Business Law Assignment: Partnership Agreements & Director's Duty

This report provides a detailed analysis of key aspects of business law. It utilizes the IRAC method to dissect a case concerning partnership agreements, referencing the Partnership Act 1963 and relevant case law to determine the existence of a partnership between involved parties. Furthermore, ...Read More

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

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Executive Summary
This report has highlighted the use of IRAC method for the first question where the issue,
rule, application and conclusion for the case has been discussed. It has also highlighted the
partnership agreement with the help of proper cases along with the duty of the directors that
needs to be followed within the company. This has helped in understanding the laws with the
help of various cases.

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Table of Contents
Answer 1....................................................................................................................................3
Answer 2....................................................................................................................................5
Reference List............................................................................................................................9

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Answer 1
Issue
The issue of the case is to determine whether the partnership agreement between the
three parties have been involved in the given situation
Rule
The Partnership Act 1963 section 6 (1) provides the meaning of the partnership
agreement. It is the relationship between the people that helps in undertaking the business
activities in a common manner with the aim of earning a better level of profit is known as
partnership.
The rules that help in determining the partnership existence has been laid under
Section 7 on the Act as well. It can be seen that when there is common tenancy, a tenancy
that is joint in nature or a part ownership, it cannot be termed as a partnership agreement in
its own. The real aim of forming the partnership is that the tenants or the owner share the
amount of profits along with the things that are owned by the business.
Additionally, the returns of the business that are shared among the partners cannot
help in forming a partnership. The test of forming the partnership is that whether the tenancy
is common or joint or owned partly that can be used for getting a better rate of return.
The share of profit that is received by the persons involved in the business helps in
understanding that the person is a partner of the business. Nevertheless, the payment through
the receipts along with the share is dependent on the business profit and does not help in
creating a partnership bond. This takes place when:
 The person is about to get a debt or a profit from the business that has been liquidated

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 When the remuneration of the person is based on the profit that is shared within the
business
 The domestic partner who is given a periodic payment through the profit that is made
by the business
 The rate of interest that is provided to the person through the profits or losses that the
business has gained through the loan that has been provided
Thus it can be stated that the partnership within the business that is common in nature has
to be done through the profits when there is an ownership in a joint manner unless the
specifications that has been mentioned above. The definition of carrying out the business
and profit making needs to be discussed through various laws.
Carrying of a business
The case that has helped in addressing the issue is Trimble v Goldberg [1906] AC 494
In common
The case that has helped in addressing the issue is through the case of Keith Spicer
Ltd v Mansell [1970] 1 All ER 462
Purpose of making profit
The case that has helped in addressing the issue is through the case of Wise v
Perpetual Trustee Co Ltd [1903] AC 139
Application
The friends initiated a plan of going in to a business activity by ourchasing the assets
of the organization that will help them if the company foes through a process of liquidation
and reselling it so that it can be used for earning profits. The business will be funded by Peta
by providing an amount of $100000 through equity shares of the house. She did not receive

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any payment in the first year and was provided an amount of $6000 as gratuity that was
termed by the other business parties. Thomas and Samuel has an income through the
consultancy agreements. This is a situation where the partnership is in existence or not can be
understood by applying section 6 and 7 of the Act 1963 along with the common laws that has
been discussed. The primary element is that there needs to be a business activity as
mentioned in section 6 and with respect to the case of Trimble v Goldberg that needs to be
present under the situation so that the assets can be purchased and the liquidation process can
take place so that by selling the assets it can help in making profits. Additionally, the business
has been c=done in a common manner and the facts that has been provided needs to be
involved for the business to take place. Furthermore, the assets that has been purchased by
the organization needs to be under liquidation so that it can be resold with an aim of earning
better profits. This makes them under a partnership agreement according to the common law.
Additionally, Section 7 states that the person who has been given a loan will not be a partner
if it is being treated as a loan and Peta who is a participant in the business will become a
partner. The fund of $100000 through the equity shares does not need to be treated as a loan,
as she did not receive any payment for the first year. Thomas and Samuel are partners, as the
profits of the business has been taken through the consultancy agreements. Therefore it can
be said that Thomas, Samuel and Peta are all partners within the business organization.
Conclusion
Therefore it can be stated that Thomas, Samuel and Peta are the partners of the
business under the statute and common law.
Answer 2
Any person who is managing a business in Australia is under the obligation that they
need to know the diligence and care duty. The offices along with the directors of a company

