. Therefore, by this action
of Hair-Glo standard Bank would be e liable to recover its outstanding due with Hair-Glo.
David being the major shareholder would be liable to pay back the instalment amount
otherwise standard Bank shall be liable to bring legal charges against David and Hair-Glo for
default of payment.
Conclusion
Therefore Nu shampoo can apply for an injunction against David and Hair-Glo for
restraining it to carry on its operation as it violates the restraint of trade laws imposed upon
David by way of his employment with Nu shampoo. Additionally, Nu shampoo can sue
David for creating Hair-Glo and giving them financial challenges. While, standard Bank
could sue David for the default of payment of its instalment.

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Question 2
Issue
Anne and Mary is required to be advised regarding their liability as partners in your
local doctor which was formed by them along with Jane and Sarah.
Law
Partnership is a form of business which involves two or more people for ore forming an
agreement that involves common intention to perform common set of goals along with an
intention of profit making (Fair Trading NSW, 2019). The essential elements to constitute a
partnership form of business require:
a) At least two parties
b) Creating a binding contract
c) Having a common intention to achieve a similar purpose
d) To make profit.
However, partnership form of business may differ from place to place and situation to
situation but it is essential elements would never be changed for these are the most essential
requisites to form a partnership business.
A partnership form of business is easier compared to forming and managing a corporation
therefore requires lesser time as well as less capital investment, however it makes its
members or partner’s jointly as well as severally liable for the activities of the business,
which is unlikely to happen in case of a corporation (Fair Trading NSW, 2019). The
Partnership Act 1892 state the provisions which governs the partnership form of business in
New South Wales, Australia.
Section 9 of the Partnership Act 1892 (NSW) holds the partners jointly liable for the
actions and obligations of all the partners of the partnership firm. However the personal debt

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of the partners is to be cleared first before they are liable to be obliged for the debts of the
partnership firm. The Partnership Act makes both limited as well as incorporated limited
partnership business follow this regulation.
Section 10 of the Partnership Act 1892 (NSW) makes all other partners liable for the
wrongful act or omission effected by one or more partners of the firm following the principle
of joint liability held by the partners. Therefore when one partner commits a wrongful act, all
the other partners are held liable for it and the form shall be liable to reimburse any money
monetary loss arising out of such wrongful act or omission.
On the other hand Section 11 of the Partnership Act 1892 (NSW) directs the partnership
firm to take responsibility of the misapplication of firm's fund effected by one or more
partners for which the entire firm will be held responsible to take up the obligation. Section
12 of the Partnership Act clearly holds the partners jointly as well as severally liable for the
activities mentioned under section 10 and section 11 of the said Act. Therefore it implies that
the partner shall be jointly as well as severally liable for the misapplication of fund and
wrongful act or omission done by one or more partners.
Section 25 and section 35 of the Partnership Act 1892 (NSW) lays down the remedies as
to the issues that may have formed in the partnership business pertaining to the misconducts
of the partners. Section 25 empowers the partners to expel a partner if it is found that he has
been guilty of misconduct or any other disputes for which the existence of the partnership
firm is at stake. In such situation the partners may expel such partner from the partnership
firm if an expulsion clause was incorporated in the partnership agreement while they formed
the business. On the other hand Section 35 of the Act empowers the partners to dissolve the
partnership firm by moving to the court in the following circumstances: a) when a person has
lost his sanity and has been declared as unsound mind, b) when a partner has breached the
partnership agreement, c) when a partner is guilty of misconduct for gross violations of the

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duties and obligations of a partner, d) when there has been excessive loss incurred in the
business over a long period of time, e) by the discretion of the court.
Application
Anne, Mary, Jane and Sarah being the best of friends opened a clinic in the form of
partnership business and decides to hold equal contribution and as well as equal liability
towards the activities of the clinic. It was incorporated in their Partnership agreement that the
partners would not enter into an agreement over $10,000 individually which was also in
excess of the capacity of the firm.
Jane ordered printer paper for $2000 from a business run by her boyfriend while the
same quality and quantity of printer papers come for $1200 from the regular supplier. In this
circumstances Jain could be e held severally liable for the expense however Anne, Mary and
Sarah would also be held liable for the same expenditure for joint liability for being partners
in the same partnership business. In addition Jane ordered medical instrument worth $13,000
in absence of the other partners therefore implies that she herself entered into to the
agreement that exceeds $10,000 as for the partnership agreement. This conduct of Jane
constitutes a breach of contract for violating the $10,000 expenditure mark for individual
partners. Here, in this case Jane could be sued for breaching the contract.
On the other hand, Sarah spent $2000 on driving services training for She had
discussed about investing in driver service venture when their clinic would not be busy with
patients. However such decision was not confirmed by the other partners and therefore it was
Sarah’s individual decision to make the expenditure out of the fund of the partnership firm.
Therefore in this situation the other partners could sue Sarah for misusing the fund of the
partnership firm, however; prima facie all the partner shall be liable to bear the burden of the

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expenditure. In addition, Anne and Mary could also so apply before the court to dissolve the
partnership firm citing the misconduct and degrading performance of Jane and Sarah.
Conclusion
Therefore the partnership shall be jointly and severally liable for each other’s
conduct, be it a wrongful act or omission. However they will be eligible to reimburse the
excess expenditure from the partners who have made it. In addition the agreement partners
can apply before the court for dissolution of the partnership firm on the grounds of
misconduct and degraded performance of the other partners.

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Reference
Adamson v New South Wales rugby league Ltd (1991) 31 FCR 242
Competition And Consumer Act 2010
Fair Trading NSW. (2019). Business structures. Retrieved from
https://www.fairtrading.nsw.gov.au/trades-and-businesses/business-essentials/starting-a-
business/business-structures
Partnership Act 1892 (NSW)
Petrofina (Great Britan) Ltd v Martin [1996] Ch 146, 1
Restraint Of Trade Act 1976