Business Law Report: Issues of Restraint of Trade and Partnerships

This report provides a comprehensive analysis of two business law cases. The first case explores the legal implications of a restraint of trade clause, examining the issue of an employee, David, breaching a non-compete agreement with his former employer, Nu Shampoo. The report analyzes the relevant laws, including the Restraint of Trade Act and the Competition and Consumer Act, and applies them to the case, considering the reasonableness and necessity of the clause. The second case delves into the obligations of partners in a limited partnership, Your Local Doctor, focusing on issues arising from actions taken by partners Jane and Sarah. The report discusses the relevant sections of the Partnership Act and evaluates the partners' liabilities, including breaches of contract and misuse of funds. The report concludes with recommendations for the partners, including options for legal action and the potential dissolution of the partnership.

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

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Table of Contents
Question 1......................................................................................................................2
Issue............................................................................................................................2
Law.............................................................................................................................2
Application.................................................................................................................4
Conclusion..................................................................................................................5
References......................................................................................................................6
Question 2......................................................................................................................7
Issue............................................................................................................................7
Law.............................................................................................................................7
Application.................................................................................................................8
Conclusion..................................................................................................................9
References....................................................................................................................10

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Question 1
Issue
The issue is to evaluate the legal position of David for he breached the restraint of
trade clause that required him not to engage himself in the hair-care industry for the next five
years, imposed by Nu Shampoo, his previous employer.
Law
Restraint of trade is a clause that is usually enforced when an employee leaves an
organisation. A restraint clause, by its name can be understood as a clause that impose
restraint on an individual under certain condition. A restraint of trade clause is usually
attached with the agreement that a person signs while he enters into a contractual relationship
with an organisation, either as an agent or an employee. It is a restrictive covenant, which is
added to the employment contract, only enforced while an employee resigns or gets
terminated from the employment, and thus becomes operative. It restricts such person from
engaging into similar form of work when he leaves the organisation. In Australia, the
Restraint of Trade Act 1976 (NSW) and the Competition and Consumer Act 2010 governs the
matters related to restraint of trade clauses along with the disputes arising out of such clauses.
A restraint of trade clause is usually evaluated on the basis of its necessity and
reasonableness to the person or organisation imposing it. In the case of Mitchel v Reynolds
(1711) 1 P Wms 181, Lord Smith had states that it was a right of a person or trader to carry
out business freely within the boundary of one’s country pertaining to matters that are not
contrary to the law of that land. However, it is to be noted that if the law puts restraint on a
trade, it needs to be obeyed by all or by a particular person so restrained. Therefore, as held
by the Southern Cross Computer Systems Pty Ltd v Palmer (No 2) [2017] VSC 460, to
enforce a restraint of trade clause, it must be established that such restraint clause is

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reasonable and necessary for protecting the goodwill, business requirement or financial loss
of the organisation that might be affected if such restraint clause is not exercised. The court
looks into an issue pertaining to restraint of trade clause based on the textual wording of such
clause as whether it has quoted fairly or not, thereby determining the reasonableness of the
clause. Organisations usually impose restraining clause in order to prevent competition and
solicitation. It is significant for any company or organisation to diminish their competition
which may be brought against them by any of their employees who ought to have insider
information and contacts with the existing customers of such organisation, which would
make such person an advantage to set up a personal business and operate against his previous
company. The organisation also look forward to prevent its ex-employees from extending
their solicitation in the same field in which he was involved in his last employment, as it is a
general phenomenon with the leaving employees.
The court may reject an application to enforce restraint of trade if it finds that such
restraint clause is unnecessary and unreasonable. However, to overrule such clause, the court
must see that such a restraint clause is detrimental to the individual or to a group of people
and it does no good to the company as well. The court shall only enforce it if it is established
that such restraint clause is an utmost necessity to the company, as otherwise it would face
challenges relating to its finances as well as its corporate governance. For enforcing the
clause, the court considers the following factors, like a) negotiation between the parties, b|)
the characteristic of the employee so restrained, c) restraint duration, and d) area within
which such restraint clause is enforced. These factors plays a vital role to convince the court
as to enforce the restraint of trade clause imposed by an organisation against an employee.

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Application
David is barred from carrying out any form of business or being engaged with hair-
care industry by way of the restraint of trade clause imposed upon him by his last employer,
Nu Shampoo. In accordance of such restraint clause, David was not supposed to carry out any
trade or occupation related to hair-care products for a period of 5 years. Not considering the
restraining clause, David invested to form a company named Hair-Glo which operated in
South Australia, exactly where Nu shampoo operated, dealing in hair care products. All of
these factors imply that David was competing with Nu shampoo, even though it was
forbidden as per the restraint of trade clause laid down in the agreement that Nu shampoo had
with David while hiring him. Here, Nu shampoo would be liable to establish the fact that the
restraint clause is essential and reasonable to enforce as David’s company Hair-Glo has been
detrimental to their company and therefore needs to stop operating.
In addition, the defaulted installment of the loan taken by Hair-Glo from Standard
Bank would attract a legal action against Hair-Glo. Although the loan was granted by the
Bank without any security deposit, yet it could be challenged in the court due to non-payment
of installment amount which is due. Therefore, the bank could sue Hair-Glo in order to
recover its outstanding installment.
On the other hand, Nu shampoo could sue David for breaching the restraint of trade
clause by establishing the fact that such enforcement of the clause is significant and
reasonable to protect its business. It could be easily pointed out that David’s advantage over
the insider information at Nu shampoo along with his contacts with the clients of the
company for being an ex-employee is a necessary and reasonable reason to restrict him from
engaging g into hair-care industry for a considerable amount of time.