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are under the scope that has been defined in this duty. It was incorporated in to the legal
system under the section 180 (1) of the Corporation Act 2001 (Cth). The provisions of the act
states that the directors along with the others of the company needs to have diligence and care
when the obligations in the company are discharged by them. Any issue that arises due to the
breach of this duty is present in the court of Australia. The CA also provides various
provisions in section 180 through phrasings. The phrasings that are present under this section
helps in signifying that the director or the officer in a corporation who is eligible in
discharging their duties and performing the rights has to be done in diligence and care. The
degree of diligence that is needed is not of an expert level but to reflect the actions of a
director who is prudent under the circumstances. A failure in resembling the actions by a
prudent director under the circumstances may lead the court to state that the director has
breached the duty provisions. The Limited phrasings under the section along with a wide
array of functions that states that the directors in the company has to perform their obligations
through different interpretations in the court related with this section, which would account
for diligent actions. When the duty is being breached, it may lead to Civil penalty and the
compensations that needs to be provided if the court deems it as fit. The Civil penalty states
that the person who has been found of breaching the diligence and care duty has to be
imposed a financial penalty up to $200,000 along with a ban for a particular period that the
court may seem fit. The provisions under Civil penalty can be appealed if the investment
Commission and the Australian securities can produce a declaration that the breach of the
duty was caused under the section 1317E of the Act. The Pictionary penalties that are
provided under section 1317H, the ban on the management under section 206C along with
the order of compensation under section 1317S. it can be illustrated with the help of few
cases that are listed under section 180. The first case that can be discussed under this section
in CA is ASIC v Cassimatis (No. 8) [2016] FCA 1023 where it can be seen that the

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shareholders along with the directors were liable of breaching under the section and the court
may also find the breach that may cause a loss in the reputation of the company. Another case
under the section 180 is ASIC v Rich where the court defended the provisions that are laid
down under section 180 (1) that cannot be breached. The defence that was given was under
the provision of section 180(2) of CA and is known as business judgment rule in a general
manner. With respect to this case, few of the factors that has been stated helped in
determining where the compliance of the duty was fit or not. It includes not having a personal
interest in to the matter, taking the action in a good faith and making the decisions in an
informed manner. These elements need to be present among the directors and officers so that
they can be exempted from the liability under section 180(1) of the Act.
Another major duty that has been laid down under the provisions of the Section 181
of CA is the working for a proper purpose duty along with the intentions that are bona fide so
that it can ensure the best outcome within the company. The most significant implication for
introducing it within section 181 under the company law in Australia is that the directors and
the officers within the organization needs to sacrifice their personal interest when being given
the role as an officer or director. In the conflict of interest, the priority needs to be given
towards the best interest of the company rather than on the personal interest of the directors
and the officers along with any third parties that may be involved. There are basically three
elements that can help in dividing the duties, which is inclusive of Proper Purpose, Good
Faith and Best Interest. There are various cases where these elements have been discussed.
Under the case of Re Smith and Fawcett Ltd 1942, it can be seen that the court ordered the
directors to use the powers of excretion in a bona fide manner so that it can help in making
the judgment on their own and not according to the court with relation to the best interest of
the company, but the decision that was taken must not be for a collateral purpose. The
directors who have acted in good faith by getting in to a contract with the third party may not

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be considered liable in the context even if there was no advantage for the deal that was made
by the company. Therefore the crux of the matter within this situation is in the intention of
the officers and directors. The most important factor was that the act had been done under
good faith and the directors believed honestly that the company will benefit from the
decision. In the case of Kinsela v Russell Kinsela Pty Ltd (in liq) (1986), it can be seen rthat
the statement made by the court was to hold the best interest of the company so that the
shareholders need to form a collective group. Nevertheless, the company was insolvent and
the shareholder’s interest need to be taken in to consideration. Generally, it can be stated that
the action of the directors needs to be towards the achievement of the company so that the
company can be in the best interest. However, it can be seen that the directors had acted out
of good faith and was in compliant under the section. There was an intention of good faith
among the directors in the organization as a whole. In the case of Whitehouse v Carlton Hotel
Pty Ltd (1987), the court held the statement under “honesty and good faith” so that it can help
in deciding whether the duty was broken or observed. The majority of the judges stated that
good faith depends on the circumstances and the cause for the principles were not provided in
this case. Additionally, the court also laid emphasis on the fact the breach of law was done in
an intentional manner and it helped in considering the conduct of good faith from the
transaction.

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Reference List
Partnership Act 1892 (NSW)
Trimble v Goldberg [1906] AC 494
Corporation Act 2001 (Cth)
ASIC v Cassimatis (No. 8) [2016] FCA 1023
ASIC Fortescue Metals Group Ltd [2011] FCAFC 19
ASIC v Rich [2005] NSWSC 256
ASIC v Lindberg - [2012] VSC 332
ASIC v Sino Australia Oil and Gas Limited [2016] FCA 42
ASIC v Healey [2011] FCA 717
ASIC v Hellicar [2012] HCA 17.
Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11
Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722
Re Smith and Fawcett Ltd 1942