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Conclusion
Therefore, it could be concluded that Hair-Glo could be directed to stop its operation
for being created by David who is restraint from carrying out a trade in hair-care industry for
5 years. In addition, Hair-Glo could be sued by Standard bank for failing to pay the
installment amount.

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References
Competition and Consumer Act 2010
Restraint of Trade Act 1976 (NSW)
Southern Cross Computer Systems Pty Ltd v Palmer (No 2) [2017] VSC 460

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Question 2
Issue
The issue in this case is to advise Anne and Mary being the partners of Your Local
Doctor, regarding their obligations in this circumstance that has occurred due to the actions of
Jane and Sarah.
Law
As forwarded by Bendell (2017), a partnership form of business refers to the business
which involves: a) at least two people, b) who enter into an agreement, c) with a common
intention, d) to earn profit. With different situation and circumstance, the structure of a
partnership business may vary; however, it would be based on the same principle, holding the
same meaning.
Partnership form of business can be general limited or incorporated limited which all
government by the partnership Act 1892 (NSW). The act requires the limited and
incorporated limited form of partnership to be registered while the general partnership may or
may not be registered. It is to be noted that partnership is a simple form of business structure
which is less complicated than a corporation.
Section 9 of the Partnership Act 1892 directs a partner to be held jointly liable to the
obligations of the partnership firm along with the other partners. However the debt of an
individual shall be prioritised over the debt of the firm. While, Section 10 of the Act holds a
partner liable for the wrongful act or omission made by another partner. Irrespective of the
fact that which of the partner has committed the wrongful act or omission, all of the partners
would be jointly held liable for such action. Section 11 of the Act states that the misuse or
misapplication of a third party’s money that was vested on the firm shall make the firm
obliged to pay it back. Section 12 of the same Act clearly states that the partners shall be

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jointly as well as several liable for the obligations of the entire firm, irrespective of the fact
that such obligation was brought by one or more partners.
Section 25 of the partnership Act 1892 lays down for a provision to expel a partner
from the partnership firm when certain discrepancies are found from the conduct of such
partner. However, such close of expulsion should be already present in the agreement in order
to enforce it. While, Section 35 of the same Act lays down the different situation when
partners can apply before the court to dissolve the partnership firm, in situations where: a) a
partner has lost his sanity and has been considered as an unsound mind, b) a partner has been
failing to carry out his duties and obligations as a partner, c) a party has been held liable for
breaching the agreement, d) Apache has been held guilty of misconduct, e) the partnership
business has been experiencing loss for a long time. in such situations one or more partners of
a firm may apply before the court to expel one or more partner who has been held guilty of
the following causes as stated above.
Application
In this case, the four partners Anne, Mary, Jane and Sarah is jointly as well as
severally liable for forming a limited partnership firm, Your Local Doctor. The agreement
formed by them mentioned that they will be equally liable for the liabilities of the firm as
they were contributing equally. As per the agreement signed by them, the parties were not
allowed to enter into an agreement with third party involving over $10,000, individually.
Therefore it could be pointed out as a a misuse of the forms fund when Jane invested
$2000 for buying printer paper from her boyfriends company while usually printer paper
from local suppliers came for $1,200. All the partners shall be directed to bear the
expenditure jointly yet they could reimburse the excess amount from Jane.

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The purchase of medical instruments worth $13,000 made by Jane is to be held as a
breach of contract. As mentioned by the contract signed by the four partners, they were not
supposed to spend more than $10000 individually on an agreement. Therefore spending
1$3,000 without the permission of the other partners is to be considered as a breach of the
partnership agreement and therefore needs to be dealt legally. in this regard legal action could
be brought against Jane for such breach.
While the expenditure of $2,000 by Sarah for the hiring driver services for a probable
investment in in a cab service that was discussed by the parties yet never confirmed, would
be held as another violation of the provisions of an agreement of partnership firm where
parties have a common goal to make profit and not to incur loss bye making whimsical
decisions without the confirmation of other partners.
Therefore, in such situation, Anne and Mary may take the decision to either apply
before the court to expel Jane and Sarah, after checking with the expulsion clause in their
agreement. If the option of expulsion clause is not available, then Anne and Mary could opt
for the dissolution of the partnership by making an appeal to the court for considering the
different factors that affect them. In addition, Anne and Mary could sue Jane and Sarah for
recovering the unnecessary expenditures that were spent by them without authorisation of all
the partners.
Conclusion
Therefore it could be concluded that Anne and Mary is left with three options:
expulsion of Jane and Sarah, dissolution of partnership and legal actions for damages.

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References
Bendell, J. (2017). Evolving partnerships: A guide to working with business for greater social
change. Routledge.
Partnership Act 1892 (NSW)